Econ Test 4

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level

falls, shifting aggregate supply right

When the money supply decreases

interest rate rise and so aggregate demand shifts left

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

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 from a change in relative prices

In the long run inflation

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

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

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

Refer to Figure 20-1. If the economy is at A and there is a fall in aggregate demand, in the short run the economy

moves to D

The aggregate quantity of goods and service demanded changes as the price level falls because

real wealth rises, interest rates fall and the dollar depreciates

Disinflation is defined as a

reduction in the rate of inflation

Refer to Figure 20-1. If the economy starts at A and there is a fall in aggregate demand, the economy moves

to C in the long run

Refer to Figure 22-5. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to

A and 1

Refer to Figure 22-5. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to

B and 2

Refer to Figure 20-1. An increase in the money supply would move the economy from C to

B in the short run and A in the long run

Refer to Figure 22-5. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to

D and 4

Refer to Figure 22-5. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to

F and 5

The initial impact of an increase in an investment tax credit is to shift

aggregate demand right

Which of the following results in higher inflation and higher unemployment in the short run?

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

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

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

decreased the money supply

If the central bank decrease the money supply, then in the short run prices

fall and unemployment rises

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

falls and unemployment rises

Refer to Figure 22-5. The economy would move from 3 to 5

in the long run if money supply growth increases

Refer to Figure 22-5. The economy would move from C to B

in the short run if money supply growth decreased unexpectedly

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 as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.

The misrepresentation 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

What if anything, did policymakers do in response to the recession of 2001?

tax cuts and expansionary monetary policy

The short-run relationship between inflation and unemployment is often called

the Phillips curve

Which of the following effects helps to explain the downward slope of the aggregate-demand curve?

the exchange-rate effect the wealth effect the interest-rate effect

During recession

workers are laid off factories are idle firms may fird they are unable to sell all they produce