Macro Exam #2
Which of the following cases a positive demand shock? a. pessimistic consumer expectations b. a decrease in government spending c. an increase in taxes d. an increase in consumer wealth e. an increase in the existing stock of capital
d. an increase in consumer wealth
(t/f) Inflation can be measured by all of the following except the a. gdp deflator b. consumer price index c. producer price index d. finished goods and price index e. all the above are used to measure inflation
d. finished goods and price index
You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent. a. 1,5 b. 3,3 c. 3,5 d. 5,1 e. 5,3
e. 5,3
If the CPI is 200 in year 1990 and 300 today, then $600 in 1990 has the same purchasing power as ________ today. a. 400 b. 500 c. 700 d. 800 e. 900
e. 900
Which of the following will shift the short-run aggregate supply curve? A change in. a. profit per unit at any given price level b. commodity prices c. nominal wages d. productivity e. all of the above
e. all of the above
Which of the following causes a positive demand shock? a. an increase in the existing stock of capital b. pessimistic consumer expectations c. a decrease in government spending d. and increase in taxes e. an increase in wealth
e. an increase in wealth
(t/f) A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level
false
(t/f) Between 1929 and 1933 the U.S economy moved upward from left to right along its short-run aggregate supply curve
false
(t/f) Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.
false
(t/f) Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.
false
(t/f) If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, lenders will gain at the expense of borrowers.
false
(t/f) If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.
false
(t/f) In the short run, changes in the economy supply changes interest rates but not real output and prices
false
(t/f) It is impossible for real interest rates to be negative.
false
(t/f) Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.
false
(t/f) The dollar amount of the wage paid is called the sticky wage
false
(t/f) The producer price index (PPI) is constructed to measure the change in price of total production.
false
(t/f) The term business cycle implies that economic fluctuations follow a regular, predictable pattern.
false
(t/f) There is a positive relationship between the quantity of investment spending and the interest rate
false
(t/f) When the price level increases and people want to hold more money, interest rates decrease
false
(t/f) an increase in the price of oil is likely to shift the short-run aggregate supply curve to the right
false
(t/f) stagflation is the combination of inflation and rising aggregate output
false
(t/f) the purchasing power of money increased during the oil crisis of 1979 because the aggregate price level increased but the growth rate of the money supply was faster than the increase in the price level
false
What factors will shift the short-run aggregate supply curve to the right? a. a widespread decrease in commodity prices b. an increase in nominal wages c. a decrease in productivity d. a decrease in government purchases of goods and services
a. a widespread decrease in commodity prices
A decrease in which of the following will cause the short-run aggregate supply curve to shift to the left? a. commodity prices b. the cost of health care insurance premiums paid by employers c. nominal wages d. productivity e. the use of cost-to-living allowances in labor contracts
a. commodity prices
A decrease in the money supply is likely to cause an______ in borrowing, an _____ interest rates and an ______ in aggregate demand a. decrease, increase, decrease b. decrease, increase, increase c. increase, decrease, decrease d. increase, decrease, increase
a. decrease, increase, decrease
During the Great Depression, the United States experienced a _______ the short run aggregate supply curve; during the 1970s oil crisis, the United states experiences a ______ in the short run aggregate supply curve. a. movement down along; a leftward shift b. movement up along; a leftward shift c. movement up along; rightward shift d. movement down along; a rightward shift e. none of the above
a. movement down along; a leftward shift
If the aggregate price level rises, holding everything constant, consumers will: a. need more money to purchase the same basket of goods which will lead to an increase In the demand for money, hence to interest rate increases and a reduction in the quantity of aggregate output demanded via a decrease in investment demand b. find their purchasing power has increased and will purchase more goods and services, leading to an increase in the aggregate output demanded c. demand less aggregate output at all price levels, resulting in a shift right of the AD curve d. need less money to purchase the same basket of goods, which will lead to a decrease in the demand for money, hence to interest rate decreases and an increase in the quantity of aggregate output demanded via an increase in investment demand
a. need more money to purchase the same basket of goods which will lead to an increase In the demand for money, hence to interest rate increases and a reduction in the quantity of aggregate output demanded via a decrease in investment demand
The aggregate demand curve is negatively sloped in part because of the impact of: a. the wealth effect on consumption b. the interest rate effect on government spending c. the stickiness of nominal wages and salaries d. the flexibility of nominal wages and salaries
a. the wealth effect on consumption
