CH 33

Figure 33-4 Refer to Figure 33-4. The short-run equilibrium is defined by the given AD and SRAS curves. Which of the long-run aggregate-supply curves is consistent with a short-run economic expansion?

LRAS1

Figure 33-2 Refer to Figure 33-2. If the economy starts at A and moves to D in the short run, the economy

moves to C in the long run.

Figure 33-2 Refer to Figure 33-2. If the economy is at A and there is a reduction in aggregate demand, in the short run the economy

moves to D.

Which of the following shifts the long-run aggregate supply curve to the left?

An increase in the price of imported natural resources and an increase in trade restrictions

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. Which curve shifts and in which direction?

Aggregate demand shifts right.

Which of the following would cause stagflation?

Aggregate supply shifts left

Figure 33-7 Refer to Figure 33-7. If the economy starts at point A, a short-run fall in output would be consistent with a movement to point

D

When the Fed buys bonds the supply of money

increases and so aggregate demand shifts right.

In countries that have high minimum wages and require a lengthy and costly process to get permission to open a business,

reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.

Other things the same, if technology increases, then in the long run

output is higher and prices are lower.

Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would

rise which by itself would increase aggregate demand.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve.

Figure 33-2 Refer to Figure 33-2. If the economy is in long-run equilibrium, a favorable shift in short-run aggregate supply curve would move the economy from

A to B.

Figure 33-1 Refer to Figure 33-1. The natural level of output occurs at

Y2

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States?

Make it fall which by itself would decrease U.S. aggregate demand.

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand?

Net exports would fall which by itself would decrease U.S. aggregate demand

When looking at a graph of aggregate demand, which of the following is correct?

The variable on the vertical axis is nominal; the variable on the horizontal axis is real.

Figure 33-6 Refer to Figure 33-6. Suppose the economy starts at Z. If changes occur that move the economy to a new short-run equilibrium of P1 and Y1 , then it must be the case that

aggregate demand has decreased.

Figure 33-3 Refer to Figure 33-3. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

could be caused by a decrease in the expected price level.

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

demand right

According to the misperceptions theory of short-run 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.

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have

lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.

Scenario 33-2 Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. In the long run, the change in price expectations created by the stock market boom shifts

short-run aggregate supply left

Figure 33-6 Refer to Figure 33-6. Suppose the economy starts at Z. Stagflation would be consistent with the move to

P3 and Y1.

The economic boom of the early 1940s resulted mostly from

increased government expenditures.