Macro Final

Which of the following is included in the investment component of GDP?

All of the above are correct

Critics of stabilization policy argue that

All of the above are correct.

Other things constant, which of the following would reduce unemployment and raise inflation?

All of the above are correct.

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

All of the above are correct.

Any item that people can use to transfer purchasing power from the present to the future is called

a store of value.

In the long run,

inflation depends primarily upon the money supply growth rate.

If the Fed conducts open-market sales, which of the following quantities increase(s)?

interest rates, but not investment or prices

When the dollar depreciates, U.S

net exports rise, which increases the aggregate quantity of goods and services demanded.

If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise?

nominal GDP but not real GDP.

Suppose an economy's production consists only of corn and soybeans. In 2010, 20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base year, it follows that, for 2010,

nominal GDP is $100, real GDP is $50, and the GDP deflator is 200

Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010,

nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.

According to classical macroeconomic theory, changes in the money supply affect

nominal variables, but not real variables.

Which of the following is included in M2 but not in M1?

savings deposits

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?

velocity but not the price level.

Janet is a farmer. Which of the following are included in her human capital?

what she's learned from experience but not her tractor

According to the interest rate effect, when the price level falls

the interest rate falls, so the quantity of goods and services demand rises.

The discount rate is

the interest rate the Fed charges banks.

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

$1,000 higher and M2 would be $1,500 higher

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

$1,000.

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

$1,600.

If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?

$10 trillion.

The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. Refer to Table 24-3. The cost of the basket in 2012 was

$116.

In the economy of Talikastan in 2015, consumption was $800, GDP was $2000, government purchases were $400, and investment was $600. What were Talikastan's net exports in 2015?

$200

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

$3 billion

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

$3 trillion and $2 trillion, respectively

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010?

$30 million

Scenario 24-4 Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90. Refer to Scenario 24-4. The Wrexington salary in Charlieville dollars is

$30,000.00.

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

$37.11

Al's Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP?

$4 million

An automobile factory in Michigan uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP?

$500,000

Which of the following would cause stagflation?

. aggregate supply shifts left

The real GDP per capita (in 2010 dollars) for the United States was $44,723 in 2000 and $49,406 in 2006. What was the annual growth rate of real GDP per capita during this period?

1.67%

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%.

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is

11.76

The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. Refer to Table 24-3. If 2012 is the base year, then the CPI for 2013 was

132.8.

If the sacrifice ratio is 4, then reducing the inflation rate from 9 percent to 5 percent would require sacrificing

16 percent of annual output.

If the price of mangoes is $10 per mango and the price of pineapples is $5 per pineapple, then the relative price of mangoes is

2 pineapple/mango

In 2012, the imaginary nation of Kanmiw had a population of 8,044 and real GDP of 36,198,000. In 2013 it had a population of 7,800 and real GDP of 35,880,000. What was the growth rate of real GDP per person in Kanmiw between 2012 and 2013?

2.2 percent

GDP is not a perfect measure of well-being; for example,

GDP fails to account for the quality of the environment.

In 2000, a country had a real GDP of 800,000 and a population of 40. If its real GDP per person grew at an annual rate of 5% between 2000 and 2002, what was its real GDP per person in 2002?

22,050

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

25 percent.

The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

32.8 percent.

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

4 percent

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

4 percent.

In 2015 the Japanese adult non-institutionalized population was 110.7 million, the labor force was 66 million, and the number of people employed was 63.7 million. According to these numbers, the Japanese labor-force participation rate and unemployment rate were about

59.6% and 3.5%

An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

6%

Refer to Table 28-6. What is the U-3 measure of labor underutilization?

6.2%

Refer to Table 28-6. What is the U-4 measure of labor underutilization?

6.9%

In 2010, a country had a population of 10,000 and real GDP of 500,000. It had 6% growth in real GDP per person. In 2011 it had a population of 12,000. What was its real GDP in 2011?

636,000

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Reserves $4,250Deposits $50,000Loans 45,750 Refer to Table 29-3. The bank's reserve ratio is

8.5 percent

The adult population in the town of Shelbyville is 150 thousand. If 100 thousand people are employed and 20 thousand are unemployed, then the labor force participation rate is approximately

80%.

Which of the following would help explain why the aggregate demand curve slopes downward?

A lower price level reduces the interest rate, which encourages greater spending on investment goods.

Figure 35-2Use the pair of diagrams below to answer the following questions. Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to

B and 2

Last year the imaginary country of Basova had a population of 10,000, 6,000 people worked 8 hours a day, and produced a real GDP of $30,000,000. The imaginary country of Andovia had a population of 12,000, 8,000 people worked 8 hours a day, and produced a real GDP of $38,000,000. Which of the following is correct?

Basova had the higher productivity while Andovia had the higher real GDP per person.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and change their consumption behavior. Refer to Pessimism. In the short run what happens to the price level and real GDP?

Both the price level and real GDP fall.

According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?

Congress passes a reform of the tax laws that encourages greater investment.

