Econ Quiz 8, Money and banking chapter 10, Econ Chapter 10 Macro, ECN Chapter 10, ch 11 econ quiz, ch 10 econ quiz, Macroeconomics Quiz

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

greater; outward

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P

higher; lower

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P.

higher; lower

If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ______ prices and ______ output in the short run.

higher; lower

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______ and output will ______.

increase; decrease

Assume that the economy is initially at point A with aggregate demand given by AD2. A shift in the aggregate demand curve to AD0 could be the result of either a(n) ______ in the money supply or a(n) ______ in velocity.

increase; increase

A reduction in the demand for money is the equivalent of a(n) _______ in velocity and will shift the aggregate demand curve to the _____.

increase; right

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by:

increasing the money supply, but at the cost of permanently higher prices.

Business cycles are

irregular and unpredictable.

An increase in the interest rate: A) reduces planned investment, because the interest rate is the cost of borrowing to finance investment projects. B) increases planned investment, because people who make money from interest have more money to invest. C) has no effect on investment. D) may be caused by a drop in investment demand.

A) reduces planned investment because the interest rate is the cost of borrowing to finance investment projects

In the Keynesian-cross model, actual expenditures equal: A) GDP. B) the money supply. C) the supply of real balances. D) unplanned inventory investment.

A) GDP

The IS curve shifts when any of the following economic variables change except: A) the interest rate. B) government spending. C) tax rates. D) the marginal propensity to consume.

A) the interest rate

Over the business cycle, investment spending ______ consumption spending.

is more volatile than

f the Fed accommodates an adverse supply shock, output falls ______ and prices rise ______

less more

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect

level of output but not prices.

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

level of output but not prices.

In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where:

aggregate demand equals short-run aggregate supply

In the aggregate demand-aggregate supply model, long-run equilibrium occurs at the combination of output and prices where

aggregate demand equals short-run and long-run aggregate supply.

In the aggregate demand/aggregate supply model, long-run equilibrium occurs at the combination of output and prices where:

aggregate demand equals short-run and long-run aggregate supply.

Stabilization policy:

aims at keeping output and employment at their natural rates.

When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

lower; inward

If the short-run aggregate supply curve is horizontal, then the:

money supply cannot affect prices in the short run.

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.

negative; price level

Okun's law is the ______ relationship between real GDP and the ______.

negative; unemployment rate

The economic response to the overnight reduction in the French money supply by 20 percent in 1724:

confirm the short-run neutrality of money because prices and wage did not adjust immediately.

Looking at the aggregate demand curve alone, one can tell ______ that will prevail in the economy.

neither the quantity of output nor the price level

If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change ______ in the short run and change ______ in the long run.

only output; only prices

If the short-run aggregate supply curve is horizontal, then a change in the money supply will change ______ in the short run and change ______ in the long run.

only output; only prices

If the short-run aggregate supply curve is horizontal, and if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

output and employment will decrease in the short run.

If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

output and employment will decrease in the short run.

if the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:

output and employment will increase in the short run

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:

output and employment will increase in the short run.

he version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would:

decrease by 1 percent.

If a short-run equilibrium occurs at a level of output below the natural rate, then in the transition to the long run, prices will ______ and output will ______.

decrease; increase

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased:

decreases

A difference between the economic long run and the short run is that:

demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

demand for real balances per unit of output.

Assume that the economy begins in long-run equilibrium. Then the Fed reduces the money supply. In the short run ______, whereas in the long run prices ______ and output returns to its original level.

output decreases and prices are unchanged; fall

Assume that the economy begins in long-run equilibrium. Then the Fed reduces the money supply. In the short run ______, whereas in the long run, prices ______ and output returns to its original level.

output decreases and prices are unchanged; fall

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines) and no action is taken by the government:

output will rise in the short run and prices will rise in the long run.

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run.

output; prices

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ____

prices; output

An adverse supply shock ______ the short-run aggregate supply curve ______ the natural level of output.

raises; and may also lower

Stabilization policy refers to policy actions aimed at:

reducing the severity of short-run economic fluctuations.

Long-run growth in real GDP is determined primarily by ______, while short-run movements in real GDP are associated with ______.

technological progress; variations in labor-market utilization

A supply shock does not occur when:

the Fed increases the money supply.

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left.

Which of the following is an example of a demand shock?

the introduction and greater availability of credit cards

The natural level of output is:

the level of output at which the unemployment rate is at its natural level.

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:

the money supply.

Aggregate supply is the relationship between

the quantity of goods and services supplied and the price level

Leading economic indicators are:

variables that tend to fluctuate in advance of the overall economy.

Short-run fluctuations in output and employment are called

. business cycles.

If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then

. output and employment will decrease in the short run

Assume that the economy is at point B. With no further shocks or policy moves, the economy in the long run will be at point:

A

The simple investment function shows that investment ______ as ______ increases. A) decreases; the interest rate B) increases; the interest rate C) decreases; government spending D) increases; government spending

A) decreases; the interest rate

An increase in taxes shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: A) downward and to the left. B) upward and to the right. C) upward and to the left. D) downward and to the right.

