final exam prac
According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a) the interest rate. b) the exchange rate. c) real wealth. d) the price level.
a) the interest rate.
Refer to Figure 34-1. There is an excess demand for money at an interest rate of a) 2 percent. b) 3 percent. c) 4 percent. d) None of the above is correct.
a) 2 percent.
Refer to Figure 33-9. Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to a) P2, Y1. b) P3, Y2. c) P1, Y2. d) P1, Y1.
a) P2, Y1.
Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate-demand curve is correct? a) The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. b) The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. c) The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. d) None of the above is correct.
a) The exchange-rate effect is relatively small because exports and imports are a small part of real GDP.
At the end of World War II many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in a) both the United States and Europe. b) the United States but not Europe. c) Europe, but not the United States. d) neither the United States, nor Europe.
a) both the United States and Europe.
According to the Phillips curve, policymakers can reduce inflation by a) contracting aggregate demand. This contraction results in a temporarily higher unemployment rate. b) contracting aggregate demand. This contraction results in a temporarily lower unemployment rate. c) expanding aggregate demand. This expansion results in a temporarily lower unemployment rate. d) expanding aggregate demand. This expansion results in a temporarily higher unemployment rate.
a) contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.
The wealth effect stems from the idea that a higher price level a) decreases the real value of households' money holdings. b) increases the real value of the domestic currency in foreign-exchange markets. c) increases the real value of households' money holdings. d) decreases the real value of the domestic currency in foreign-exchange markets.
a) decreases the real value of households' money holdings.
The natural rate of unemployment a) does not depend on the rate at which the Fed increases the money supply. b) is constant over time. c) varies over time, but can't be changed by the government. d) is the socially desirable rate of unemployment.
a) does not depend on the rate at which the Fed increases the money supply.
According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is a) higher in the short-run only. b) lower in the short-run only. c) lower in the short-run and the long-run. d) higher in the short-run and the long-run.
a) higher in the short-run only.
The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation), a) is the equation of the short-run Phillips curve. b) implies the short-run Phillips curve shifts every time there is a change in actual inflation. c) reflects the reasoning of Samuelson and Solow. d) All of the above are correct.
a) is the equation of the short-run Phillips curve.
Refer to Figure 33-4. If the economy starts at A and moves to D in the short run, the economy a) moves to C in the long run. b) moves to B in the long run. c) moves to A in the long run. d) stays at D in the long run.
a) moves to C in the long run.
The sacrifice ratio is the a) number of percentage points annual output falls for each percentage point reduction in inflation. b) inflation rate divided by the unemployment rate. c) number of percentage points unemployment rises for each percentage point reduction in inflation. d) sum of the inflation and unemployment rates.
a) number of percentage points annual output falls for each percentage point reduction in inflation.
In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have a) raised inflation and reduced unemployment. b) reduce inflation and raised unemployment. c) raised inflation and unemployment. d) reduced inflation and unemployment.
a) raised inflation and reduced unemployment.
By raising aggregate demand more than anticipated, policymakers a) reduce unemployment for awhile. b) raise unemployment for awhile. c) reduce unemployment permanently. d) None of the above is correct.
a) reduce unemployment for awhile.
If the price level falls, the real value of a dollar a) rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve. b) falls, so people will want to buy less. This response helps explain the slope of the aggregate demand curve. c) rises, so people will want to buy more. This response shifts aggregate demand to the right. d) falls, so people will want to buy less. This response shifts aggregate demand to the left.
a) rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve.
Liquidity preference theory is most relevant to the a) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. b) long run and supposes that the price level adjusts to bring money supply and money demand into balance. c) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. d) short run and supposes that the price level adjusts to bring money supply and money demand into balance.
a) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that a) the Phillips curve did not apply in the long run. b) monetary policy was ineffective in combating inflation. c) Phillips had made errors in collecting his data. d) it seemed to work for wages but not for inflation.
a) the Phillips curve did not apply in the long run.
