Econ HW 8 Study

What would be the appropriate monetary policy if the economy is in a short-run equilibrium below potential GDP?

Decrease interest rates

In the basic aggregate demand and aggregate supply model, which of the following would cause deflation? An increase in

Income taxes.

As output increases along the short-run aggregate supply curve, briefly explain what happens to the cyclical rate of unemployment.

The cyclical rate decreases because fewer workers will be laid off.

As output increases along the short-run aggregate supply curve, briefly explain what happens to the natural rate of unemployment.

The natural rate remains the same because it is not affected by the business cycle.

If in year 1 the price level was 100 and the real GPD was $20 trillion and in year 2 the price level was 105 and real GDP was $21 trillion, the the predominant change that occured in year 2 was

an increase in aggregate demand

In the static aggregate demand - aggregate supply model, an increase in the corporate income (profit) tax will in the short run lead to _____ in real GDP and _____ in the price level.

decrease; decrease

The adjustment of the economy to potential real GDP in the long run from a level of real GDP below potential real GDP occurs as nominal wages _____, shifting the short-run aggregate supply curve to the ____.

fall; right

In the basic aggregate demand and aggregate supply model, which of the following would cause a recession? A decrease in

firms' expectations of future profitability of investment spending.

In the basic aggregate demand and aggregate supply model, a decrease in net exports from a decline in real GDP in the BRIC nations would in the short run lead to ____ in the unemployment rate and a _____ in the inflation rate.

increase; decrease

In the static aggregate demand - aggregate supply model, a decrease in interest rates will in the short run lead to ____ in the real GDP and ____ in the price level.

increase; increase

If the basic aggregate demand and aggregate supply model, which of the following would cause inflation? A decrease in

interest rates

In the basic AD-AS model, a decrease in the aggregate demand curve would in the long run lead to _____ in the unemployment rate and _____ in the price level.

no change; a decrease

The short run aggregate supply curve has a ____ slope because as prices of _____ rise, prices of _____ rise more slowly.

positive; final goods and services; inputs.

The SRAS curve will _____ if there is:

shift to the left; an increase in the expected price of an important natural resource, an increase in the adjustment of workers' and firms' prior underestimation of the price level, and increase in the expected future prices.

The SRAS curve will ____ if there is:

shift to the right; an increase in the labor force or capital accumulation, an increase in productivity, a technological change.

In the long run,

unemployment is as its natural rate.