Last year country A had a nominal GDP of $600 billion, a GDP deflator of 150 and a population of 40 million. Country B had a nominal GDP of $720 billion, a GDP deflator of 120 and a population of 50 million. From these numbers which country is likely to have had the higher standard of living?

Country B because it had the higher real GDP per person

France has a higher natural rate of unemployment than the United States. This suggests that

France's Phillips curve is to the right of that of the United States, possibly because they have more generous unemployment compensation.

Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries either, they give her what they used to sell her. Which of the following statements is consistent with the way GDP is computed?

GDP will fall if Jennifer marries Thomas but not if she marries Darin.

Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?

In the short run, unemployment will increase and inflation will fall.

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Inflation is 4 percent; the tax rate is 5 percent.

How would a decrease in the natural rate of unemployment affect the long-run Phillips curve?

It would shift the long-run Phillips curve left.

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Jane's nominal income increased this year, but her real income decreased.

Meredith is looking for work as a computer programmer. Although her prospects are good, she has not yet taken a job. Julie is looking for work in a steel mill. Every time she shows up for an interview, there are more people looking for work than there are openings. Someone waiting in line with her tells her it has been that way for a long time.

Meredith is frictionally unemployed, and Julie is structurally unemployed.

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct?

Only Joe's and Jim's grocery store purchases are included in GDP.

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

People will want to hold more money as the cost of holding it falls

Which of the following shifts aggregate demand to the left?

Stock prices fall for some reason other than a change in the price level.

Which of the following is an example of financial intermediation?

Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.

Which of the following items is counted as part of government purchases?

The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

The consumer price index and the GDP deflator will both be unaffected

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

The demand for loanable funds would shift left.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and change their consumption behavior. Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?

The expected price level falls. Bargains are struck for lower wages.

Which of the following events could explain an increase in interest rates together with a decrease in investment?

The government budget went from surplus to deficit.

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

The price level is 4 and velocity is 8.

Which of the following is included in Singapore's GDP?

The value of production by an American working in Singapore

When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle,

U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.

A German citizen buys an automobile produced in the United States by a Japanese company. As a result

U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

Crowding out occurs when investment declines because

a budget deficit makes interest rates rise.

Which of the following events would shift money demand to the left?

a decrease in the price level

Which of the following is a way to compute GDP?

add up the market values of all final goods and services

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

aggregate demand right.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and change their consumption behavior. Refer to Pessimism. Which curve shifts and in which direction?

aggregate demand shifts left

Which of the following is an example of an efficiency wage?

an above-equilibrium wage offered by a firm to attract a more talented pool of job applicants

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

an increase in government purchases

If inflation is greater than expected, then the unemployment rate is

below the natural rate. In the long run the short-run Phillips curve will shift right

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this

both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be shifting farther.

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

both the government debt and interest rates decreased between 2010 and 2011.

A policy change that changes the natural rate of unemployment changes

both the long-run Phillips curve and the long-run aggregate supply curve.

Suppose there are a large number of men who used to work or seek work who now no longer do either. Other things the same, this makes

both the number of people unemployed and the labor force fall.

If the interest rate is above the Fed's target, the Fed should

buy bonds to increase the money supply.

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

buying bonds. This buying would increase reserves

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs, and all your other inputs, and bake twice as many cookies. Your cookie production function has

constant returns to scale.

To increase the money supply, the Fed could

decrease the reserve requirement

Other things the same, a decrease in the price level causes the interest rate to

decrease, the dollar to depreciate, and net exports to increase.

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

decreased interest rates and increased investment

Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has

decreased, so they decrease production.

In a fractional-reserve banking system, an increase in reserve requirements

decreases both the money multiplier and the money supply

An increase in the minimum wage

decreases the quantity of labor demanded but increases the quantity of labor supplied

According to the crowding out effect, when taxes increase, the interest rate

decreases, making the change in aggregate demand smaller.

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

demand for money until the interest rate increases.

The traditional view of the production process is that capital is subject to

diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

employment and production fall.

When the dollar appreciates, U.S

exports decrease, while imports increase

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

fall from 10 to 5.

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called

frictional unemployment.

For any given year, the CPI is the price of the basket of goods and services in the

given year divided by the price of the basket in the base year, then multiplied by 100.

Wealth is redistributed from debtors (borrowers) to creditors (lenders) when inflation was expected to be

high and it turns out to be low.

According to the sticky price theory, other things the same, an unexpected fall in the price level results in some firms having

higher than desired prices, which depresses their sales.

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change

in the price level, but not output

Jackie, a Canadian citizen, works only in the United States. The value of the output she produces is

included in U.S. GDP, but it is not included in U.S. GNP.

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

increase and the money supply will eventually increase.

According to the exchange rate effect, other things the same, if the price level rises, people

increase domestic bond purchases, so the dollar appreciates.

Other things the same, if the price level falls, people

increase foreign bond purchases, so the dollar depreciates.

In a closed economy, if Y , C , and T remained the same, a decrease in G would

increase public saving but not private saving.