Nominal wages are sticky because: a. wages are slow to rise when there are labor shortages and slow to fall when the level of unemployment is significant b. wages remain fixed in the long run, increasing the profitability of the firms c. wages are slow to fall when there are labor shortages and slow to rise even when the level of unemployment is significant
a. wages are slow to rise when there are labor shortages and slow to fall when the level of unemployment is significant
In 1999, the CPI was 124.0 In 2000, it was 130.7. What was the rate of inflation over this period? a. 5.1% b. 5.4% c. 6.7% d. 7.4% e. 8.7%
b. 5.4%
If your wage doubles at the same time as the consumer price index goes from 100 to 300, you real wage a. doubles b. falls c. increases d. stays the same e. cannot be determined
b. falls
Most economists believe that classical theory describes the world a. in the short run b. in the long run c. in both the short run and long run d. in neither the short run nor the long run e. none of the above
b. in the long run
The long run in macroeconomics analysis is a period: a. in which wages and some other prices are sticky b. in which prices and nominal wages are flexible c. longer than one year d. in which the capital shock is held constant
b. in which prices and nominal wages are flexible
Which of the following statements is true regarding the long run aggregate supply curve? The long run aggregate supply curve a. shifts left when the natural rate of unemployment falls b. is vertical because an equal change in all prices and wages leaves output unaffected c. is positively sloped because price expectations and wages tend to be fixed in the long run d. shifts right when the government raises the minimum wage e. none of the above
b. is vertical because an equal change in all prices and wages leaves output unaffected
When inflation rises, people will desire to hold a. less money and will go back to the bank less frequently b. less money and will go to the bank more frequently c. more money and will go to the bank less frequently d. more money and will go to the bank more frequently e. none of the above
b. less money and will go to the bank more frequently
If government increases income tax rates, the aggregate demand curve is likely to a. shift to the right b. shift to the left c. remain constant d. become relatively sloped
b. shift to the left
If inflation causes people to frequently convert their dollars into other assets, the economy experiences what type of cost? a. price level b. shoe-leather c. menu d. unit- of account e. monetary
b. shoe-leather
An increase in the aggregate price level will increase: a. short-run aggregate supply b. the quantity of aggregate output supplied in the short-run c. aggregate demand d. the quantity of aggregate output demanded
b. the quantity of aggregate output supplied in the short-run
When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the ______ curve slopes _______. a. interest rate, aggregate demand, downward b. wealth, aggregate demand, downward c. interest rate, investment demand, downward d. wealth, short-run aggregate supply, upwards
b. wealth, aggregate demand, downward
Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%. a. -90 b. -110 c. -10 d. 10
c. -10
If inflation is 8% and the real interest rate is 3%, then the nominal interest rate should be a. 3% b. 5% c. 11% d. 15% e. -5%
c. 11%
Which of the following will shift the aggregate demand curve to the right? a. an decrease in wealth b. pessimistic consumer expectation c. a decrease in the existing stock of capital d. contractionary fiscal policy e. decrease in the quantity of money
c. a decrease in the existing stock of capital
Which of the following events shifts the short run aggregate supply curve to the right? a. an increase in government spending on military equipment b. an increase in price expectations c. a drop in oil prices d. a decrease in the money supply e. none of the above
c. a drop in oil prices
Which of the following cost of inflation does not occur when inflation is constant and predictable? a. shoe-leather costs b. menu costs c. arbitrary redistribution of wealth d. cost due to confusion and inconvenience e. none of the above
c. arbitrary redistribution of wealth
The horizontal intercept of the long-term aggregate supply is. a. at the origin b. negative c. at potential output d. equal to the vertical intercept e. always the same as the horizontal intercept of the short-run aggregate supply curve
c. at potential output
Decreases in the stock market decrease aggregate demand by decreasing which of the following? a. the price level b. the stock of existing physical capital c. consumer wealth d. interest rates e. tax revenues
c. consumer wealth
If the Fed decreases the quantity of money in circulation, interest rates ______, investment spending ______, and the aggregate demand curve shifts to the ______. a. decreases, increases; right b. decrease; decreases; left c. increases; decreases; left d. increase; decreases; right
c. increases; decreases; left
Unexpectedly rising commodity prices lead to a ______ shock a. positive supply b. positive demand c. negative supply d. negative demand
c. negative supply
If your nominal wage doubles at the same time as prices double, you real wage will a. increase b. decrease c. not change d. double e. be impossible to determine
c. not change
Suppose the economy is initially in long run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run? a. prises rise; output rises b. prices rise; output rises c. prices fall; output falls d. prices fall; output rises e. no change will occur
c. prices fall; output falls
The "basket" on which the CPI is based is composed of a. raw materials purchased by firms b. total current production c. products purchased by the typical consumer d. consumer production e. none of the above
