Econ final
suppose the economy starts at Z. stagflation would be consistent with the move
P3 and Y1
a change in the expected price level is likely to cause which of the following?
a shift in the short run aggregate supply curve
which of the following events would shift the aggregate demand curve for AD2 and AD3?
a tax cut
which of the following shifts short run aggregate supply left?
an increase in price expectations
if the economy is at point b, a policy to restore full employment would be
an increase in the money supply
The equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), where a is a positive number, represents
an upward-sloping short-run aggregate supply curve
an increase in the price of oil leads to if there is no policy response
lower output and higher prices in the short run but no change in output and prices in the long run
as we move from one point to another along the money demand curve MD1
the price level is held fixed at P1.
suppose the MPC is 0.60. assume there are no crowding out. if the government increases expenditures by $200 billion, then what is the multiplier and by how much does aggregate demand shift to the right?
1/1-0.60 = "2.5" 2.5 x 200 = $500 billion
suppose the MPC is 0.75 and the economy is currently at point A. the multiplier is
1/1-0.75 = 4
if the multiplier is 6, then the MPC is
1/1-x = 6 1 = 6(1-x) 1 = 6-6x MPC = 0.83
suppose that their is an increase in government purchases of $10. how much will aggregate demand increase if there is no crowding out?
10 x 4 40
if crowding out exists and government purchases increase by $10 then aggregate demand will increase and the economy will move from point A to point
B
suppose that their is an increase in government purchases of $10. if there is no crowding out, aggregate demand will increase and the economy will move from point A to point
C
which of the following events shifts aggregate demand curve leftward?
a decrease in government expenditures, but not a change in price level
the aggregate demand curve can shift from AD1 to AD2 as a result of
a decrease in net exports
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
Changes in the price level affect which components of aggregate demand?
consumption, investment, and net exports
the marginal propensity to consume (MPC) is defined as the fraction of
extra income that a household consumes rather than saves
when taxes increase, the interest rate
decreases, making the change in aggregate demand smaller.
suppose the federal reserve increases the money supply. using the AD/AS model, what is the expected effect of this policy change on the economy in the short run
increase real GDP (Y) and increase price level (P)
an increase in the MPC
increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.
which of the following is correct?
it is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2
suppose the federal reserve increases the interest rate in late 2018. using the AD/AS model, what is expected effect of this policy change on the economy in the long run
leave real GDP (Y) the same and decrease the price level (P)
if crowding out exists and government purchases increase by $10 then aggregate demand will increase by
less than $40
if the money supply curve MS on the left hand graph were to shift left, this would
represent an action taken by federal reserve shift AD curve to the left create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift
if unemployment is decreasing, federal reserve will
sell bonds to decrease the money supply and increase the interest rate
when the fed wants to increase the interest rate, it conducts an open market operation, in which it
sells government bonds, and in doing so decreases the money supply
An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?
the aide throughout the tax cut would be permanent, but the actual tax cut was temporary
suppose the economy starts at Z. if changes occur that move the economy to a new short run equilibrium of P3 and Y3, then it must be the case that
the government implemented a tax cut
If the actual price level is 165, but people had been expecting it to be 160, then
the quantity of output supplied is higher than natural output, but only in the short run
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for
the slope of the aggregate-demand curve
which of the following is correct?
unemployment rises as the economy moves from point a to point b either fiscal or monetary policy could be used to move the economy from point b to point a if the economy is left alone, then as the economy moves from point b to long run equilibrium, the price level will fall further
