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54 Cards in this Set

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Refer to the figure above. Based on the figure, starting from the output-inflation combination at point A, an increase in military spending will create
A. an expansionary gap
Refer to the figure above. Starting from point A, an increase in military spending will immediately
B. shift AD1 to AD2 only.
Refer to the figure above. After an increase in military spending, long-run equilibrium is restored when
D. AS1 shifts to AS2.
Refer to the figure above. Following an increase in military spending, long-run equilibrium will be
D. at point D
Refer to the figure above. Following an increase in military spending, inflation in the long-run equilibrium will be
A. pie -1
Starting from long-run equilibrium, an adverse supply shock results in a short-run equilibrium with ___ inflation and ____ output.
B. higher; lower
Stagflation is a combination of ______ and _______.
D. inflation; recession
Starting from long-term equilibrium, decreases in the rate of inflation may be the result of any of the following EXCEPT:
B. an unfavorable supply shock
Higher rates of inflation reduce aggregate demand because
the reduction in wealth, resulting from the reduced real value of money, restrains spending
According to classical macroeconomic theory
d. All of the above are correct.
Using the liquidity-preference model, when the Federal Reserve increases the money supply
a. the equilibrium interest rate decreases.
Which of the following Fed actions would both increase the money supply?
b. buy bonds and lower the reserve requirement
According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes
d. the interest rate to rise, so aggregate demand shifts left.
Refer to Figure 21-2. Which of the following quantities is held constant as we move from one point to another on either graph?
b. the quantity of money demanded (more precisely should be equilibrium quantity of money)
Refer to Figure 21-2. A decrease in Y from Y1 to Y2 is explained as follows:
An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
Refer to Figure 21-2. If the money-supply curve MS on the left-hand graph were to shift to the right, this would
a. represent an action taken by the Federal Reserve.
Refer to Figure 21-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?
d. If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.
The marginal propensity to consume (MPC) is defined as the fraction of
a. extra income that a household consumes rather than saves.
The multiplier for changes in government spending is calculated as
b. 1/(1 - MPC).
Refer to Figure 21-6. Suppose the multiplier is 5 and the government increases its purchases by $10 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $20 billion. The extent of crowding out, for any particular level of the price level, is
c. $30 billion.
Refer to Figure 21-6. Suppose the multiplier is 3 and the government increases its purchases by $25 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Finally, assume the horizontal distance between the curves AD1 and AD3 is $30 billion. The extent of crowding out, for any particular level of the price level, is
c. $45 billion.
Refer to Figure 21-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then
d. All of the above are correct.
Which of the following sequences best represents the crowding-out effect?
c. government purchases (up) GDP (up) demand for money
(up) equilibrium interest rate (up) quantity of goods and services demanded (down)
Which of the following statements generates the greatest amount of disagreement among economists?
d. Government should use fiscal policy to try to stabilize the economy.
Refer to Figure 21-3. What quantity is represented by the vertical line on the left-hand graph?
a. the supply of money
Refer to Figure 21-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?
d. 3, 2, 1, 4
Refer to Figure 21-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?
b. investment
Refer to Figure 21-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of
b. a decrease in stock prices.
Refer to Figure 21-7. If the economy is at point b, a policy to restore full employment would be
a. an increase in the money supply.
Refer to Figure 21-7. Which of the following is correct?
c. It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.
Refer to Figure 21-7. Which of the following is correct?
d. All of the above are correct.
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?
b. the MPC is small and changes in the interest rate have a large effect on investment
According to the short-run Phillips curve, if the central bank increases the money supply, then
d. inflation will rise and unemployment will fall.
Refer to Figure 22-3. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point A on the left-hand graph, which corresponds to point A on the right-hand graph. The price level in the year 2017 was
b. 150.
3. An adverse supply shock causes inflation to
a. rise and the short-run Phillips curve to shift right.
Refer to Figure 22-8. The shift of the aggregate-supply curve from AS1 to AS2
c. represents an adverse shock to aggregate supply.
Refer to Figure 22-8. Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will
d. All of the above are correct.
Disinflation is defined as a
c. reduction in the rate of inflation.
If people believe that the central bank is going to reduce inflation
d. the short-run Phillips curve shifts left and the sacrifice ratio will fall.
In the short run,
c. unemployment and inflation are negatively related. In the long run they are largely unrelated problems.
According to the Phillips curve, policymakers could reduce both inflation and unemployment by
d. None of the above is correct.
When aggregate demand shifts right along the short-run aggregate supply curve, unemployment
a. falls, so there are upward pressures on wages and prices.
In the short run, policy that changes aggregate demand changes
a. both unemployment and the price level.
If the central bank increases the money supply, then in the short run prices
a. rise and unemployment falls.
Suppose that the money supply increases. In the short run this decreases unemployment according to
a. both the short-run Phillips curve and the aggregate demand and aggregate supply model.
In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have
d. raised inflation and reduced unemployment.
If the short-run Phillips curve were stable, which of the following would be unusual?
b. an increase in inflation and a decrease in output
Refer to Figure 22-1. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to
b. point B on the left-hand graph.
Refer to Figure 22-1. The curve that is depicted on the right-hand graph offers policymakers a “menu” of combinations
c. of inflation and unemployment.
Refer to Figure 22-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left-hand graph. Then it is apparent that the price index equaled
d. 100 in 2011.
Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to
b. B and 2
Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to
a. B and 2.
According to the long-run Phillips curve, in the long run monetary policy influences
b. the inflation rate but not the unemployment rate.
Refer to figure 22-7. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?
c. 3% unemployment and 5% inflation