ECON 301 Chapter 7
D) four years
Results obtained from the Taylor model suggest that it takes roughly how long for the effects of money to become neutral? A) one month B) three months C) one year D) four years E) ten years Answer: D
C) an increase in the nominal wage
Assume the economy is initially operating at the natural level of output. Now suppose that individuals decide to reduce their desire to save. We know with certainty that which of the following will occur in the short run as a result of decreased desire to save? A) greater investment B) less investment C) an increase in the nominal wage D) higher output and lower investment E) no change in the economy at all
C) neither the medium run nor the short run
Assume the economy is initially operating at the natural level of output. Suppose that individuals decide to decrease their saving. We know that this decreased desire to save will be "neutral" in A) the short run, but not the medium run. B) the medium run, but not the long run. C) neither the medium run nor the short run. D) both the short run and the medium run. E) none of the above
E) an increase in the money supply
Assume the economy is initially operating at the natural level of output. Which of the following events will NOT change the composition of output (i.e., the percentage of GDP composed of consumption, investment, ... etc.) in the medium run? A) a reduction in government spending B) a cut in taxes C) a reduction in the desire to save D) an increase in consumer confidence E) an increase in the money supply
E) none of the above
Assume the economy is initially operating at the natural level of output. Which of the following events will initially cause a shift of the aggregate supply curve? A) an increase in the money supply B) an increase in government spending C) an increase in consumer confidence D) all of the above E) none of the above
C) no change in the real wage in the medium run.
For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer confidence will cause A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the real wage in the medium run. D) ambiguous effects on the real wage in the medium run.
E) none of the above
nswer this question using the AS/AD model presented in the textbook. Which of the following would cause a reduction in the natural level of output in the medium run? A) a decrease in government spending B) a decrease in the money supply C) an increase in taxes D) both A and C E) none of the above
A) output is currently below the natural level of output.
t the current level of output, suppose the actual price level is greater than the price level that individuals expect (i.e., Pt > Pet). We know that A) output is currently below the natural level of output. B) the interest rate will tend to rise as the economy adjusts to this situation. C) the nominal wage will tend to decrease as individuals revise their expectations of the price level. D) the AS curve will tend to shift down over time. E) none of the above
A) an increase in the unemployment benefits
Which of the following events will cause an increase in the aggregate price level? A) an increase in the unemployment benefits B) a reduction in the markup C) a reduction in Pe D) an increase in the unemployment rate E) none of the above
C) a 10% increase in the nominal money supply
Which of the following events will cause the largest rightward shift (as measured horizontally) of the AD curve? A) a tax increase B) a 15% reduction in the aggregate price level C) a 10% increase in the nominal money supply D) a 15% reduction in the nominal wage E) none of the above
C) an increase in the interest rate.
In the short run, an increase in the price of oil will cause A) an increase in output B) a reduction in the price level C) an increase in the interest rate. D) all of the above E) none of the above
D) an increase in taxes.
The aggregate demand curve will shift to the left when which of the following occurs? A) an increase in the money supply. B) an increase in consumer confidence. C) a reduction in the price level. D) an increase in taxes. E) a rise in the price level.
A) expected price level.
1) In the aggregate supply relation, the current price level depends upon A) expected price level. B) monetary policy. C) fiscal policy. D) consumer confidence. E) all of the above
E) none of the above
3) Which of the following will cause the aggregate supply curve to shift down? A) an increase in firms' markup over labor costs B) an increase in the expected price level C) an increase in unemployment benefits D) all of the above E) none of the above
B) a downward shift in the LM curve and a reduction in the interest rate.
A reduction in the aggregate price level will cause A) an increase in the interest rate and a leftward shift in the IS curve. B) a downward shift in the LM curve and a reduction in the interest rate. C) a reduction in investment and a reduction in output . D) an ambiguous effect on investment.
