Econ 102

As the aggregate demand curve shifts leftward along a given aggregate supply curve

unemployment is higher and inflation is lower

Other things the same, automatic stabilizers tend to

raise expenditures during recessions and lower expenditures during expansions

A favorable supply shock causes the price level to

fall. To counter this a central bank would increase the money supply

If inflation is less than expected, then the unemployment rate is

greater than the natural rate. In the long run the short-run Phillips curve will shift left.

In the long run, inflation

is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors.

A reduction in U.S net exports would shift U.S. aggregate demand

leftward. In an attempt to stabilize the economy, the government could cut taxes

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be

the crowding-out effect

If a government redesigned its unemployment insurance programs so that the unemployed had greater incentives to quickly find appropriate jobs, then which of the following curves would shift right?

the long-run aggregate supply curve but not the long-run Phillips curve

The long-run Phillips curve would shift left if

the minimum wage was reduced but not if the money supply increased

Which of the following correctly explains the crowding-out effect?

An increase in government expenditures increases the interest rate and so reduces investment spending.

Refer to Figure 4-1. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

B and 2.

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate

A tax increase has

both a crowding out and multiplier effect

If policymakers decrease aggregate demand, then in the short run the price level

falls and unemployment rises

Permanent tax cuts shift the AD curve

farther to the right than do temporary tax cuts

In the long run, an increase in the money supply

raises prices and leaves unemployment unchanged

If policymakers increase aggregate demand, then in the short run the price level

rises and unemployment falls

In the long run, fiscal policy influences

saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services

Assume there is a multiplier effect and some crowding out effect. An increase in government expenditures changes aggregate demand more,

the larger the MPC and the weaker the influence of income on money demand

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

It would shift the long-run Phillips curve left

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

It would shift the long-run Phillips curve left.

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out effect, then

aggregate demand falls by 11/3 x $40 billion

Monetary policy

can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented

The natural rate of unemployment

does not depend on the rate at which the Fed increases the money supply

If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower

in the short run but not the long run

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

increase the money supply by buying bonds.

In the long run, an increase in the money supply growth rate

increases inflation and shifts the short-run Phillips curve right

Suppose the Federal Reserve pursues contractionary monetary policy. In the long run

inflation is lower and unemployment is the same as it was prior to the change in policy.

According to the short-run Phillips curve, if the central bank increases the money supply, then

inflation will rise and unemployment will fall

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by

moving to the left along the short-run Phillips curve

According to the Phillips curve, unemployment and inflation are negatively related in

the short run, but not in the long run

If the Fed increases the growth rate of the money supply, in the long run which of the following is unchanged?

the unemployment rate but not inflation

When aggregate demand shifts left along the short-run aggregate supply curve,

unemployment rises and prices fall

Phillips found a negative relation between

wage inflation and unemployment.