Critics of stabilization policy argue that a) the lag problem ends up being a cause of economic fluctuations. b) "animal spirits" must be offset by active monetary policy. c) active monetary policy is necessary for steady economic growth. d) active fiscal policy is required for steady economic growth.
a) the lag problem ends up being a cause of economic fluctuations.
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if a) the price level is higher than expected making production more profitable. b) the price level is higher than expected making production less profitable. c) the price level is higher than expected making production less profitable. d) the price level is lower than expected making production more profitable.
a) the price level is higher than expected making production more profitable.
A change in expected inflation shifts a) the short-run Phillips curve, but not the long run Phillips curve. b) neither the short-run nor the long-run Phillips curve. c) both the short-run and long-run Phillips curve right. d) the long-run Phillips curve, but not the long run Phillips curve.
a) the short-run Phillips curve, but not the long run Phillips curve.
When production costs rise, Question 2 options: a) the short-run aggregate supply curve shifts to the left. b) the short-run aggregate supply curve shifts to the right. c) the aggregate demand curve shifts to the right. d) the aggregate demand curve shifts to the left.
a) the short-run aggregate supply curve shifts to the left.
The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead a) to a lower unemployment rate and a higher inflation rate than policy B. b) to a higher unemployment rate and lower inflation rate than policy B. c) to a higher unemployment rate and higher inflation rate than policy B. d) to a lower unemployment rate and a lower inflation rate than policy B.
a) to a lower unemployment rate and a higher inflation rate than policy B.
As the aggregate demand curve shifts leftward along a given aggregate supply curve, a) unemployment is higher and inflation is lower. b) unemployment and inflation are lower. c) unemployment and inflation are higher. d) unemployment is lower and inflation is higher.
a) unemployment is higher and inflation is lower.
Refer to figure 35-5. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve? a) A, B b) A, D c) C, B d) None of the above is correct.
b) A, D
Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve? a) Teresa reads in the newspaper that the central bank recently raised the money supply. b) Jackie gets fewer job offers. c) Miguel makes larger increases in the prices at his health food store. d) Julie's nominal wage increase is larger.
b) Jackie gets fewer job offers.
Suppose that a drought significantly reduces agricultural production one year. Which of the following would likely occur as a result of the bad weather? a) The short-run aggregate supply curve will shift to the right, and the short-run Phillips Curve will shift to the right. b) The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the right. c) The short-run aggregate supply curve will shift to the right, and the short-run Phillips Curve will shift to the left. d) The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the left.
b) The short-run aggregate supply curve will shift to the left, and the short-run Phillips Curve will shift to the right.
Refer to Figure 33-3. The natural rate of output occurs at a) Y1. b) Y2. c) Y3. d) both Y1 and Y3.
b) Y2
Economists who are skeptical about the relevance of "liquidity traps" argue that a) while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world. b) a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero. c) a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero. d) a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
b) a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
The initial impact of an increase in an investment tax credit is to shift Question 3 options: a) aggregate demand left. b) aggregate demand right. c) aggregate supply right. d) aggregate supply left.
b) aggregate demand right.
Automatic stabilizers a) increase the problems that lags cause in using fiscal policy as a stabilization tool. b) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. c) are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. d) All of the above are correct.
b) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
If the sacrifice ratio is 2, reducing the inflation rate from 4 percent to 2 percent would a) imply that unemployment would rise by 1%. b) cost 4 percent of annual output. c) imply that unemployment would rise by 4%. d) cost 1 percent of annual output.
b) cost 4 percent of annual output.
Refer to Figure 33-5. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2 Question 10 options: a) causes the economy to experience an increase in the unemployment rate. b) could be caused by a decrease in the expected price level. c) could be caused by an outbreak of war in the Middle East. d) causes the economy to experience stagflation.
b) could be caused by a decrease in the expected price level.