c. products purchased by typical consumer
In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to a. shift short run aggregate supply to the right b. shift short run aggregate supply to the left c. shift aggregate demand to the right d. shift aggregate demand to the left e. shift long run aggregate supply to the left
c. shift aggregate demand to the right
Which of the following is not a reason why the aggregate demand curve slopes downward? a. the wealth effect b. the interest-rate effect c. the classical dichotomy/monetary neutrality effects d. the exchange-rate effect e. all of the above
c. the classical dichotomy/monetary neutrality effects
Which of the following would help explain why the aggregate demand curve slopes downward? a. an unexpectedly low price level raises the real wage, which causes firms to hire fewer workers and produce a smaller quantity of goods and services b. a lower price level causes domestic interest rates to rise and the real exchange to appreciate which stimulates spending on net exports c. a higher price level increases real wealth, which stimulates spending on consumption d. a lower price level reduces the interest rate, which encourages greater spending on investment goods e. none of the above
d. a lower price level reduces the interest rate, which encourages greater spending on investment goods
Aggregate demand shifts left if a. government purchases increase and shifts left if stock prices rise b. government purchases increase and shifts left if stock prices fall c. government purchases decrease and shifts left if stock prices rise d. government purchases decrease and shifts left if stock prices fall e. none of the above
d. government purchases decrease and shifts left if stock prices fall
The aggregate-demand curve shows that a decrease in the price level a. decreases the dollar value of goods and services demanded in the economy b. decreases the real value of goods and services demanded in the economy c. increases the dollar value of goods and services demanded in the economy d. increases the real value of goods and services demanded in the economy e. none of the above
d. increases the real value of goods and services demanded in the economy
A simultaneous rise in productivity and nominal wages would shift the short run aggregate supply curve to the: a. right if the rise in nominal wages is larger than the rise in productivity b. right if the cost per unit of output rises c. left if the cost per unit of output falls d. left if the rise i nominal wages is larger than the rise in productivity
d. left if the rise i nominal wages is larger than the rise in productivity
According to the Figure: Shifts of the AD-AS Curves, and increase in wages in the short run is illustrated by panel: a. panel a b. panel b c. panel c d. panel d e. none of the above
d. panel d (LOOK AT GRAPHS FROM PROBLEM SET)
A increase in which of the following will cause the short-run aggregate supply curve to shift to the right? a. commodity prices b. the cost of health care insurance premiums paid by employers c. nominal wages d. productivity e. the use of cost-to-living allowances in labor contracts
d. productivity
If there is an inflationary gap, nominal wages _____, and the _____ curve shifts _____ until the economy reaches long-run equilibrium, an increase in government spending on military equipment a. fall, aggregate demand, left b. rise, aggregate demand, right c. falls, short-run aggregate supply, right d. rise, short-run aggregate supply, left
d. rise, short-run aggregate supply, left
As the price level rises, the exchange rate a. falls, so exports rise and imports fall b. falls, so exports fall and imports rise c. rises, so exports rise and imports fall d. rises, so export fall and imports rise
d. rises, so exports fall and imports rise.
Menu costs refers to a. resources used by people to maintain lower money holdings when inflation is high b. resources used to price shop during times of high inflation c. the distortion in incentives created by inflation when taxes do not adjust for inflation d. the cost of more frequent price changes induced by higher inflation e. none of the above
d. the cost of more frequent price changes induced by higher inflation
If the price level doubles, a. the quantity demanded of money falls by half b. the money supply has been cut by half c. nominal income is unaffected d. the value of money has been cut by half e. none of the above is true
d. the value of money has been cut by half
(t/f) A change in the money supply changes only nominal variables in the long run.
true
(t/f) A decrease in the money supply causes the interest rate to rise so that investment falls.
true
(t/f) A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.
true
(t/f) Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.
true
(t/f) An increase in the price of imported cars is captured by the CPI but not by the GDP deflator.
true
(t/f) High and persistent inflation is caused by excessive growth in the quantity of money in the economy.
true
(t/f) If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.
true
(t/f) If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be less than they expected, workers will gain at the expense of firms.
true
(t/f) In long-run macroeconomics equilibrium, actual aggregate output equals potential output
true
(t/f) Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.
true
(t/f) The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.
true
(t/f) The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.
true
(t/f) The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.
true