C) an increase in investment in the medium run
A reduction in the price of oil will tend to cause which of the following? A) no change in the real wage in the medium run B) an increase in the aggregate price level as output increases C) an increase in investment in the medium run D) no change in the interest rate in the medium ru
C) an increase in the unemployment rate
An increase in the price of oil will cause which of the following in the medium run? A) no change in the level of output B) no change in the price level C) an increase in the unemployment rate D) a reduction in the interest rate E) none of the above
E) an increase in the real wage in the medium run.
As product markets become more competitive and the markup decreases, we would expect which of the following to occur? A) no change in the real wage in the medium run. B) an increase in the aggregate price level and an increase in output in the medium run. C) an increase in the interest rate in the medium run. D) no change in output in the medium run. E) an increase in the real wage in the medium run.
employment
Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for an increase in government spending. This increase in government spending will, in the medium run, have NO effect on which of the following? A) employment B) the interest rate C) the price level D) all of the above E) none of the above
4
Results obtained from the Taylor model suggest that the effects of changes in the nominal money supply are neutral after A) 2 years. B) 4 years. C) 6 years. D) 8 years. Answer: B
C) three quarters
Results obtained from the Taylor model suggest that the output effects of a change in the money supply are greatest after approximately how long? A) one month B) one quarter C) three quarters D) four years E) ten years
C) a decrease in the nominal wage
Suppose a central bank implements a monetary contraction. Which of the following would we expect to occur in the medium run? A) a decline in output B) an increase in the interest rate C) a decrease in the nominal wage D) all of the above E) none of the above
A) a reduction in the nominal wage
Suppose a central bank implements a monetary contraction. Which of the following would we expect to occur in the short run? A) a reduction in the nominal wage B) the AD curve to shift to the right C) the price setting curve to shift down D) the wage setting curve to shift upward E) the wage setting curve to shift downward
C) a decline in the nominal wage
Suppose a central bank implements a monetary expansion. Which of the following would we expect to occur in the medium run?A) an increase in output B) a decrease in the interest rate C) a decline in the nominal wage D) all of the above E) none of the above
A) an increase in the nominal wage
Suppose a central bank implements a monetary expansion. Which of the following would we expect to occur in the short run? A) an increase in the nominal wage B) the AD curve to shift to the left C) the price setting curve to shift up D) the wage setting curve to shift downward E) the wage setting curve to shift upward
A) a reduction in the price level and an increase in output in the medium run
Suppose the minimum wage decreases. Given this event, we would expect which of the following to occur? A) a reduction in the price level and an increase in output in the medium run B) an increase in the aggregate price level as output increases C) an increase in the interest rate in the medium run D) none of the above
B) an increase in the aggregate price level (P) will cause an increase in the interest rate and a reduction in output.
The aggregate demand (AD) curve presented in the textbook has its particular shape because of which of the following explanations? A) an increase in the money supply (M) will cause a reduction in the interest rate, an increase in investment, and an increase in output . B) an increase in the aggregate price level (P) will cause an increase in the interest rate and a reduction in output. C) an increase in P will cause a reduction in the real wage, an increase in employment, and an increase in output. D) as P decreases in a closed economy, goods and services become relatively cheaper and individuals respond by increasing the quantity demanded of goods and services.
D) a reduction in output causes a reduction in employment, an increase in unemployment, a reduction in the nominal wage and a reduction in the price level
The short-run aggregate supply curve (AS) presented in the textbook has its particular shape because of which of the following explanations? A) a reduction in the aggregate price level will cause a reduction in the interest rate and an increase in output. B) an increase in the aggregate price level causes an increase in nominal money demand and an increase in the interest rate. C) a drop in the nominal wage causes an increase in the amount of output that firms are willing to produce. D) a reduction in output causes a reduction in employment, an increase in unemployment, a reduction in the nominal wage and a reduction in the price level
B) an increase in the current price level.
2) Based on the aggregate supply relation, an increase in current output will cause A) a shift of the aggregate supply curve. B) an increase in the current price level. C) a change in the expected price level this year. D) an increase in the expected price level and an upward shift of the AS curve. E) an increase in the markup over labor costs.