Other things the same, during recessions taxes tend to a) fall. The fall in taxes contracts aggregate demand. b) fall. The fall in taxes stimulates aggregate demand. c) rise. The rise in taxes contracts aggregate demand. d) rise. The rise in taxes stimulates aggregate demand.
b) fall. The fall in taxes stimulates aggregate demand.
Permanent tax cuts shift the AD curve a) not as far to the left as do temporary tax cuts. b) farther to the right than do temporary tax cuts. c) farther to the left than do temporary tax cuts. d) not as far to the right as do temporary tax cuts.
b) farther to the right than do temporary tax cuts.
In recent years, the Federal Reserve has conducted policy by setting a target for the a) growth rate of the money supply. b) federal funds rate. c) size of the money supply. d) discount rate.
b) federal funds rate.
Which of the following would not be included in aggregate demand? a) purchases of goods by households. b) government's tax collections. c) firms' purchases of newly produced machinery. d) an increase in firms' inventories.
b) government's tax collections.
The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it a) increases the money supply and thereby reduces interest rates. b) increases income and thereby increases consumer spending. c) decreases income and thereby increases consumer spending. d) reduces investment and thereby increases consumer spending.
b) increases income and thereby increases consumer spending.
An increase in the MPC a) decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. b) increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. c) increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. d) decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
b) increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
In the long run, a) the natural rate of unemployment depends primarily on the level of aggregate demand. b) inflation depends primarily upon the money supply growth rate. c) there is a tradeoff between the inflation rate and the natural rate of unemployment. d) All of the above are correct.
b) inflation depends primarily upon the money supply growth rate.
An adverse supply shock will shift short-run aggregate supply a) right, making prices fall. b) left, making prices rise. c) left, making prices fall. d) right, making prices rise.
b) left, making prices rise.
A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a a) open-market trap. b) liquidity trap. c) liquidity preference. d) interest-rate contraction.
b) liquidity trap.
One determinant of the natural rate of unemployment is the a) rate of growth of the money supply. b) minimum wage rate. c) expected inflation rate. d) All of the above are correct.
b) minimum wage rate.
Monetary Policy in FlosserlandIn Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. Refer to Monetary Policy in Flosserland. Suppose Flosserland has had the same inflation rate for a long time. Which, if either, of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate. a) the Classical dichotomy, but not the long run Phillips curve b) neither the long-run Phillips curve nor the Classical dichotomy c) the long-run Phillips curve, but not the Classical dichotomy d) both the Classical dichotomy and the long-run Phillips curve
b) neither the long-run Phillips curve nor the Classical dichotomy
Which of the following can explain the upward slope of the short-run aggregate supply curve? a) as the price level falls, the exchange rate falls b) nominal wages are slow to adjust to changing economic conditions c) an increase in the interest rate increases investment spending d) an increase in the money supply lowers the interest rate
b) nominal wages are slow to adjust to changing economic conditions
If it were not for the automatic stabilizers in the U.S. economy, a) the Federal Reserve would have less reason than it has now to monitor stock prices. b) output and employment would probably be more volatile than they are now. c) a strict balanced-budget rule would be more desirable than it is now. d) it would be more desirable than it is now for the Federal Reserve to target an interest rate.
b) output and employment would probably be more volatile than they are now.
Other things the same, automatic stabilizers tend to a) lower expenditures during expansions and recessions. b) raise expenditures during recessions and lower expenditures during expansions. c) raise expenditures during expansions and lower expenditures during recessions. d) raise expenditures during expansions and recessions.
b) raise expenditures during recessions and lower expenditures during expansions.
