Chapter 10

The long run refers to a period: during which output deviates from the full-employment level. during which prices are flexible. during which capital and labor are sometimes not fully employed. of decades.

during which prices are flexible.

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 ______. lower; inward greater; inward lower; outward greater; outward

greater; outward

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

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. lower; lower lower; higher higher; higher higher; lower

higher; lower

Over the business cycle, investment spending ______ consumption spending. is less volatile than is more volatile than is inversely correlated with has about the same volatility as

is more volatile than

The aggregate demand curve tells us possible: results if the Federal Reserve reduces the money supply. combinations of P and Y for a given value of M. combinations of M and P for a given value of Y. combinations of M and Y for a given value of P.

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

A difference between the economic long run and the short run is that: prices and wages are sticky in the long run only. the classical dichotomy holds in the short run but not in the long run. demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. monetary and fiscal policy affect output only in the long run.

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

output; prices

In the short run an adverse supply shock causes: both prices and output to fall. both prices and output to rise. prices to rise and output to fall. prices to fall and output to rise.

prices to rise and output to fall.

Which of the following is an example of a demand shock? the introduction and greater availability of credit cards a drought that destroys agricultural crops unions obtain a substantial wage increase a large oil-price increase

the introduction and greater availability of credit cards

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

the money supply.

Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity. stronger; weaker stronger; stronger weaker; weaker weaker; stronger

weaker; stronger

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. either above or below equal to above below

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

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

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: decrease by 2 percent. increase by 5 percent. decrease by 1 percent. increase by 4 percent.

increase by 5 percent.

If a change in government regulations allows banks to start paying interest on checking accounts, this will: have no effect on the demand for money. increase the demand for currency but decrease the demand for checking accounts. increase the demand for money. decrease the demand for money.

increase the demand for money.

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. increase; slowdown slowdown; slowdown slowdown; increase increase; increase

slowdown; slowdown