EC 111 Final
Image that in the current year the economy is in the long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Which sure shifts and in what direction?
aggregate demand shifts left
The Federal Open Market committee is
the group at the federal reserve that sets monetary policy
Suppose the economy starts at the center point. If the aggregate demand increase from the top diagonal line to the middle diagonal line then in the short run the economy moves to
the higher and further right point
If the Fed increases the money supply
the interest rate decreases, which tends to increase investment and therefore the aggregate demanded
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?
the interest-rate effect
If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from
the lower center point to the left upper point
There is an excess demand for money at an interest rate of
the money demanded line past the money supplied line (on the right)
Which of the following is NOT a determinant of the long-run level of real GDP?
the price level
The wealth effect, the interest-rate effect, and exchange rate are all explanations for
the slope of the aggregate-demand curve
Which would have the smallest quantity of money demanded?
the smallest number when r x P
Suppose the economy starts at the center point. Stagflation would be consistent with the move to
the upper horizontal line and the farthest left vertical line
If the economy starts at the upper center point, a decrease in money supply moves the economy
to the lower center point in the long run
An example of an automatic stabilizer is
unemployment benefits
According to the liquidity preference theory, the money supply curve is
vertical
An increase in government purchases will
will shift the aggregate demand line upwards
A decrease in the money supply
would shift the aggregate demand to the left
Other things the same, if technology increases, then in the long run
output is higher and prices are lower
Which of the following is an example of crowing out?
An increase in government spending increases interest rtes, causing investment to fall.
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. What would happen to the dollar?
It would appreciate in foreign exchange markets making U.S. goods are expensive compared to foreign goods.
Economics expansions boom in Canada would cause the
U.S. price level and real GDP to rise
the natural level of output occurs at
Y2 (the center vertical line)
If the stock market crashes, then
aggregate demand decreases, which the Fed could offset by purchasing bonds.
Which of the following would cause stagflation?
aggregate supply shifts left
People have been expecting the price level to be 120 but it turns out to be 122. In response a tire company increases the number of workers it employs. What could explain this?
both sticky price theory and sticky wage theory
The shift of the short-run aggregate supply curve from the upper diagonal line to the lower diagonal line
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, than it would have shifted aggregate
demand right
In recent years, the Federal Reserve has conducted policy by setting a target for the
federal funds rate
In 2008, the United States was in a recession. What would you expect to have happened?
increased claims for unemployment for unemployment insurance, increased layoffs and firings, a higher rate of bankruptcy
The economic boom of the early 1940s resulted mostly from
increased government expenditures
In 2008, the United States was in a recession. Which of the following things would you NOT have expect to have happened?
increased real GDP
When the Fed buys bonds the supply of money
increases and so the aggregate demand shifts right
When the interest rate increases, the opportunity costs of holding money
increases, so the quantity of money demanded decreases
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.
A goal of monetary policy and fiscal policy is to
offset shifts in aggregate demand and thereby stabilize the economy
Suppose that foreigners had reduced confidence in the 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.
If the Federal Reserve decided to raise interest rates, it could
sell bonds to lower the money supply
If the money supply curve MS were to shift left then
the AD curve would shift left too
The following are determinants of the long-run level of GDP
the amount of capital used by firms, available stock of human capital, available technology
Using the liquidity-preference model, when the Federal Reserve decreases the money supply,
the equilibrium interest rate increases