Macro Final

If the demand for money increases, but the Fed keeps the money supply the same, then in the short run output will:

fall and in the long run prices will fall.

Most economists believe that prices are:

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

For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level real money balances are ______ generating a ______ quantity of output demanded.

higher; greater

Business cycles are: A) regular and predictable. B) irregular but predictable. C) regular but unpredictable. D) irregular and unpredictable.

irregular and unpredictable.

If all prices are stuck at a predetermined level, then when a short-run aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:

is horizontal.

Over the business cycle, investment spending ______ consumption spending.

is more volatile than

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.

Stabilization policy:

aims at keeping output and employment at their natural rates.

In the long run, the level of output is determined by the:

amounts of capital and labor and the available technology.

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.

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, 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 demand for money increases, this will:

decrease velocity.

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.

If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect:

prices but not level of output.

In the short run, a favorable supply shock causes:

prices to fall and output to rise.

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and:

prices will fall 5 percent in the long run.

A supply shock does not occur when:

the Fed increases the money supply.

The natural level of output is:

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

Along an aggregate demand curve, which of the following are held constant?

the money supply and velocity

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

at which unemployment is at its natural rate.

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.

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 will:

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

Stagflation occurs when prices ______ and output ______.

rise; falls