Macro Chapter 32 Calhoun

The real business cycle (RBC) model implies that: A. business cycles are driven by real shocks to the economy. B. business cycles are the result of fluctuations in the money supply. C. real output fluctuates as a result of demand shocks only. D. the rate of inflation is closely linked to the long-run rate of output growth

.A. business cycles are driven by real shocks to the economy.

The AD-AS model is most useful for explaining what causes: A. fluctuations in GDP growth around its trend rate. B. the economy's long-run growth rate. C. stock market fluctuations. D. inflation

.A. fluctuations in GDP growth around its trend rate.

On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money supply is 2%, then the velocity of money must be growing at: A. 20%. B. 8%. C. 5%. D. 12%

.B. 8%.

The disinflation experiment reduced inflation in the United States, but at the cost of: A. an increase in the long-run growth rate of the economy. B. high unemployment. C. high inflation. D. deflation

.B. high unemployment.

(Figure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of: A. 4%. B. 5%. C. 7%. D. 3%.

A. 4%.

A temporary positive shock to spending growth will lead to an increase in: A. output and prices in the short run, but no change in either in the long run. B. both output and prices in the short run, but only prices in the long run. C. output in both the short run and the long run. D. both prices and output in the short run, but only output in the long run.

A. output and prices in the short run, but no change in either in the long run

An unexpected outward shift of the economy's AD curve will cause real GDP growth to increase in: A. the short run only. B. neither the short run nor the long run. C. the long run only. D. both the short run and the long run.

A. the short run only

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between: A. too low a rate of growth or too high a rate of inflation. B. too high a rate of growth or too low a rate of inflation. C. too low a rate of growth or too low a rate of inflation. D. too high a rate of growth or too high a rate of inflation.

A. too low a rate of growth or too high a rate of inflation.

In the AD -AS model, money is not neutral in the short run if: A. wages and prices are sticky. B. the change in the money supply is fully anticipated. C. wages and prices are flexible. D. unexpected inflation turns into expected inflation.

A. wages and prices are sticky.

Imagine that a government starts out with the budget surplus. If in the next period the government temporarily runs a budget deficit, what would you expect to happen to aggregate demand? A. AD would decrease. B. AD would increase. C. AD would stay the same. D. AD would lie on the Solow growth rate.

B. AD would increase.

Why is the SRAS curve steeper above its intersection with the long-run aggregate supply curve? A. Wages are stickier in the upward direction. B. Wages are less sticky in the upward direction. C. Lower inflation will lead to faster growth. D. Employees become less motivated to work during times of unexpected inflation.

B. Wages are less sticky in the upward direction.

A positive real shock causes the aggregate demand curve to: A. shift inward. B. not shift at all. C. shift outward and become flatter. D. shift outward.

B. not shift at all.

A decrease in spending growth will cause the economy's aggregate demand curve to: A. become steeper. B. shift to the left. C. become flatter. D. shift to the right.

B. shift to the left.

The lowering of the growth rate of the money supply is represented graphically by a: A. shift to the left of the SRAS curve. B. shift to the left of the AD curve. C. shift to the right of the SRAS curve. D. shift to the right of the AD curve.

B.shift to the left of the AD curve.

For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is: A. 16%. B. -6%. C. 4%. D. -4%.

C. 4%.

(Figure- Oil Market Diagrams) Consider the world oil market diagrams presented in the figure. Which of the panels correctly depicts the cause of rises in the price of oil in the early 2000s? A. Panel A B. Panel B C. Panel D D. Panel C

C. Panel D

Which of the following is NOT consistent with points along the long-run aggregate supply curve? A. All prices are fully flexible. B. All real factors of production are being fully utilized. C. Real output growth is negatively related to inflation. D. Real GDP is growing at its long-run potential growth rate.

C. Real output growth is negatively related to inflation.

If wages are not as flexible as prices in the AD -AS model, an increase in money growth will lead to: A. no change in inflation, but a fall in the profits of firms. B. an increase in inflation, but no rise in real short-run GDP growth. C. an increase in inflation and in the profits of firms. D. an increase in inflation and a rise in real long-run GDP growth.

C. an increase in inflation and in the profits of firms.

(Figure: Two SRAS Curves) The figure shows the AD -AS model with two SRAS curves. If the economy is initially at Point A and expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by: A. moving directly to Point C. B. first moving to Point D and then moving along SRAS2 to Point C. C. moving along SRAS1 to Point B. D. first moving to Point C and then to Point B.

C. moving along SRAS 1 to Point B.

Deflation can cause the economy's aggregate demand curve to shift inward because debt contracts are: A. adjusted for inflation. B. not adjusted for changes in the interest rate. C. not adjusted for inflation. D. adjusted for changes in the interest rate.

C. not adjusted for inflation.

Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused- A. both real growth and inflation to increase. B. both real growth and inflation to decrease. C. real growth to increase and inflation to decrease. D. real growth to decrease and inflation to increase.

