econ

37. in the long run inflation is primarily determined by the rate of money supply growth while unemployment is primarily determined by LABOR MARKET FACTORS

labor market factors

12. An increase in the expected price level shifts short-run aggregate supply to the LEFT, and an increase in the actual price level DOES NOT shift short-run aggregate supply

left, does not

29. which of the following statements is correct for the long run? output is determined by the amount of capitol, labor, and technology; the interest rate adjusts to balance the supply and demand for LOANABLE FUNDS; the price level adjusts to balance the supply and demand for MONEY.

loanable funds, money

refers to figure 22-5. the economy would move from 3 to 5 in the LONG run if money supply growth INCREASES

long, increases

50. proponents of rational expectations argued that the sacrifice ratio could be LOW because people might adjust their expectations quickly if they found anti-inflation policy credible

low

6. the initial impact of an increase in an investment tax credit is to shift a. aggregate demand right. b. aggregate demand left c. aggregate supply right d. aggregate supply left

A. aggregate demand right

17. what, if anything, did policymakers do in response to the recession of 2001? a. tax cutes and expansionary monetary policy b. only tax cuts c. only expansionary monetary policy d. neither tax cuts nor expansionary monetary policy

A. tax cutes and expansionary monetary policy

13. an economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level A. rises, shifting aggregate demand right B. rises, shifting aggregate demand left C. falls, shifting aggregate supply right D. falls, shifting aggregate supply left

C. falls, shifting aggregate supply right

Refers to figure 20-1. if the economy is at A and there is a fall in aggregate demand, in the short run the economy a. stays at A b. moves to B c. moves to C d. moves to D

D. Moves to D

2. which of the following effects helps to explain the downward slope of the aggregate-demand curve? A. the exchange-rate effect B. the wealth effect C. the interest-rate effect D. all of the above are correct

D. all of the above are correct

18. shifts in the aggregate-demand curve can cause fluctuations in a. neither the level of output nor the level of prices b. the level of output, but not in the level of prices c. the level of prices, but not in the level of output d. the level of output and in the level of prices

D. the level of output and in the level of prices

4. the aggregate quantity of goods and service demanded changes as the price level falls because real wealth RISES. interest rates FALL. and dollar DEPRECIATES.

Rises, fall, depreciates

43. refers to figure 22-5, starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to a. A and 1 b. B and 2 c. back to C and 3 d. D and 4

b. B and 2

45. refers to figure 22-5. starting from C and 3, in the long run, a decrease in money supply growth moves the economy to a. A and 1 b. Back to C and 3 c. D and 4 d. F and 5

a. A and 1

39. acording to the philips curve, policymakers would reduce inflation but raise unemployment if they a. decrease the money supply b. increase government expenditures c. decrease taxes d. none of the above is correct

a. decrease the money supply

33. assuming a multiplier effect, but no crowding-out or investment-accelerator effect. a $100 billion increase in government expenditures shifts aggregate. a. demand rightward by more than $100 billion b. demand rightward by less than $100 billion c. supply leftward by more than $100 billion d. supply leftward by less than $100 billion

a. demand rightward by more than $100 billion

35. which of the following policy alternative would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output? a. increase taxes b. increase the money supply c. increase government expenditures d. all of the above are correct

a. increase taxes

25. Refers to figure 21-2. As we move from one point to another along the money-demand curve MD1. a. the price level is held fixed at P1 b. the interest rate is held fixed at r1 c the money supply is changing so as to keep the money market in equilibrium d. the expected inflation rate is changing so as to keep the real interest rate constant

a. the price level is held fixed at P1

41. if the central bank decreases the money supply, then in the short run prices a. rise and unemployment falls b. fall and unemployment rises c. and unemployment rise d. and unemployment fall

b. fall and unemployment falls

11. when the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production? BOTH menu costs and mistaking a price level change for a change in RELATIVE prices

both, relative

32. the multiplier for changes in government spending is calculated as a. MPC b. 1-MPC c. 1/MPC d 1(1-MPC)

d. 1(1-MPC)

14. refers to figure 20-1. an increase in the money supply would move the economy from C to a. B in the short run and the long run b. D in the short run and the long run c. B in the short run and A in the long run d. D in the short run and C in the long run

c. B in the short run and A in the long run

22. Refer to figure 21-2. what does Y represent on the horizontal axis of the right-hand graph? a. the quantity of money b. the rate of inflation c. real output d. nominal output

c. real output

49. disinflation is defined as a a. zero rate inflation b. constant rate of inflation c. reduction in the rate of inflation d. negative rate of inflation

c. reduction in the rate of inflation

38. the short-run relationship between inflation and unemployment is often called a the classical dichotomy b. money neutrality c. the philips curve d. none of the above