Prime Minister Emma Bigshot urges passage of a bill to reduce unemployment benefits from very generous levels in her country. She also urges her country's central bank to raise the rate at which the money supply is increasing. In the long run which, if either, of these policies will reduce the unemployment rate? a) both reducing the generosity of unemployment benefits and raising the rate at which the money supply is increasing b) reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing c) raising the rate at which the money supply is increasing, but not reducing the generosity of unemployment benefits d) neither reducing the generosity of unemployment benefits nor raising the rate at which the money supply is increasing
b) reducing the generosity of unemployment benefits but not raising the rate at which the money supply is increasing
Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess a) demand for money equal to the distance between points b and c. b) supply of money equal to the distance between points a and b. c) demand for money equal to the distance between points a and b. d) supply of money equal to the distance between points b and c.
b) supply of money equal to the distance between points a and b.
According to the long-run Phillips curve, in the long run monetary policy influences a) the unemployment rate but not the inflation rate. b) the inflation rate but not the unemployment rate. c) both the inflation rate and the unemployment rate. d) neither the unemployment rate nor the inflation rate.
b) the inflation rate but not the unemployment rate.
Which of the following is not an automatic stabilizer? a) the unemployment compensation system b) the minimum wage c) the federal income tax d) the welfare system
b) the minimum wage
The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates a) the accelerator effect. b) the multiplier effect. c) the chain effect. d) the bandwagon effect.
b) the multiplier effect.
If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in a) the long run but not the short run. b) the short run but not the long run. c) neither the short run nor the long run. d) the long run and the short run.
b) the short run but not the long run.
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for a) the slope of long-run aggregate supply. b) the slope of the aggregate-demand curve. c) the slope of short-run aggregate supply. d) everything that makes the aggregate-demand curve shift.
b) the slope of the aggregate-demand curve.
An example of an automatic stabilizer is a) a decrease in money demand. b) unemployment benefits. c) a decrease in tax rates in response to a recession. d) a lowering of interest rates by the Fed.
b) unemployment benefits.
Imagine the U.S. economy is in long-run equilibrium. Then suppose the aggregate demand increases. We would expect that in the long-run the price level would a) decrease by the same amount as the increase in aggregate demand. b) increase. c) decrease. d) stay the same.
b) increase.
If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is a) 1/5. b) 2. c) 5. d) 5/2.
c) 5.
Refer to Figure 33-4. In the short run, a favorable shift in aggregate supply would move the economy from Question 5 options: a) B to C. b) D to A. c) A to B. d) C to D.
c) A to B.
Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to Question 7 options: a) W in the long run. b) V in the long run. c) Z in the long run. d) X in the long run.
c) Z in the long run.
Refer to Figure 34-4. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2? a) an increase in the price level b) a decrease in the cost of borrowing c) a decrease in the price level d) an increase in the cost of borrowing
c) a decrease in the price level
One way to express the classical idea of monetary neutrality is to draw a) a downward-sloping short-run Phillips curve. b) a downward-sloping long-run Phillips curve. c) a vertical long-run Phillips curve. d) an upward-sloping short-run Phillips curve.
c) a vertical long-run Phillips curve.
Which of the following events would shift money demand to the right? a) a decrease in the price level b) an increase in the interest rate c) an increase in the price level d) a decrease in the interest rate
c) an increase in the price level
Financial CrisisSuppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. What happens to the price level and real GDP in the short run? a) both the price level and real GDP rise b) the price level falls and real GDP rises c) both the price level and real GDP fall d) the price level rises and real GDP falls
c) both the price level and real GDP fall
Most economists believe that classical macroeconomic theory is a good description of the economy Question 4 options: a) in the short run and in the long run. b) in the short run, but not in the long run. c) in the long run, but not in the short run. d) in neither the short nor long run.
c) in the long run, but not in the short run.
The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has a) decreased, so they decrease production. b) increased, so they decrease production. c) increased, so they increase production. d) decreased, so they increase production.
c) increased, so they increase production.
According to the theory of liquidity preference, money demand a) is independent of the interest rate, while money supply is negatively related to the interest rate. b) and the money supply are negatively related to the interest rate. c) is negatively related to the interest rate, while the money supply is independent of the interest rate. d) and the money supply are positively related to the interest rate.
c) is negatively related to the interest rate, while the money supply is independent of the interest rate.