C. real growth to increase and inflation to decrease.

The long-run aggregate supply curve is represented by a vertical line at the Solow growth rate because: A. growth is affected by changes in the money supply in the long run. B. growth is not affected by the factors of production. C. there is an underlying assumption of long-run money neutrality. D. growth depends on the rate of inflation in the long run.

C. there is an underlying assumption of long-run money neutrality.

If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be: A. 5%. B. -5%. C. 1%. D. -1%.

D. -1%

As a result of an increase in expected inflation, the: A. LRAS curve shifts to the right. B. LRAS curve shifts to the left. C. SRAS curve shifts down and to the right. D. SRAS curve shifts up and to the left.

D. SRAS curve shifts up and to the left.

If the actual rate of inflation turns out to be higher than the expected rate of inflation, what happens to the growth rate of output before expectations are updated? A. The growth rate is lower than the Solow growth rate. B. The growth rate could go up or down. C. The growth rate stays at the Solow growth rate. D. The growth rate is higher than the Solow growth rate.

D. The growth rate is higher than the Solow growth rate.

Which of the following is a negative real shock that occurred during the Great Depression? A. Bank failures led to a decrease in the money supply. B. A stock market crash decreased consumer wealth. C. The Smoot-Hawley tariffs led to a decrease in net exports. D. Widespread bank failures led to a reduction in the productivity of financial intermediation.

D. Widespread bank failures led to a reduction in the productivity of financial intermediation.

In the basic model that includes the AD and LRAS curves only, increased spending growth causes: A. a lower inflation rate, but no change in the real growth rate. B. a lower real growth rate, but no change in the inflation rate. C. a higher real growth rate, but no change in the inflation rate. D. a higher inflation rate, but no change in the real growth rate.

D. a higher inflation rate, but no change in the real growth rate.

Which of the following causes a shift of the AD curve to the right? A. an increase in import growth B. an increase in interest rates C. an increase in income taxes D. an increase in consumer confidence

D. an increase in consumer confidence

From an initial equilibrium in the AD -AS model, an increase in consumption growth will initially cause inflation: A. to increase and real growth to decrease. B. to increase and real growth to remain unchanged. C. and real growth to remain unchanged. D. and real growth to increase.

D. and real growth to increase.

In the basic model that includes the AD and LRAS curves only, aggregate demand shocks caused by changes in the growth of money supply: Answers: A. are neutral in the short run only. B. are neutral in the long run only. C. are neutral in neither the short run nor the long run. D. are neutral in both the short run and long run.

D. are neutral in both the short run and long run.

The main reason(s) for the slope of SRAS is: A. neither sticky prices nor sticky wages. B. sticky wages only. C. sticky prices only. D. both sticky prices and sticky wages.

D. both sticky prices and sticky wages.

An unexpected increase in money growth leads to increased inflation in: Answers: A. the long run only. B. the short run only. C. neither the short run nor the long run. tD. both the short run and the long run.

D. both the short run and the long run.

If π < π e: A. firms' profits will increase. B. money growth will cause the short-run aggregate supply curve to shift. C. there will be no change in real GDP growth because it is determined by real factors. D. firms will reduce their output.

D. firms will reduce their output.

Sticky wages and prices: A. have no effect on the impact of negative shocks. B. offset the impact of positive shocks. C. reduce the impact of negative shocks. D. increase the impact of positive shocks.

D. increase the impact of positive shocks.

In the AD -AS model, an unexpected increase in the growth rate of the money supply: A. decreases both the inflation and real growth rates in the short run. B. increases both the inflation and real growth rates in the long run. C. decreases both the inflation and real growth rates in the long run. D. increases both the inflation and real growth rates in the short run.

D. increases both the inflation and real growth rates in the short run.

If spending grows by 3% while real growth is 1% and velocity is stable, then prices will be____ at a rate of _____ according to the aggregate demand curve. A. falling- 3% B. rising-3% C. falling- 2% D. rising- 2%

D. rising- 2%

During the Great Depression, the long-run aggregate supply curve: A. did not shift at all. B. shifted outward. C. became flatter. D. shifted inward.

D. shifted inward.

Sticky wages and prices are incorporated in the AD -AS model by the: A. long-run aggregate supply curve. B. both the aggregate demand and short-run aggregate supply curves. D. short-run aggregate supply curve.

D. short-run aggregate supply curve.

An increase in the rate of expected inflation causes: A. an upward movement along the short-run aggregate supply curve. B. a downward movement along the short-run aggregate supply curve. C. the short-run aggregate supply curve to shift down. D. the short-run aggregate supply curve to shift up.

D. the short-run aggregate supply curve to shift up.

If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be____ at a rate of _____ according to the aggregate demand curve. A. rising- 3% B. falling- 2% C. rising- 2% D. falling- 3%_

__B. falling- 2%