Which of the following would increase output in the short run?
a. an increase in stock prices makes people feel wealthier
b. government spending increases
c. firms chose to purchase more investment goods
d. All of the above are correct.
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All of the above are correct.
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Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to
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rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
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Stagflation exists when prices
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rise and unemployment rises
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Which of the following would cause stagflation?
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rising oil prices
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Which of the following would raise the price level in both the short and long run?
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an increase in government expenditures
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Suppose the economy is in long-run equilibrium. Concerns about pollution cause the government to significantly restrict the production of electricity. At the same time, taxes fall. In the short-run
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the price level will rise, and real GDP might rise, fall, or stay the same.
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Changes in the price of oil
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created both inflation and recession in the United States in the 1970s.
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If output is above its natural rate, then according to sticky-wage theory
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workers will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level
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Which of the following would cause prices and real GDP to rise in the short run?
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aggregate demand shifts right
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Recessions in Canada and Mexico would cause
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the U.S. price level and real GDP to fall
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An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level
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rises, shifting aggregate supply left.
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The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?
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it decreases by $250,000
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If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
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selling bonds. This would reduce reserves.
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A decrease in the money supply might indicate that the Fed had
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sold bonds in an attempt to increase the federal funds interest rate.
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Economists use the word "money" to refer to
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those assets regularly used to buy goods and services
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Which of the following is a function of money?
a. a unit of account
b. a store of value
c. medium of exchange
d. All of the above are correct.
answer
a medium of exchange, unit of account, and store of value
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Any item that people can use to transfer purchasing power from the present to the future is called
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store of value
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The "yardstick" people use to post prices and record debts is called
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unit of account
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Currently, U.S. currency is
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fiat money with no intrinsic value
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MI includes
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currency
demand deposits
traveler's check
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A bank's assets equal its liabilities under
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both 100-percent-reserve banking and fractional-reserve banking.
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A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is
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25 percent
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If R represents the reserve ratio for all banks in the economy, then the money multiplier is
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1/R
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If the reserve ratio is 10 percent, the money multiplier is
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10
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If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as
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$10,000
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If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to
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$150,000 of new money
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If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?
Bank of Springfield
Assets Liabilities
Reserves $19,800 Deposits $180,000
Loans 160,200
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11 percent
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​If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would
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​fall from 20 to 10
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The most common method employed by the Fed to increase the money supply is the
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purchase of U.S. government bonds
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Which of the following is an example of crowding out?
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An increase in government spending increases interest rates, causing investment to fall.
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If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by
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$60 billion, but the effect would be larger if there were an investment accelerator.
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An increase in the MPC
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increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand
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An increase in government purchases is likely to
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crowd out investment spending by business firms
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Permanent tax cuts shift the AD curve
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farther to the right than do temporary tax cuts
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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?
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the MPC is small and changes in the interest rate have a large effect on investment
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Which of the following is an example of a decrease in government purchases?​
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The government cancels an order for new military equipment
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An increase in government purchases will
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shift aggregate demand from AD1 to AD2. (moves AD to the right)
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An increase in taxes will
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shift aggregate demand from AD1 to AD3 (moves to the left)
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If the MPC is 5/6 then the multiplier is
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6, so a $200 increase in government spending increases aggregate demand by $1200.
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Tax increases
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shift aggregate demand left while increases in government expenditures shift aggregate demand right.
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Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?
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the crowding-out effect
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A tax cut shifts the aggregate demand curve the farthest if
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the MPC is large and if the tax cut is permanent
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Most economists believe that a cut in tax rates
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has a relatively small effect on the aggregate-supply curve
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The multiplier effect is exemplified by the multiplied impact on
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aggregate demand of a given increase in government purchases
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The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."
The shift of the aggregate-supply curve from AS1 to AS2
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represents an adverse shock to aggregate supply
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A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would
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increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate
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A reduction in U.S net exports would shift U.S. aggregate demand
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leftward. In an attempt to stabilize the economy, the government could increase expenditures.
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Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?
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an increase in government purchases
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Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should
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sell government bonds, which will reduce the money supply
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Critics of stabilization policy argue that
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there is a lag between the time policy is passed and the time policy has an impact on the economy.
the impact of policy may last longer than the problem it was designed to offset.
policy can be a source of, instead of a cure for, economic fluctuations.
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The lag problem associated with monetary policy is due mostly to
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the fact that business firms make investment plans far in advance
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The lag problem associated with fiscal policy is due mostly to
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the political system of checks and balances that slows down the process of implementing fiscal policy.
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Automatic stabilizers
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are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
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During periods of expansion, automatic stabilizers cause government expenditures
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to fall and taxes to rise
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Suppose investment spending falls. To offset the change in output the Federal Reserve could
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increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending.
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Which of the following statements is correct?
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In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.
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A basis for the slope of the short-run Phillips curve is that when unemployment is high there are
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downward pressures on prices and wages
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The economist A.W. Phillips published a famous article in 1958 in which he showed a
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negative correlation between the rate of unemployment and the rate of inflation.
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The short-run Phillips curve shows the combinations of
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unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve
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In the short run, policy that changes aggregate demand changes
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both unemployment and the price level
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In the long run, policy that changes aggregate demand changes
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only the price level
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As the aggregate demand curve shifts leftward along a given aggregate supply curve,
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unemployment is higher and inflation is lower
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If consumption expenditures fall, then in the short run
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inflation falls and unemployment rises
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According to the Phillips curve, unemployment and inflation are negatively related in
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the short run, but not the long run
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A policy change that changes the natural rate of unemployment changes
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both the long-run Phillips curve and the long-run aggregate supply curve.
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Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by
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moving to the left along the short-run Phillips curve
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The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the
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long run, and the natural rate changes over time.
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A change in expected inflation shifts
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the short-run Phillips curve, but not the long run Phillips curve.
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In the long run, a decrease in the money supply growth rate
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a. None of the above is correct.
b. shifts the long-run Phillips curve right and the short-run Phillips curve left.
c. shifts the long-run Phillips curve left and the short-run Phillips curve right.
d. shifts both the long-run and the short-run Phillips curves rightq
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