Changes in the interest rate bring the money market into equilibrium according to a) both liquidity preference theory and classical theory. b) classical theory, but not liquidity preference theory. c) liquidity preference theory, but not classical theory. d) neither liquidity preference theory nor classical theory.
c) liquidity preference theory, but not classical theory.
Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy Question 1 options: a) stays at A. b) moves to C. c) moves to D. d) moves to B.
c) moves to D.
Government purchases are said to have a a) liquidity-enhancing effect on aggregate supply. b) liquidity-enhancing effect on aggregate demand. c) multiplier effect on aggregate demand. d) multiplier effect on aggregate supply.
c) multiplier effect on aggregate demand.
Monetary Policy in MokaniaMokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate. Refer to Monetary Policy in Mokania. The Bank of Mokania publicizes that it intends to reduce the inflation rate to 5%. If Mokanians lower their inflation expectations, which curve shifts to the left? a) only the long-run Phillips curve b) neither the short-run nor the long-run Phillips curves c) only the short-run Phillips curve d) both the short-run and the long-run Phillips curves
c) only the short-run Phillips curve
The aggregate quantity of goods and services demanded changes as the price level falls because a) real wealth falls, interest rates rise, and the dollar appreciates. b) real wealth falls, interest rates rise, and the dollar depreciates. c) real wealth rises, interest rates fall, and the dollar depreciates. d) real wealth rises, interest rates fall, and the dollar appreciates.
c) real wealth rises, interest rates fall, and the dollar depreciates.
If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds, a) the dollar would appreciate which would cause aggregate demand to shift left. b) the dollar would depreciate which would cause aggregate demand to shift left. c) the dollar would depreciate which would cause aggregate demand to shift right. d) the dollar would appreciate which would cause aggregate demand to shift right.
c) the dollar would depreciate which would cause aggregate demand to shift right.
Imagine two economies that are identical except that for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $500 billion. It follows that Question 9 options: a) real GDP and the price level are lower in country B. b) real GDP, but not the price level, is lower in country B. c) the price level, but not real GDP is lower in country B. d) neither the price level or real GDP is lower in country B.
c) the price level, but not real GDP is lower in country B.
Monetary Policy in FlosserlandIn Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. Refer to Monetary Policy in Flosserland. Suppose that the Flosserland Department of Finance undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%. If Flosserlanders believe their government then which, if any, curve(s) shift left? a) the long-run but not the short-run Phillips curve b) neither the short-run nor the long-run Phillips curve c) the short-run but not the long run Phillips curve d) the short-run and the long-run Phillips curve
c) the short-run but not the long run Phillips curve
Refer to Figure 33-4. If the economy starts at A and there is a fall in aggregate demand, the economy moves Question 11 options: a) to B in the long run. b) back to A 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.
Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is a) vertical, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run. b) downward-sloping, which implies that monetary and fiscal policies can influence the level of unemployment in the long run. c) vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run. d) downward-sloping, which implies that monetary and fiscal policies cannot influence the rate of inflation in the long run.
c) vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run.
Some economists argue that a) monetary policy should actively be used to stabilize the economy. b) fiscal policy should actively be used to stabilize the economy. c) fiscal policy can be used to shift the AD curve. d) All of the above are correct.
d) All of the above are correct.
Refer to Figure 33-10. If the economy starts at point C, stagflation would be consistent with point a) A. b) B. c) C. d) D.
d) D.
How would a decrease in the natural rate of unemployment affect the long-run Phillips curve? a) It would shift the long-run Phillips curve right. b) There would be a downward movement along a given long-run Philips curve. c) There would be an upward movement along a given long-run Phillips curve. d) It would shift the long-run Phillips curve left.
d) It would shift the long-run Phillips curve left.