B) a upward shift in the LM curve and an increase in the interest rate.
An increase in the aggregate price level will cause A) a reduction in the interest rate and a rightward shift in the IS curve. B) a upward shift in the LM curve and an increase in the interest rate. C) an increase in investment and an increase in output. D) an ambiguous effect on investment.
D) all of the above
An increase in the price of oil will tend to cause which of the following? A) an increase in the natural rate of unemployment B) an increase in the price level C) an increase in the interest rate D) all of the above
D) all of the above
Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for an increase in government spending. This increase in government spending will, in the short run, cause an increase in A) the interest rate. B) the price level. C) the nominal wage. D) all of the above E) none of the above
E) none of the above
Based on your understanding of the AS/AD model, which of the following is an INCORRECT statement about the short-run adjustment process for the macroeconomy? A) output in excess of the natural level leads to higher prices. B) a reduction in employment leads to lower prices. C) an increase in demand increases output. D) an increase in output above the natural level leads to higher nominal wages. E) none of the above
E) none of the above
For this question, assume that the economy is initially operating at the natural level of output. A fiscal contraction must cause A) an increase in investment in the medium run. B) a reduction in investment in the short run. C) no change in investment in the medium run. D) an increase in investment in the short run. E) none of the above
A) no change in the real wage in the medium run.
For this question, assume that the economy is initially operating at the natural level of output. A monetary expansion will cause A) no change in the real wage in the medium run. B) an increase in investment in the medium run. C) a reduction in the interest rate in the medium run. D) no change in the nominal wage in the medium run.
A) a 5% reduction in the price level in the medium run.
For this question, assume that the economy is initially operating at the natural level of output. A one- time 5% reduction in the nominal money supply will cause A) a 5% reduction in the price level in the medium run. B) a 5% increase in the interest rate (i) in the medium run. C) a 5% reduction in the real money supply in the medium run. D) all of the above
e
For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer confidence will cause A) an increase in investment in the short run. B) a reduction in the real wage in the medium run. C) an increase in the interest rate in the medium run. D) ambiguous effects on investment in the medium run. E) none of the above
E) none of the above
For this question, assume that the economy is initially operating at the natural level of output. A reduction in taxes will cause A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the nominal wage in the medium run. D) ambiguous effects on the real wage in the medium run. E) none of the above
C) an increase in investment in the medium run.
For this question, assume that the economy is initially operating at the natural level of output. A simultaneous increase in taxes and increase in the money supply will cause which of the following? A) a reduction in output and a reduction in the aggregate price level in the short run. B) an increase in output and an increase in the nominal wage in the short run. C) an increase in investment in the medium run. D) an increase in the interest rate in the medium run. E) a reduction in the aggregate price level, no change in output, and no change in the interest rate in the medium run.
a reduction in investment in the medium run
For this question, assume that the economy is initially operating at the natural level of output. A simultaneous reduction in taxes and reduction in the money supply will cause which of the following? A) an increase in output and an increase in the aggregate price level in the short run B) a reduction in output and a reduction in the nominal wage in the short run C) a reduction in investment in the medium run D) a reduction in the interest rate in the medium run E) an increase in the aggregate price level, no change in output, and no change in the interest rate in the medium run
no change in the real wage in the medium run.
For this question, assume that the economy is initially operating at the natural level of output. An increase in consumer confidence will cause A) a reduction in the real wage in the medium run. B) an increase in the real wage in the medium run. C) no change in the real wage in the medium run. D) ambiguous effects on the real wage in the medium run.
