Quiz study

Which of the following shifts aggregate demand to the left? Group of answer choices

A decrease in the money supply

Which of the following events could explain a shift of the money-demand curve from MD2 to MD1?

A decrease in the price level

If households view a tax cut as temporary, then the tax cut

has less of an effect on aggregate demand than if households view it as permanent.

In the short run, open-market purchases

increase investment and real GDP, and decrease interest rates.

When the interest rate increase, the opportunity cost of holding money

increases, so the quantity of money demanded decreases.

An economy has a current inflation rate of 9%. If the central bank wants to reduce inflation to 3% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?

12%

Take the following information as given for a small economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250.

4.00

Monetary policy

can be described either in terms of the money supply or in terms of the interest rate.

Proponents of rational expectations argued that the sacrifice ratio

could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

The wealth effect along an aggregate-demand curve stems from the idea that a higher price level

decreases the real value of households' money holdings.

An adverse supply shock will shift short-run aggregate supply

left, making prices rise.

Suppose the money-demand curve is currently MD2. If the current interest rate is r2, then

people will respond by selling interest-bearing bonds.

Refer to Figure 35-1. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to

point C on the left-hand graph.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

the equilibrium interest rate increases.

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

Businesses become pessimistic about the future of the economy.

Which of the following decreases inflation and increases unemployment in the short run?

Either a decrease in government expenditures by itself or a decrease in the money supply growth rate by itself.

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

The economy would move up and to the left along a given short-run Phillips curve.

A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

The government reduces government spending, resulting in a decrease in people's incomes.

In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. Refer to Scenario 35-2.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?

The short-run but not the long-run Phillips curve

An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Actual Inflation Rate (Percent) Unemployment Rate (Percent) 5|4.0,4|4.5,3|5.0,2|5.5

These points are consistent with the theoretical short-run Phillips curve, but not with the long-run Phillips curve.

If the economy starts at F and the money supply growth rate increases, in the long run the economy

moves to A.

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.

According to the Phillips curve, unemployment and inflation are positively related in

neither the long run nor the short run.

Other things the same, if there is an increase in the money supply growth rate that is larger than expected, then in the short run

the unemployment rate will be below its natural rate.

Suppose the current equilibrium interest rate is r2. If the Federal Reserve increases the money supply, and the price level does not change,

there will be an increase in the equilibrium quantity of goods and services demanded.