In the long run, an increase in the money supply growth rate a) shifts both the long-run and the short-run Phillips curves right. b) shifts the long-run Phillips curve left and the short-run Phillips curve right. c) shifts the long-run Phillips curve right and the short-run Phillips curve left. d) None of the above is correct.
d) None of the above is correct.
Refer to Figure 33-7. Suppose the economy starts at Y. If aggregate demand increases from AD2 to AD3, then the economy moves to a) W. b) X. c) Z. d) V.
d) V.
Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of a) a decrease in the price level. b) an increase in government purchases. c) households saving a smaller fraction of their income. d) a decrease in net exports.
d) a decrease in net exports.
Refer to Figure 33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1 , then it must be the case that Question 8 options: a) short run aggregate supply has decreased. b) aggregate demand has increased. c) short run aggregate supply has increased. d) aggregate demand has decreased.
d) aggregate demand has decreased.
Other things the same, an increase in the amount of capital firms wish to purchase would initially shift a) aggregate demand left. b) aggregate supply left. c) aggregate supply right. d) aggregate demand right.
d) aggregate demand right.
The Stock Market Boom of 2015Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. Which curve shifts and in which direction? a) aggregate supply shifts left. b) aggregate demand shifts left c) aggregate supply shifts right d) aggregate demand shifts right
d) aggregate demand shifts right
Which of the following events would shift money demand to the right? a) an increase in the interest rate b) a decrease in the interest rate c) a decrease in the price level d) an increase in the price level
d) an increase in the price level
The wealth effect stems from the idea that a higher price level a) increases the real value of the domestic currency in foreign-exchange markets. b) decreases the real value of the domestic currency in foreign-exchange markets. c) increases the real value of households' money holdings. d) decreases the real value of households' money holdings.
d) decreases the real value of households' money holdings.
Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2? a) net exports b) government spending c) consumption d) investment
d) investment
The theory of liquidity preference illustrates the principle that a) monetary policy must be described in terms of the interest rate. b) monetary policy must be described in terms of the money supply. c) monetary policy can be described either in terms of the exchange rate or the interest rate. d) monetary policy can be described either in terms of the money supply or in terms of the interest rate.
d) monetary policy can be described either in terms of the money supply or in terms of the interest rate.
Other things the same, an increase in the price level induces people to hold a) more money, so they lend more, and the interest rate falls. b) less money, so they lend more, and the interest rate falls. c) less money, so they lend less, and the interest rate rises. d) more money, so they lend less, and the interest rate rises.
d) more money, so they lend less, and the interest rate rises.
From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have a) reduced inflation and raised unemployment. b) raised inflation and unemployment. c) reduced inflation and unemployment. d) raised inflation and reduced unemployment.
d) raised inflation and reduced unemployment.
The theory by which people optimally use all available information when forecasting the future is known as a) predictive expectations. b) perfect expectations. c) credible expectations. d) rational expectations.
d) rational expectations.
Stagflation exists when prices a) rise and unemployment falls. b) fall and unemployment rises. c) fall and unemployment falls. d) rise and unemployment rises.
d) rise and unemployment rises.
Refer to Figure 33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P3 and Y3 , then it must be the case that a) short run aggregate supply has decreased. b) aggregate demand has decreased. c) aggregate demand has increased. d) short run aggregate supply has increased.
d) short run aggregate supply has increased.
OptimismImagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. How is the new long-run equilibrium different from the original one? a) both price and real GDP are lower. b) both price and real GDP are higher c) the price level is the same and GDP is higher. d) the price level is higher and real GDP is the same.
d) the price level is higher and real GDP is the same.
The most important automatic stabilizer is a) open-market operations. b) unemployment compensation. c) welfare benefits. d) the tax system.
d) the tax system.
If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate a) rises and the inflation rate falls. b) and the inflation rate fall. c) and the inflation rate rise. d) falls and the inflation rate rises.
falls and the inflation rate rises.