C) an increase in investment in the medium run
For this question, assume that the economy is initially operating at the natural level of output. An increase in taxes will cause which of the following? A) a reduction in output and no change in the aggregate price level in the short run B) a reduction in employment and no change in the nominal wage in the short run C) an increase in investment in the medium run D) an increase in the aggregate price level, no change in output and no change in the interest rate in the medium run
B) a reduction in output and an increase in the aggregate price level
For this question, assume that the economy is initially operating at the natural level of output. An increase in the price of oil will cause which of the following in the medium run? A) a reduction in the interest rate B) a reduction in output and an increase in the aggregate price level C) a reduction in output and a reduction in the interest rate D) a reduction in unemployment, an increase in the nominal wage and an increase in the aggregate price level E) a reduction in the aggregate price level and no change in output
C) no change in the real wage in the medium run
For this question, assume that the economy is initially operating at the natural level of output. An increase in unemployment benefits will cause A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the real wage in the medium run. D) ambiguous effects on the real wage in the medium run.
C) increased dramatically, then decreased dramatically.
From 1970 to the mid-1990s, the relative price of crude petroleum A) steadily increased. B) steadily decreased. C) increased dramatically, then decreased dramatically. D) decreased dramatically, then increased dramatically. E) remained more or less the same. Answer: C
B) P < Pe.
If Y < Yn, we know with certainty that A) P > Pe. B) P < Pe. C) P = Pe. D) u < un.
A) P > Pe
If u < un, we know with certainty that A) P > Pe. B) P < Pe. C) P = Pe. D) Y < Yn.
B) the money market and, subsequently, investment.
In the aggregate demand relation, an increase in the price level causes output to decrease because of its effect on A) government spending. B) the money market and, subsequently, investment. C) the nominal wage. D) firms' markup over labor costs. E) the expected price level.
C) a reduction in the interest rate.
In the short run, a reduction in the price of oil will cause A) a reduction in output. B) an increase in the price level. C) a reduction in the interest rate. D) all of the above E) none of the above
a reduction in taxes
The aggregate demand curve will shift to the right when which of the following occurs? A) a reduction in the money supply B) a reduction in consumer confidence C) a rise in the price level D) a reduction in taxes E) a decrease in the price level
A) housing market
The current crisis and the sharp decrease in output in 2010 had its origins in A) housing market. B) stock market. C) bond market. D) foreign exchange market.
C) changes in the money supply will not affect the price level in the short run
The neutrality of money is consistent with which of the following statements? A) changes in the money supply will not affect employment in the short run. B) changes in the money supply will not affect employment in the medium. C) changes in the money supply will not affect the price level in the short run D) changes in the money supply will not affect the price level in the medium run
C) the output is equal to the natural level of output.
When the current price level is equal to the expected price level, we know that A) the unemployment rate is zero. B) the goods market and financial markets are in equilibrium. C) the output is equal to the natural level of output. D) the money market is in equilibrium. E) none of the above
D) all of the above
When the economy is operating at a point where output is greater than the natural level of output, which of the following occurs? A) the unemployment rate is less than the natural unemployment rate. B) the price level is greater than the expected price level. C) the price level will be higher next period than it is this period. D) all of the above E) none of the above
D) all of the above
When the economy is operating at a point where output is less than the natural level of output, which of the following occurs? A) the unemployment rate is greater than the natural unemployment rate. B) the price level is less than the expected price level. C) the price level will be lower next period than it is this period. D) all of the above E) none of the above
D) a reduction in output
Which of the following events will NOT cause an increase in the aggregate price level? A) an increase in unemployment benefits B) an increase in the markup C) an increase in Pe D) a reduction in output E) none of the above
D) all of the above
Which of the following represents a short-run effect of a monetary contraction? A) a reduction in output B) an increase in the interest rate C) a reduction in the price level D) all of the above E) none of the above
D) all of the above
Which of the following represents a short-run effect of a monetary expansion? A) an increase in output B) a reduction in the interest rate C) an increase in the price level D) all of the above E) none of the above
D) all of the above
Which of the following would increase the short-run output effects of a monetary expansion? A) an increase in the marginal propensity to consume B) an increase in the interest rate sensitivity of investment C) the IS curve is very flat D) all of the above E) none of the above