Chapter 11

Since the Covid-19 health crisis caused many businesses to temporarily shut down and lay off their workers, there was a(n) _____ in the natural rate of unemployment and the long-run aggregate supply (LRAS) curve shifted _____. A) increase; left B) increase; right C) decrease; left D) decrease; right

A

Stabilization policy refers to policy actions aimed at: A) reducing the severity of short-run economic fluctuations B) equalizing incomes of households in the economy C) maintaining constant shares of output going to labor and capital D) preventing increases in the poverty rate

A

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant: A) short-run aggregate supply curve B) long-run aggregate supply curve C) price level in the short run D) demand for real balances per unit of output

D

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: (look in my photos for image) A) A B) B C) C D) D

A

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. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

A

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. A) higher; greater B) higher; smaller C) lower; greater D) lower; smaller

A

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: A) both Central Bank A and Central Bank B should increase the quantity of money B) Central Bank A should increase the quantity of money, whereas Central Bank B should keep it stable C) Central Bank A should keep the quantity of money stable, whereas Central Bank B should increase it D) both Central Bank A and Central Bank B should keep the quantity of money stable

A

If the Fed accommodates an adverse supply shock, output falls _____, and prices rise _____. A) less; more B) less; less C) more; less D) more; more

A

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then: A) output and employment will increase in the short run B) output and employment will decrease in the short run C) prices will increase in the short run D) prices will decrease in the short run

A

In 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. A) higher; lower B) lower; higher C) higher; higher D) lower; lower

A

The version of Okun's law studied in Chapter 11 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: A) decrease by 1% B) decrease by 2% C) decrease by 3% D) increase by 1%

A

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. A) only prices; only output B) only output; only prices C) both prices and output; only prices D) both prices and output; both prices and output

B

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

B

Using the aggregate demand-aggregate supply (AD-AS) model, the economic downturn caused by Covid-19 can be BEST described by a: A) rightward shift of long-run aggregate supply (LRAS) and leftward shift of AD B) leftward shift of LRAS and leftward shift of AD C) rightward shift of LRAS and upward shift of short-run aggregate supply (SRAS) D) leftward shift of AD and downward shift of SRAS

B

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

C

A short-run aggregate supply curve shows fixed ________, and a long-run aggregate supply curve shows fixed _________. A) output; output B) prices; prices C) prices; output D) output; prices

C

In the short run, a favorable supply shock causes: A) both prices and output to rise B) prices to rise and output to fall C) prices to fall and output to rise D) both prices and output to fall

C

Measures of average workweeks and building permits for new housing units are included in the index of leading index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and increased permits for new units tend to indicate ______ future economic activity. A) stronger; stronger B) stronger; weaker C) weaker; stronger D) weaker; weaker

C

The economic response to the overnight reduction in the French money supply by 20 percent in 1724: A) confirmed by the neutrality of money because no real variables were affected by this nominal change B) confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level C) confirmed that money is not neutral in the short run because both output and prices dropped D) contradicted Okun's law because decreases in output were no associated with increases in unemployment

C