macro

The Fed rule is an equation that shows how the interest rate behavior of the Fed depends on the state of the economy. A. True Your answer is correct. B. False

TRUE

The IS curve shows the relationship between output and the interest rate. A. False B. True

TRUE

A decrease in government spending shifts the​ ________, and a decrease in the price level shifts the​ ________. A. IS curve to the​ left; Fed rule to the right B. IS curve to the​ left; Fed rule to the left C. IS curve to the​ right; Fed rule to the left D. Fed rule to the​ left; Fed rule to the right

A

The aggregate demand​ (AD) and aggregate supply​ (AS) equilibrium may occur at a very steep portion of AS​ curve, when A. the economy is operating at or near full employment and output level is above full capacity. B. there is hardly any inflationary pressure. C. there exists considerable excess capacity and high unemployment in the economy. D. the Fed is following a contractionary monetary policy.

A

The aggregate price level increases due to a rise in world energy prices. The central bank and the government do not react. A. The Fed rule curve shifts to the​ left, causing a rise in interest rates and a decrease in output. B. The Fed rule curve shifts to the​ right, causing a rise in interest rates and a decrease in output. C. The Fed rule curve shifts to the​ left, causing a decrease in interest rates and an increase in output. D. The Fed rule curve shifts to the​ right, causing a decrease in interest rates and an increase in outpu

A

The​ long-run aggregate supply curve A. is vertical because all prices​ (both input and output​ prices) change at the same rate in the long run. B. is​ upward-sloping because a higher price level causes businesses to increase production. C. shows the various amounts of aggregate output businesses are willing to consume at each price level. D. is vertical because input prices lag behind price level changes.

A

When output is above potential​ GDP, there is​ ________ pressure on wages. As the economy approaches​ short-run capacity, these changing wages shift the​ short-run AS curve to the​ ____. A. ​upward; lef. B. ​upward; right C. ​downward; left D. ​downward; right

A

Which of the following is the best explanation of the shape of the AD​ curve? The aggregate demand curve slopes downward because A. an increase in the price level causes the demand for money to​ rise, driving up the interest rate and discouraging​ investment, which causes aggregate demand to fall. B. when the price level is​ lower, people can afford to buy more and aggregate demand rises. C. a decrease in the price level drives up interest​ rates, which discourages consumption and aggregate demand falls. D. All of the above are good explanations

A

A sudden increase in oil prices results in a supply​ shock, shifting the​ short-run aggregate supply curve to the​ ________, resulting in society getting a​ ________ aggregate output at any price level. A. ​left; larger B. ​left; smaller C. ​right; smaller D. ​right; larger

B

All of the following are exogenous variables to the aggregate​ supply-aggregate demand model except A. the Z factors. B. the price level. C. government spending. D. net taxes.

B

As shown in the diagram to the​ right, the​ short-run aggregate supply curve​ (AS) is​ upward-sloping. This positive slope is explained in part by the fact that A. in the​ short-run, output prices are slower to adjust to increasing aggregate demand than are input prices. B. in the​ short-run, input prices long dash—particularly wage rates long dash—are slower to adjust to increasing aggregate demand than are output prices.. C. input price increases cause firms to raise their prices. D. business owners are more intelligent than other resource owners

B

In the face of inflationary​ pressures, the central bank reduces money supply to keep real money supply constant. A. By decreasing money​ supply, the interest rate is increased but aggregate output increases. B. The equilibrium level of either aggregate output or the interest rate does not change. C. By decreasing money​ supply, the interest rate is held constant but aggregate output increases. D. Since money supply​ decreases, aggregate output reduces and the interest rate increases.

B

When output is above potential​ GDP, there is​ ________ pressure on wages. As the economy approaches​ short-run capacity, these changing wages shift the​ short-run AS curve to the​ ____. A. ​upward; right B. ​upward; left C. ​downward; left D. ​downward; right

B

While the government has announced a decrease in public​ spending, the central bank announces it will do all it takes to maintain interest rates at a constant. A. A reduction in public spending will decrease aggregate​ output, but constant interest rates will increase money supply. B. A reduction in public spending along with a constant interest rate decreases money supply and aggregate output. C. A reduction in public spending will decrease aggregate​ output, but maintaining the interest rate will increase private investments and savings. D. A reduction in public spending will decrease both aggregate output and the interest rate. Efforts to maintain a constant interest rate will most likely fail.

