Econ practice exam #3

Which of the following would increase output in the short run?

A. an increase in stock prices makes people feel wealthier B. firms chose to purchase more investment goods C. government spending increases D. All of the above are correct.

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Any of the above outcomes are possible.

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

FALSE

If the Federal Reserve increases the growth rate of the money supply, in the long run

If the Federal Reserve increases the growth rate of the money supply, in the long run

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money

TRUE

Which of the following is correct concerning recessions?

They tend to be associated with rising unemployment rates.

Which of the following would shift the long-run aggregate supply curve right?

an increase in the capital stock, but not an increase in the price level

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

both the price level and nominal output.

When the price level falls the quantity of

consumption goods demanded and the quantity of net exports demanded both rise.

Other things the same, continued increases in the money supply lead to

continued increases in the price level but not continued increases in real GDP

If money is neutral, then changes in the quantity of money

do not affect real output

If money is neutral, then changes in the quantity of money

do not affect real output.

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

excess supply of money which causes the price level to rise.

If monetary neutrality holds, then an increase in the money supply

increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run

If monetary neutrality holds, then an increase in the money supply

increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

People will want to hold more money if the price level

increases or if the interest rate decreases.

The most important reason for the slope of the aggregate-demand curve is that as the price level

increases, interest rates increase, and investment decreases.

If the unemployment rate is below the natural rate, then

inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right

If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has

lower unemployment and higher output.

The effect of an increase in the price level on the aggregate-demand curve is represented by a

movement to the left along a given aggregate-demand curve.

Most economists believe that a tradeoff between inflation and unemployment exists

only in the short run.

As the price level falls

people will want to buy more bonds, so the interest rate falls.

Changes in the interest rate

shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level

The long-run aggregate supply curve shifts right if

the capital stock increases.

According to the theory of liquidity preference,

the demand for money is represented by a downward-sloping line on a supply-and-demand graph.

According to the long-run Phillips curve, in the long run monetary policy influences

the inflation rate but not the unemployment rate.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

the interest rate to fall, so aggregate demand shifts right.

According to the classical dichotomy, which of the following increases when the money supply increases?

the nominal wage

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

the short run, but not the long run.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right

Other things the same, if prices fell when firms and workers were expecting them to rise, then

employment and production would fall

Other things the same, if prices fell when firms and workers were expecting them to rise, then

employment and production would fall.

If countries that imported goods and services from the United States went into recession, we would expect that U.S. net exports would

fall, making aggregate demand shift left

If countries that imported goods and services from the United States went into recession, we would expect that U.S. net exports would

fall, making aggregate demand shift left.

As recessions begin, income

falls and unemployment rises

As the Consumer Price Index increases, the value of money

falls, so people hold more money to buy the goods and services they want

When aggregate demand shifts right along the short-run aggregate supply curve, unemployment

falls, so there are upward pressures on wages and prices.

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

increases income and thereby increases consumer spending.

If people decide to hold less money, then

money demand decreases, there is an excess supply of money, and interest rates fall.

Monetary policy and fiscal policy influence

output in the short run only

According to the classical dichotomy, which of the following increases when the money supply increases?

the nominal wage.

According to the principle of monetary neutrality, a decrease in the money supply will not change

unemployment

According to the principle of monetary neutrality, a decrease in the money supply will not change

unemployment.

According to liquidity preference theory, the money-supply curve is

vertical

There is a

short-run tradeoff between inflation and unemployment.

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

FALSE

If inflation is greater than expected, then the unemployment rate is

below the natural rate. In the long run the short-run Phillips curve will shift right.

When the price level falls the quantity of

consumption goods demanded and the quantity of net exports demanded both rise

Other things the same, if the long-run aggregate supply curve shifts right, prices

decrease and output increases

Other things the same, if the long-run aggregate supply curve shifts right, prices

decrease and output increases.

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

decrease the money supply.