Maceroe CH 5-6 Homework Question

The income velocity of money can be calculated using the following formula

V = (PY)/M

If nominal GDP is $12,600 billion and nominal money supply is $6,300 billion, then the velocity of money is

V = 2

Which of the following is NOT reflected in a shift of the AD-curve?

a change in real money balances due to a change in the price level

For many government decision makers, the original Phillips curve implied

a trade-off between lowering unemployment at the cost of higher inflation or lowering inflation at the cost of higher unemployment

The AS-curve is horizontal or very flat if

additional resources (especially labor) can be hired to produce additional output with little or no increase in existing prices

In the short run, a price increase combined with a decrease in the unemployment rate is most likely to be the result of

an adverse supply shock

The newer view of the Phillips curve implies that

an increase in monetary growth affects unemployment and inflation in the short run, but only affects inflation in the long run

Stagflation, that is, high unemployment combined with high inflation

cannot persist, since the economy eventually will return to full employment

The theory of aggregate supply is one of the most controversial in macroeconomics because

economists do not completely agree on the reasons for the slow adjustment of wages and prices after demand-side disturbances

The fact that nominal wages are fixed by a contract at the beginning of a period while the prices of goods may change within the period implies that

firms want to supply more output when prices increase since the real wage rate is lower

In the Keynesian aggregate supply curve case,

firms will always supply the amount of goods demanded at the existing price level

Expansionary fiscal policy is very effective in significantly increasing the level of output

if the economy is in a recession

In which of the following cases is expansionary fiscal policy LEAST effective in increasing output?

if wages adjust rapidly to maintain equilibrium in the labor market

In the Keynesian aggregate supply curve case, a fiscal expansion will

increase equilibrium income but have no impact on prices

Given the Keynesian AS-curve, expansionary monetary policy will

increase the level of output but leave the price level unchanged

The unemployment gap

none of the above

The level of GDP that corresponds to full employment in the labor market is called

potential GDP

Fiscal policy will affect prices and interest rates but not the level of output if

the AS-curve is vertical

If the labour market is in equilibrium with full employment of the labour force, then

the AS-curve would be vertical

The inverse relationship between inflation and unemployment is called

the Phillips curve

The original Phillips curve shows an inverse relationship between

the rate of change in money wages and the rate of unemployment

Restrictive monetary policy will eventually affect the upward-sloping AS-curve since

the resulting unemployment will cause downward pressure on nominal wages, so the cost of production will decrease

The natural rate of unemployment is

the unemployment rate that exists when output is assumed to be at its full-employment level

If output is at its full-employment level, then

there is still some positive level of unemployment due to frictions in the labor market

The Keynesian AS-curve differs from the classical AS-curve, since Keynes

thought that nominal wages were rigid even when there was unemployment