Macroeconomics ch20
For the United States, the most important source of the downward slope of the aggregate-demand curve is A. the exchange-rate effect B. the wealth effect C. the fiscal effect D.the interest-rate effect E. none of the above
D. the interest-rate effect
Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers wished to move output to its long-run natural level, they should attempt to (fallow up the SAS until u meet the LAS)
shift aggregate demand to the right.
In the long run effect of an increase in the money supply is to A. increase the price level B. decrease the price level C. increase the interest rate D. decrease the interest rate
A. increase the price level
If the marginal propensity to consume (MPC) is .75, the value of the multiplier is A. .75 B. 4 C. 5 D. 7.5 E. none of the above
B. 4
NEW SECTION
NEW SECTION
Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers allow the economy to adjust to the long-run natural level on its own
people will reduce their price expectations and the short-run aggregate supply will shift right
Policymakers are said to "accommodate" an adverse supply shock if they
respond to the adverse supply shock by increasing aggregate demand, which further raises prices
According to the wealth effect, aggregate demand slopes downward (negativity) because A. Lower prices increase the value of money holdings and consumer spending increases B. lower prices decrease the value of money holdings and consumer spending decreases C. Lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases D. Lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls
A. Lower prices increase the value of money holdings and consumer spending increases
Suppose price level falls. Because of fixed nominal wage contracts, firms become less profitable, and they cut back on production. This is a demonstration of the A. Sticky-wage theory of the short-run aggregate-supply curve B. sticky-price theory of the short-run aggregate-supply curve C. Misperceptions theory of the short-run aggregate-supply curve D. Classical dichotomy theory of the short-run aggregate-supply curve
A. Sticky-wage theory of the short-run aggregate-supply curve
An increase in the marginal propensity to consume (MPC) A. raises the value of the multiplier B. lowers the value of the multiplier C. has no impact on the value of the multiplier D. rarely occurs because the MPC is set by congressional legislation
A. raises the value of the multiplier
when the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level A. shifts money demanded to the right and increases the interest rate B. shifts money demand to the left and increases the interest rate C. shift money demand to the right and decreases the interest rate D. shift money demand to the left and decreases the interest rate E. none of the above
A. shifts money demanded to the right and increases the interest rate
Which of the following statements regarding taxes is correct? A. most economists believe that, in the short run, the greatest impact of a change in taxes is on aggregate supply, not aggregate demand B. a permanent change in taxes has greater effect on aggregate demand than a temporary change in taxes C. an increase in taxes shift the aggregate-demand cure to the right D. a decrease in taxes shifts the aggregate-supply curve to the left
B. a permanent change in taxes has greater effect on aggregate demand than a temporary change in taxes
Which of the following statements is true regarding the long run aggregate supply curve? The long run aggregate supply curve A. Shifts left when the natural rate of unemployment falls B. is vertical because an equal change in all prices and wages leaves output unaffected C. Is positively sloped because price expectations and wages tend to be fixed in the long run D. Shifts right when the government raises the minimum wage
B. is vertical because an equal change in all prices and wages leaves output unaffected
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run A. Prices rise; output is unchanged from its initial value B. prices fall; output is unchanged from its initial value C. Output rises; prices are unchanged from the initial value D. Output falls; prices are unchanged from the initial value E. output and the price level are unchanged from their initial value
B. prices fall; output is unchanged from its initial value
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run? A. Prices rise; output rises B. prices rise; output falls C. Prices fall; output falls D. Prices fall; output rises
B. prices rise; output falls
Keynes liquidity preference theory of the interest rate suggests that the interest rate is determined by A. the supply of demand for loanable funds B. the supply and demand for money C. the supply and demand for labor D. aggregate supply and aggregate demand
B. the supply and demand for money
Which of the following events shifts the short-run aggregates supply curve to the right? A. An increase in government spending on military equipment B. an increase in prices expectations C. A drop in oil prices D. A decrease in money supply E. none of the above
C. A drop in oil prices
According to the interest-rate effect, aggregate demand slopes downward (negatively) because A. Lower prices increase the value of money holdings and consumer spending increases B. lower prices decrease the value of money holdings and consumer spending decreases C. Lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases D. Lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls
C. Lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases
Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the A. Sticky-wage theory of the short-run aggregate-supply curve B. sticky-price theory of the short-run aggregate-supply curve C. Misperceptions theory of the short-run aggregate-supply curve D. Classical dichotomy theory of the short-run aggregate-supply curve
C. Misperceptions theory of short-run aggregate-supply curve
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run A. Prices rise; output rises B. prices rise; output falls C. Prices fall; output falls D. Prices fall; output rises
C. Prices fall; output falls
In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to A. Shift short-run aggregate supply to the right B. shift short-run aggregate supply to the left C. Shift aggregate demand to the right D. Shift aggregate demand to the left E. Shift long-run aggregate supply to the left
C. Shift aggregate demand to the right
Which of the following is not a reason why the aggregate-demand curve slopes downward? A. The wealth effect B. the interest-rate effect C. The classical dichotomy/monetary neutrality effects D.the exchange-rate effect E. all of the above are reasons why aggregate-demand curve slopes downward
C. The classical dichotomy/monetary neutrality effects
The initial impact of an increase in government spending is to shift A. aggregate supply to the right B. aggregate supply to the left C. aggregate demand to the right D. aggregate demand to the left
C. aggregate demand to the right
When an increase in government purchases raises incomes, shifts money demand to the right, raises the interest rate, and lowers investment, we have seen a demonstration of A. the multiplier effect B. the investment accelerator C. crowding-out effect D. supply-side economics E. the liquidity trap
C. crowding out effect
When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate A. increase the quantity demanded of money B. increases the demand for money C. decreases the quantity demanded of money D. decreases the demand for money E. none of the above
C. decreases the quantity demanded of money
Suppose a wave of investor and consumer pessimism causes a reduction in spending. If the Federal Reserve chooses to engage in activist stabilization policy, it should A. increase the government spending and decrease taxes B. decrease government spending and increase taxes C. increase the money supply and decrease interest rates D. decrease the money supply and increase interest rates
C. increase the money supply and decrease interest rates
Which of the following statements about economic fluctuation is true? A. A recession is when output rises above the natural level of output B. A depression is a mild recession? C. Economic fluctuations have been termed the "business cycle" because the movements in output are regular and predictable D. A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together E. none of the above
D. A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together
Which of the following would not cause a shift in the long-run aggregate-supply curve? A. An increase in the available labor B. an increase in the available capital C. An increase in the available technology D. An increase in price expectations E. all of the above shift the long-run aggregate-supply curve
D. An increase in price expectations
Stagflation occurs when the economy experiences A. Falling prices and falling output B. falling prices and rising output C. Rising prices and rising output D. Rising prices and falling output
D. Rising prices and falling output
The natural level of output is the amount of real GDP produced A. When there is no unemployment B. when the economy is at the natural level of investment C. When the economy is at the natural level of aggregate demand D. When the economy is at the natural rate of unemployment
D. When the economy Is at the natural rate of unemployment
Suppose a wave of investor and consumer optimism has increased spending so that the current level of output exceeds the long run natural rate. If policymakers choose to engage in activist stabilization policy, they should A. decrease taxes, which shifts aggregate demand to the right B. decrease taxes, which shifts aggregate demand to the left C. decrease government spending, which shifts the demand to the right D. decrease government spending, which shifts the demand to the left
D. decrease government spending, which shifts aggregate demand to the left
In the market for real output, the initial effect of an increase in the money supply is to A. increase the price level B. decrease the price level C. increase the interest rate D. decrease the interest rate
D. decrease the interest rate
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output on the long run? A. Prices rise; output is unchanged from its initial value B. prices fall; output is unchanged from its initial value C. Output rises; prices are unchanged from the initial value D. Output falls; prices are unchanged from the initial value E. output and the price level are unchanged from their initial value
E. output and the price level are unchanged from their initial value
According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause
prices to rise and output to remain unchanged