c. the philips curve

refers to figure 20-1. If the economy starts at A and there is a fall in aggregate demand, the economy moves a. back to a in the long run b. to B in the long run c. to C in the long run d. to D in the long run

c. to C in the long run

27. refers to figure 21-2. Assume the money market is always in equilibrium. under the assumptions of the model a. the real interest rate is higher at Y2 than it is at Y1 b. the quantity of money is the same at Y1 as it is at Y2 c. the price level is higher at R2 than it is at R1 d. all of the above are correct

d. All of the above are correct

refers to figure 22-5, starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to a. A and 1 b. B and 2 c. Back to C and 3 d. D and 4

d. D and 4

44. refers to figure 22-5. starting from C and 3, in the long run, an increase in money supply growth moves the economy to a. A and 1 b. back to C and 3 c. D and 4 d. F and 5

d. F and 5

1. during recessions A. workers are laid off B. factories are idle C. firms may find they are unable to sell all they produce D. all of the above are correct

d. all of the above are correct

36. critics of stabilization policy argue that a. there is a lag between the time policy is passed and the time policy has an impact on the economy b. the impact of policy may last longer than the problem it was designed to offset c. policy can be a source of, instead of a cure for, economic fluctuations. d. all of the above are correct

d. all of the above are correct

48. which of the following results in higher inflation and higher unemployment in the short run? a. a more expansionary monetary policy b. a more contractionary monetary policy c. a decrease in the minimum wage d. an adverse supply shock such as an increase in the price of oil

d. an adverse supply shock such as an increase in the price of oil

30. slope of the aggregate-demand curve? a. as the money supply increases, the interest rate falls, so spending rises b. as the money supply increases the interest rate rises, so spending falls. c. as the price level increases, the interest rate falls, so spending rises d. as the price level increases, the interest rate rises, so spending falls

d. as the price level increases, the interest rate rises, so spending falls

7. when the money supply decrease a. interest rates fall and so aggregate demand shift right B. interest rates fall and so aggregate demand shifts left. C. interest rates rise and so aggregate demand shifts right. D. interest rates rise and so aggregate demand shifts left

d. interest rates rise and so aggregate demand shifts left

23. refers to figure 21-2. which of the following quantities is held constant as we move from one point to another on either graph? a. the nominal interest rate b. the quantity of money demanded c. investment d. the expected rate of inflation

d. the expected rate of inflation

21. refers to figure 21-2. what is measured along the horizontal axis of the left-hand graph? a. nominal output b. real output c. the opportunity cost of holding money d. the quantity of money

d. the quantity of money

3. other things the same, if the price level rises, people DECREASE foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange DECREASES

decrease, decreases

40. if policymakers decrease aggregate demand, then in the short run the price level a. falls and unemployment rises b. and unemployment fall c. and unemployment rise d. rises and unemployment falls

falls and unemployment rises

26. refers to figure 21-2. if the money supply curve MS on the left-hand graph were to shift to the right, this would represent an action taken by the FEDERAL RESERVE

federal reserve

8. the sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if the price level is HIGHER than expected making production MORE profitable.

higher, more

24. refer to figure 21-1. a decrease in Y from Y1 to Y2 is explained as follows: An INCREASE in P from P1 to P2 causes the money -demand curve to shift from MD 1 to MD 2: this shift of MD causes r to INCREASE R1 to R2: and this increase in r causes Y to decrease from Y1 to Y2.

increase, MD1 to MD2, increase, R1 to R2

34. the price of imported oil rises. if the government wanted to stabilize output, which of the following could it do? INCREASE government expenditures or INCREASE the money supply

increase, increase

5. in the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households INCREASES and a result CONSUMPTION SPENDING increases. this effect contributes to the DOWNWARD slope of the aggregate-demand curve.

increases, consumption spending, downward

31. if the stock market booms, then aggregate demand INCREASES, which the fed could offset by DECREASING the money supply

increases, decreasing

10. the misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level INCREASES by MORE than expected so that firms believe the relative price of their output has INCREASED.

increases, more, increased

28. which of the following statement correct? liquidity preference theory assumes the INTEREST RATE adjusts to bring the money market into equilibrium; classical theory assumes the PRICE LEVEL adjusts to bring the money market into equilibrium

interest rate, price level

9. the sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have LOWER than desired prices which leads to an INCREASE in the aggregate quantity of goods and services supplied

lower, increase

20. According to liquidity preference theory, the slope of the money demand curve is explained as follows: People will want to hold MORE money as the cost of holding it falls

more

47. Refer to figure 22-5. the economy would move from C to B in the SHORT run if money supply growth DECREASED unexpectedly

short, decreased

19. Liquidity Preference Theory is most relevant to the SHORT run and suppose that the INTEREST RATE adjusts to bring money supply and money demand into balance

short, interest rate