The principle of monetary neutrality implies that an increase in the money supply will

increase the price level, but not real GDP.

Other things the same, an increase in the price level causes the interest rate to

increase, the dollar to appreciate, and net exports to decrease

According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

increased, so it would increase production.

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP

increases

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

When aggregate demand shifts rightward along the short-run aggregate-supply curve, inflation

increases and unemployment decreases.

The bond market

is a financial market, as is the stock market.

If an economy uses silver as money, then that economy's money

is commodity money.

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.

Kathleen is considering expanding her dress shop. If interest rates rise she is

less likely to expand. This illustrates why the demand for loanable funds slopes downward.

Other things the same, a decrease in the price level motivates people to hold

less money, so they lend more, and the interest rate falls

When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is

less than it desires and increase its production.

According to the wealth effect, other things the same, an increase in the price level makes consumers feel

less wealthy, so the quantity of goods and services demanded falls.

Which of the following, other things the same, would make the price level decrease and real GDP increase?

long-run aggregate supply shifts right

Wealth is redistributed from creditors to debtors when inflation was expected to be

low and it turns out to be high.

When the money market is drawn with the value of money on the vertical axis, the value of money decreases if

money demand shifts left or money supply shifts right.

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

money demand shifts right or money supply shifts left.

Which list ranks assets from most to least liquid?

money, bonds, cars, houses

According to the interest rate effect, other things the same, an increase in the price level induces people to hold

more money, so they lend less, and the interest rate rises.

During recessions, automatic stabilizers tend to make the government's budget

move toward deficit.

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

movement to the left along the money demand curve.

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by

moving to the right along the short-run Phillips curve.

Anna recently graduated from college with a degree in electrical engineering, but she has not yet started working. To be counted as "unemployed" she

must have looked for work no more than four weeks ago

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, U represents the unemployment rate. Refer to Figure 35-1. The curve that is depicted on the right-hand graph offers policymakers a "menu" of combinations

of inflation and unemployment.

Amy is working part-time. Tavaris is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?

only Amy

The tool most often used by the Fed to control the money supply is

open market operations

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

output but not the price level

The inflation rate is the

percentage change in the price level from one period to another.

If policymakers decrease aggregate demand, then in the long run

prices will be lower and unemployment will be unchanged.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

production is less profitable and employment falls.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

production is more profitable and employment rises.

Which of the following is not included in U.S. GDP?

production of U.S citizens working in foreign countries.

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

purchases of government bonds, which reduces interest rates and causes people to hold more money.

Suppose the economy is in long-run equilibrium. If there is an increase in the supply of labor as well as an increase in the money supply, then we would expect that in the short-run

real GDP will rise and the price level might rise, fall, or stay the same.

The aggregate quantity of goods and services demanded changes as the price level rises because

real wealth falls, interest rates rise, and the dollar appreciates.

If Congress increases taxes to balance the federal budget, then to prevent additional unemployment and a recession the Fed can

reduce interest rates by increasing the money supply.

The investment component of GDP measures spending on

residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is

richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.

If inflation expectations rise, the short-run Phillips curve shifts

right, so that at any unemployment rate inflation is higher in the short run than before

The value of money falls as the price level

rises, because the number of dollars needed to buy a representative basket of goods rises.

If the Federal Reserve decided to raise interest rates, it could

sell bonds to lower the money supply.

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will desire to

sell interest-bearing assets, causing the interest rate to increase.

Suppose that the MPC is 0.7 and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

shifts rightward by $100 billion.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and change their consumption behavior. Refer to Pessimism. In the long run, the change in price expectations created by pessimism shifts

short-run aggregate supply right.

Which of the following is included in the investment component of GDP?

spending on new business equipment such as power tools but not spending on stocks and bonds

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

substitution bias.

Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90. Refer to Scenario 24-4. If Quinn only cares about maximizing her purchasing power, then she should

take the Charlieville job.

The long-run aggregate supply curve shifts right if

technology improves.

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp rise in the stock market, an increase in government purchases, an increase in the money supply and a decline in the value of the dollar. In the short run

the price level and real GDP will both rise.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and change their consumption behavior. Refer to Pessimism. How is the new long-run equilibrium different from the original one?

the price level is lower and real GDP is the same.

Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run

the price level will rise, and real GDP might rise, fall, or stay the same

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

the price level, but not real GDP is lower in country B.

The GDP Deflator reflects

the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.

The term crowding-out effect refers to

the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.

A decrease in expected inflation shifts

the short-run Phillips curve left.

According to the exchange rate effect, other things the same , if the U.S. price level rises, then

the supply of dollars in the market for foreign-currency exchange decreases, and net exports fall.

According to the exchange rate effect, other things the same, if the U.S. price level rises, then

the supply of dollars in the market for foreign-currency exchange decreases, and net exports fall.

A policy that induces people to save more shifts

the supply of loanable funds and reduces interest rates

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

there is a shortage and the interest rate is below the equilibrium level

The labor-force participation rate measures the percentage of the

total adult population that is in the labor force.

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.