A) downward and to the left

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income. A) increase by 100 B) increase by more than 100 C) decrease by 100 D) increase, but by less than 100

A) increase by 100

In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier. A) is larger than B) equals C) is smaller than D) is the inverse of the

A) is larger than

According to classical theory, national income depends on ______, while Keynes proposed that ______ determined the level of national income. A) aggregate demand; aggregate supply B) aggregate supply; aggregate demand C) monetary policy; fiscal policy D) fiscal policy; monetary policy

B) aggregate supply; aggregate demand

When planned expenditure is drawn on a graph as a function of income, the slope of the line is: A) zero. B) between zero and one. C) one. D) greater than one.

B) between zero and one

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy: A) increases the amount of money in the economy. B) changes income, which changes consumption, which further changes income. C) is government spending and, therefore, more powerful than private spending. D) changes the interest rate.

B) changes income, which changes consumption, which further changes income

In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income: A) increases by 250. B) increases by more than 250. C) decreases by 250. D) increases, but by less than 250.

B) increase by more than 250

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income: A) increases by 250. B) increases by more than 250. C) decreases by 250. D) increases, but by less than 250.

B) increases by more than 250

When firms experience unplanned inventory accumulation, they typically: A) build new plants. B) lay off workers and reduce production. C) hire more workers and increase production. D) call for more government spending.

B) lay off workers and reduce production

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: A) government spending increases the MPC more than tax cuts. B) the government-spending multiplier is larger than the tax multiplier. C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. D) increases in government spending increase planned spending, but tax cuts reduce planned spending.

B) the government-spending increases do not lead to unplanned changes in inventories, but tax cuts do

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: A) downward and to the left. B) upward and to the right. C) upward and to the left. D) downward and to the right.

B) upward and to the right

Assume that the economy starts at point A and there is a drought that severely reduces agricultural output in the economy for just one year. In this situation, point ______ represents the short-run equilibrium immediately following the drought and point ______ represents the eventual long-run equilibrium.

B; A

Both Keynesians and supply-siders believe a tax cut will lead to growth: A) and both agree it works through incentive effects. B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects. D) and both agree it works through aggregate demand.

C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes. A) the budget deficit B) consumption C) income D) real balances

C) income

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of: A) liquidity preference. B) the government-purchases multiplier. C) unplanned inventory investment. D) real money balances.

C) unplanned inventory invesment

(Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______.

C, B

In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______.

C; B

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous increase in the price of oil:

Central Bank A should keep the quantity of money stable whereas Central Bank B should increase it.

Tax cuts stimulate ______ by improving workers' incentive and expand ______ by raising households' disposable income. A) velocity; demand for loanable funds B) demand for loanable funds; velocity C) aggregate demand; aggregate supply D) aggregate supply; aggregate demand

D) aggregate supply; aggregate demand

In the IS-LM model, which two variables are influenced by the interest rate? A) supply of nominal money balances and demand for real balances B) demand for real money balances and government purchases C) supply of nominal money balances and investment spending D) demand for real money balances and investment spending

D) demand for real money balances and investment spending

In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures ______ for any given level of income. A) increase by 100 B) increase by more than 100 C) decrease by 100 D) increase, but by less than 100

D) increase, but by less than 100

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on: A) low levels of capital. B) an untrained labor force. C) inadequate technology. D) low aggregate demand.

D) low aggregate demand

For the purposes of the Keynesian cross, planned expenditure consists of: A) planned investment. B) planned government spending. C) planned investment and government spending. D) planned investment, government spending, and consumption expenditures.

D) planned investment, government spending, and consumption expenditures

In this graph, assume that the economy starts at point A and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium and point ______ represents long-run equilibrium.

E; A

money supply

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:

A favorable supply shock occurs when:

an oil cartel breaks up and oil prices fall.

The long-run aggregate supply curve is vertical at the level of output:

at which unemployment is at its natural rate.

The price level decreases and output increases in the transition from the short run to the long run when the short-run equilibrium is _____ the natural rate of output in the short run.

below

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

both Central Bank A and Central Bank B should increase the quantity of money.

The aggregate demand curve tells us possible

combinations of P and Y for a given value of M.

The aggregate demand curve tells us possible:

combinations of P and Y for a given value of M.

The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate, but with a ______ price level, or allow the price level to return to its original level, but with a ______ level of output in the short run.

higher; lower

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent:

in the long run but lead to unemployment in the short run.

Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model in:

in the long run, but not in the short run.

The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate fell by 1 percentage point over a year, Okun's law predicts that real GDP would:

increase by 5 percent.

The version of Okun's law studied in Chapter 9 assumes that, with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate fell by 1 percentage point over a year, Okun's law predicts that real GDP would:

increase by 5 percent.

If a change in government regulations allows banks to start paying interest on checking accounts, this will:

increase the demand for money.

Starting from long-run equilibrium, without policy intervention, the long-run impact of an adverse supply shock is that prices wil

return to the old level and output will be restored to the natural rate.

Starting from long-run equilibrium, without policy intervention, the long-run impact of an adverse supply shock is that prices will:

return to the old level and output will be restored to the natural rate.

Stagflation occurs when prices ______ and output ______.

rise; falls

The "short run," represented by the recession that followed the decision to retire "greenbacks" after the Civil War, lasted approximately:

six years.

A decline in the Index of Supplier Deliveries is typically an indicator of a future _____ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future _____ in economic production.

slowdown; slowdown

A decline in the Index of Supplier Deliveries is typically an indicator of a future ______ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future ______ in economic production.

slowdown; slowdown