B

The Federal Reserve Bank gets a New​ Chair, Janet Yellen In a June​ 17, 2015 press​ conference, Fed Chair Janet Yellen indicated the possibility of the Fed raising interest rates by the end of the year. On this​ date, the federal funds rate target set by the Fed was 0.00minus−0.25 ​percent, where it had been since January 2009. According to the Fed​ rule, the Fed will raise the interest rate when​ ______. ​(Check all that apply.​) A. employment it low B. inflation is high C. output is high D. consumer confidence is weak

B,C

According to the real wealth effect ​(or real balance​ effect), an increasean increase in the price level A. does not affect the purchasing power of wealth in the long run. B. does not affect the purchasing power of any type of wealth in the short run. C. decreases ​consumers' expenditures due to a decrease in the purchasing power of household wealth. D. increases ​consumers' expenditures due to an increase in the purchasing power of household wealth.

C

The government increases public spending while the money supply remains constant. A. The IS curve shifts to the left and causes a decrease in the equilibrium level of both the aggregate output and the interest rate. B. The IS curve shifts to the left and causes a rise in the equilibrium level of both the aggregate output and the interest rate. C. The IS curve shifts to the right and causes a rise in the equilibrium level of both the aggregate output and the interest rate. D. The IS curve shifts to the left and causes an increase in the equilibrium level of both the aggregate output and the interest rate.

C

This example describes the simple Keynesian aggregate supply curve as one in which there is a maximum level of output given the constraints of a fixed capital stock and a fixed supply of labor. The presumption is that increases in demand when firms are operating below capacity will result in output increases and no input price or output price changes but that at levels of output above full​ capacity, firms have no choice but to raise prices if demand increases. The aggregate demand​ (AD) and aggregate supply​ (AS) equilibrium may occur at a very flat portion of AS​ curve, when A. there is considerable inflationary pressure. B. the economy is at full employment. C. there exists considerable excess capacity and high unemployment in the economy.. D. the Fed is following an expansionary monetary policy.

C

In the first few chapters of this​ book, we introduced the notion of supply and demand. One of the first things we did was to derive the relationship between the price of a product and the quantity demanded per time period by an individual household. Now we have derived what is called the aggregate demand curve. The two look the same and both seem to have a negative​ slope, but the logic is completely different. The negative slope of a simple demand curvea simple demand curve A. occurs because prices change when incomes are lower. B. is due to a higher price level raising interest rates comma reducing investment and aggregate outputis due to a higher price level raising interest rates, reducing investment and aggregate output. C. occurs because less is supplied at higher prices. D. is explained by the substitution effect and the income effectis explained by the substitution effect and the income effect.

D

In​ reality, however, the​ short-run aggregate supply curve​ isn't flat and then vertical.​ Rather, it becomes steeper as we move from left to right. This somewhat unique shape of the​ short-run aggregate supply curve is based in part on the fact that A. as the economy moves closer to full​ capacity, the firms decrease output and decrease​ prices; whereas at excess capacity prices increase more than output. B. as the economy moves closer to full​ capacity, the firms increase output and not the​ prices, and at excess capacity input prices increase faster. C. when the economy has excess​ capacity, input prices are quicker to adjust to an increase in aggregate demand than is output and at full capacity output increases more than prices. D. when the economy has excess​ capacity, input prices are slow to adjust whereas output adjusts quickly to increases in aggregate​ demand; as the economy approaches full capacity prices increase at a faster rate than does output.

D

On November​ 9, 2011, the European Central Bank acted to decrease the​ short-term interest rate in Europe by​ one-fourth of a percentage​ point, to 1.25​ percent, and additional cuts were made over the next three​ years, to a low rate of 0.05 percent by September 2014. The rate cuts were made because European countries were growing very slowly or were in recession. What effect did the bank hope the action would have on the​ economy? A. Increase investment spending and raise GDP. B. Increase​ GDP, which would set off a multiplier effect with consumption rising. C. Increase​ GDP, which would encourage additional government spending and continue to increase GDP. D. A and B only.. E. All of the above.

D

The central bank decides to increase interest rates to offset the effects of a reduction in taxation on prices. A. There will be no change in either aggregate output or the interest rate as the two moves​ counter-balance each other. B. The aggregate demand will shift to the​ left, decreasing output and increasing equilibrium interest rates. C. The aggregate supply will shift to the​ right, increasing output and decreasing equilibrium interest rates. D. If the central​ bank's move perfectly offsets the​ government's policy, then aggregate output does not change but the equilibrium level of interest rates increases.

D

When the interest rate​ falls, the planned aggregate expenditure curve shifts​ ________ because planned investment is​ ________. A. ​down; lower B. ​up; lower C. ​down; higher D. ​up; higher

D