ECON 211 Quiz 7

Which of the following is most commonly used to monitor short-run changes in economic activity?

Real GDP

Shifts in aggregate demand affect the price level in

both the short and long run.

Monetary policy

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

Investment is

a small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

aggregate demand falls by 11/2 × $40 billion.

The price level rises in the short run if

aggregate demand shifts right or aggregate supply shifts left

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right.

When taxes decrease, interest rates

increase, making the change in aggregate demand smaller.

When the Fed buys bonds the supply of money

increases and so aggregate demand shifts right.

According to the liquidity preference theory, an increase in the overall price level of 10 percent

increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is temporarily

low and so supply a smaller quantity of labor

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

moves to Q in the long run.

As the interest rate falls to equilibrium in the market for money,

the quantity of money demanded rises, which would reduce a shortage of money

If the MPC is 0.50 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $95 billion will eventually shift the aggregate demand curve to the right by

$190 billion.

Which of the following would cause stagflation?

Aggregate supply shifts left.

Scenario 33-2 Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Refer to Scenario 33-2.Which curve shifts and in which direction?

Aggregate demand shifts left.

Scenario 33-2 Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Refer to Scenario 33-2.In the short run what happens to the price level and real GDP?

Both the price level and real GDP fall.

Refer to Figure 33-5. If the economy starts at Point R, then a recession occurs at

Point P.

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

R

Refer to Figure 34-6. 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.

If the Fed conducts open-market sales, the money supply

decreases and aggregate demand shifts left

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $14 billion. An increase in government purchases of $90 billion will shift aggregate demand to the

right by $436 billion

Refer to Figure 33-3. In Figure 33-3, Point B represents a

short-run equilibrium, and Point A represents a long-run equilibrium.

Refer to Figure 34-4. 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.

During recessions, taxes tend to

fall and thereby increase aggregate demand