EC111 CHP 20 21
Slope of the aggregate-demand curve?
As the price level increases, the interest rate rises, so spending falls.
on the graph, an increase in the money supply would move the economy from C to
B - demand curve shifts right and A in the long run ( vertical)
Which of the following statements is correct?
Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium; classical theory assumes the price level adjusts to bring the money market into equilibrium.
Which of the following statements is correct for the long run?
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
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.
disinflation
a reduction in the rate of inflation
If the stock market booms, then
aggregate demand increases, which the Fed could offset by decreasing the money supply.
The initial impact of an increase in an investment tax credit is to shift
aggregate demand right.
what results in higher inflation and higher unemployment in the short run
an adverse supply shock ex: increase in oil price
When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production?
both menu costs and mistaking a price level change for a change in relative prices
When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production?`
both menu costs and mistaking a price level change for a change in relative prices`
other things the same, if price level rises, people
decrease foreign bond purchases, so the supply of dollars in the market for foreign currency exchange decreases
According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they
decreased the money supply
Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate
demand rightward by more than $100 billion.
If policymakers decrease aggregate demand, then in the short run the price level
falls and unemployment rises
An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level
falls, shifting aggregate supply right.
The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?
increase government expenditures or increase the money 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.
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.
The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level`
increases by more than expected so that firms believe the relative price of their output has increased.
The misperceptions theory of the short-run aggregate supply curve says that the Quantity of output supplied will increase if the price level
increases by more than expected so that the firms believe the relative price of their output has increased
When the money supply decreases
interest rates rise and so aggregate demand shifts left.
long-run inflation
is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors
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.
The sticky-wage theory of the short-run aggregate supply curve says that when the price level is higher than expected some firms will have
lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied
The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have
lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied.
If the economy is at A and there is a fall in aggregate demand, in the short run the economy
moves to D. left demand
If the economy starts at A and there is a fall in aggregate demand, the economy in the long run moves
moves to a lower point on the vertical line moves down to C in the long run.
if the central bank decreases the money supply, then in the short run
prices fall and unemployment rises
The aggregate quantity of goods and services demanded changes as the price level falls because
real wealth rises, interest rates fall dollar depreciates
Liquidity preference theory is most relevant to the
short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
What, if anything, did policymakers do in response to the recession of 2001?
tax cuts and expansionary monetary policy
what effects explain the downward slope of the aggregate demand curve
the exchange-rate effect the wealth effect the interest-rate effect
Shifts in the aggregate-demand curve can cause fluctuations in
the level of output and in the level of prices.
the short tun relationship between inflation and unemployment is often called
the phillips curve
The sticky-wage theory of the short-run aggregate supply curve says that when the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable.
An increase in the expected price level shifts the
the short-run aggregate supply curve left. an increase in actual price level does not shift short-run aggregate supply curve
Critics of stabilization policy argue that
there is a lag between the time policy is passed and the time policy has an impact on the economy. the impact of policy may last longer than the problem it was designed to offset. policy can be a source of, instead of a cure for, economic fluctuations.
During a recession
workers are laid off factories are idle firms may find they are unable to sell all they produce
during recessions
workers are laid off, factories are idle, firms may find they are unable to sell all they produce
