Macro Chapter 3 Supplementary questions

When the money market is drawn with the value of money on the left vertical axis, if the Federal Reserve decreases the discount rate, then the money supply curve

shifts right, causing the price level to rise

Suppose the MPC is .60 and there are no crowding-out effects. if the government expenditures increase by $25 billion, then the aggregate demand

shifts rightward by $62.5 billion

When the money market is drawn with the value of money on the left vertical is, an increase in the money supply creates and excess

supply of money, causing people to spend money

The long-run response to a decrease in the money supply growth rate is shown by shifting

only the short-run phillips curves left

If the MPC is .75 and there are no crowding-out effects, then an initial increase in aggregate demand of $100billion will eventually shift the AD curve to the right by

$400 billion

If the economy is initially at long-run equilibrium and aggregate demand increases, then in the SHORT-RUN price level

And output is higher than in the original long-run equilibrium

A favorable supply shock will cause inflation to

Fall and shift the SRPC left

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium

Inflation expectations fall which shifts the SRPC to the left

If unemployment is below its natural rate, what happens to move the economy to long-run equilibrium?

Inflation expectations rise which shifts the SRPC curve to the right

If the economy is initially at long-run equilibrium and aggregate supply decreases, then in the SHORT-RUN the price level

Is higher and output is the lower than the original long-run equilibrium

If the economy is initially at long-run equilibrium and aggregate demand increases, then in the LONG-RUN the price level

Is higher and output is the same as the original long-run equilibrium

Assume the MPC is .75. Assume there is a multiplier effect and that the total crowding-out effect is $6 Billion. An increase in government purchases of $10 billion will shift aggregate demand to the

Right by $24 billion

An adverse supply shock causes inflation to

Rise and the SRPC to shift right

When the money market is drawn with the value of money on the left vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Shifts left, causing the price level to fall

When the money market is drawn with the value of money on the left vertical axis, if the Federal Reserve buys bonds, then the money supply curve

Shifts right, causing the price level to rise

If the economy is initially at long-run equilibrium and aggregate demand declines then in the SHORT-RUN the price level

and output are lower than in the original long-run equilibrium

When the money market is drawn with the value of money on the left vertical axis, if the money demand shifts leftward, then initially there is an

excess supply of money which causes the price level to rise

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the new LONG-RUN the price level

is lower and output is the same as the original long-run equilibrium

Assume the multiplier is 5 and the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the AD curve to the

right by $30

If there is an adverse supply shock, then

unemployment rises and the SRPC shifts right