ECN 211 exam 3 study test

Which of the following would lead to a shift in the short-run aggregate supply curve but no change in the long-run aggregate supply curve?

A decrease in the expected price level.

Suppose the the economy begins in recession. What is the short-run result of an open market purchase of securities by the Federal Reserve?

AD curve moves to the right

The short-run consequence of an increase in the personal income tax levied on households is best described by graph

AD shift to the left

Which of the following policy actions shifts the aggregate-demand curve?

All of the above are correct. (increase in tax, money supply, and government spending)

The inflation tax

All of the above are correct. (the revenue created when the government prints money, an alternative to income taxes and government borrowing, is like a tax on everyone who holds money)

The unemployment rate was most likely greater than the natural rate at points

B and C ( where the graph real GDP fluctuations)

Which of the following would lead to a decrease in the multiplier effect of fiscal policy?

Households save a higher fraction of income.

Which graph best describes the effect of a decrease in price level, all else constant?

Money demand shift to the left

Which graph best describes the short-run effect of a decrease in the quantity of discount loans made by the Federal Reserve?

Money demand shift to the left

Which of the following would be classified as fiscal policy?

The federal government cuts taxes to stimulate the economy.

In the short-run, an increase in aggregate supply leads to _____ price level and _____ in unemployment.

a decrease / a decrease

Which of the following would cause a movement from point B to C? (AD shift to the left)

a fall in housing prices

An earthquake destroys capital stock in an economy. The result is

a leftward shift in the long-run aggregate supply curve.

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.

Money neutrality suggests that an increase in the money supply leads to _____ in price level and inflation and _____ in real GDP.

an increase / no change

Which of the following would not lead to a decrease in aggregate demand and a leftward shift in the AD curve?

an increase in domestic price level.

Which of the following shifts both the short-run and long-run aggregate supply right?

an increase in the capital stock

In the long-run,

an increase in the price level has no effect on the aggregate quantity of GDP supplied.

If inflation is higher than what was expected,

creditors receive a lower real interest rate than they had anticipated.

If the economy is producing below the natural rate of output in the short-run, wages and input prices will eventually ____ and ____ will increase, returning the economy to long-run equilibrium.

fall / short-run aggregate supply

Other things the same, when the price level falls, interest rates

fall, so firms increase investment.

Examples of automatic stabilizers include government expenditures that ____ when national income decreases and help explain why deficits are ____ during recessions.

increase / larger

In the long run, an economy's production of goods and services depends on its supply of

labor, natural resources, capital, and available technology.

The Federal Reserve controls _____ and influences ______ with the intention of influencing ____ .

money supply / interest rates / investment

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.

Assume the MPC is 0.65. Assuming only the multiplier effect matters, an increase in government purchases of $20 billion will shift the aggregate demand curve to the

right by about $57.1 billion.

Relative-price variability

rises with inflation, leading to a misallocation of resources.

In order to understand how the economy works in the short run, we need to

study a model in which real and nominal variables interact.

Monetary policy is determined by

the Federal Reserve and involves changing the money supply.

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

the MPC is small and changes in the interest rate have a large effect on investment

Which of the following accounts for about two-thirds of the decline in output during a recession?

the decline in investment spending.

Liquidity refers to

the ease with which an asset is converted to the medium of exchange.

Suppose the expected inflation rate increases from 5% to 8%. According to the Fisher effect

the nominal interest rate increases by 3 percentage points.

A favorable supply shock, like a decrease in the price of oil, would cause

the short-run Phillips curve to shift to the left and a more favorable trade-off between unemployment and inflation.