Macroeconomics Exam 4

When looking at a graph of aggregate demand, which of the following is correct? MACRO EXAM 4!!! Hi everyone, same thing as last time please try to keep questions formatted pretty, avoid adding repeat questions, and of course please keep this document secret we can't risk getting this taken away. Most importantly… if you’re in the doc, contribute!!! THE CAT WAS GRAY WHAT COLOR WAS THE DOG??? Black and white The house was bought for $50,000 CHAPTER 20 1. Aggregate demand includes a. the quantity of goods and services the government, households, firms, and customers abroad want to buy. 2. The effect of an increase in the price level on the aggregate-demand curve is represented by a a. movement to the left along a given aggregate-demand curve. 3. Which of the following is not a determinant of the long-run level of real GDP? a. The price level 4. In 2008, the United States was in recession. Which of the following things would you not expect to have happened? a. Increased real GDP 5. Other things the same, if technology increases, then in the long run a. output is higher and prices are lower. 6. The initial impact of an increase in an investment tax credit is to shift aggregate a. demand right. 7. The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is a. more profitable and employment and output rises. 8. In countries that have high minimum wages and require a lengthy and costly process to get permission to open a business, a. reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right. 9. An increase in the expected price level shifts a. the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve. 10. Which of the following would shift the long-run aggregate supply curve right? a. An increase in the capital stock, but not an increase in the price level 11. Which of the following shifts the long-run aggregate supply curve to the left? a. An increase in the price of imported natural resources and an increase in trade restrictions 12. The price level rises in the short run if a. aggregate demand shifts right or aggregate supply shifts left. 13. The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have a. lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 14. Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is temporarily a. low and so supply a smaller quantity of labor. 15. Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift a. aggregate demand to the right. 16. Other things the same, if the U.S. price level falls, then U.S. residents want to buy a. more foreign bonds. The real exchange rate falls. 17. Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports woulda. rise which by itself would increase aggregate demand. 18. Economic expansions in Europe and China would cause the U.S. price levela. and real GDP to rise. 19. When looking at a graph of aggregate demand, which of the following is correct?a. The variable on the vertical axis is nominal; the variable on the horizontal axis is real. 20. According to the misperceptions theory of short-run aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce hada. increased, so it would increase production 21. In which case can we be sure aggregate demand shifts left overall?a. People want to save more for retirement and the Fed decreases the money supply. 22. An increase in household saving causes consumption to a. fall and aggregate demand to decrease. 23. Which of the following would not be directly included in aggregate demand? a. Government's tax collections 24. Which of the following would cause stagflation? a. Aggregate supply shifts left. 25. People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this? a. Both sticky price theory and sticky wage theory 26. If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would a. depreciate which would cause aggregate demand to shift right. 27. From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate a. Demand right 28. Which of the following is most only used to monitor short-run changes in economic activity? a. Real GDP 29. In the short-run an increase in the costs of production makes a. output fall and prices rise. 30. Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will a. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. 31. Recessions come at a. irregular intervals. During recessions investment spending falls relatively more than consumption spending. 32. "Money is a veil" best describes a. classical view of the economy 33. When the Fed buys bonds the supply of money a. increases and so aggregate demand shifts right. 34. Investment is a. A small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP. 35. The wealth effect, interest-rate effect, and exchange rate effect are all explanations for a. The slope of the aggregate-demand curve 36. In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right? a. Both the increased funding for states and the tax cuts 37. The effect of an increase in the price level on the aggregate-demand curve is represented by a a. movement to the left along a given aggregate-demand curve. 38. The economic boom of the early 1940s resulted mostly from a. Increased government expenditures 39. Other things the same, as the price level decreases it induces greater spending on a. both net exports and investment. 40. The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for a. the slope of the aggregate-demand curve. 41. When the Fed buys bonds the supply of money a. Increases and so aggregate demand shifts right 42. Q: A: depreciate which would cause aggregate demand to shift right. 43. Investment is a. A small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP CHAPTER 21 1. The Employment Act of 1946 states that a. The government should promote full employment and production. 2. When the Fed buys government bonds, the reserves of the banking system a. increase, so the money supply increases. 3. Changes in the interest rate a. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level. 4. Opponents of active stabilization policy a. believe that the political process creates lags in the implementation of fiscal policy. 5. A goal of monetary policy and fiscal policy is to a. offset shifts in aggregate demand and thereby stabilize the economy. 6. Fiscal policy refers to the idea that aggregate demand is affected by changes in a. Government spending and taxes 7. Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could a. decrease the money supply, which will increase interest rates. 8. Shifts in aggregate demand affect the price level in a. Both the short and long run 9. During recessions, taxes tend to a. fall and thereby increase aggregate demand. 10. Other things the same, which of the following responses would we expect from an increase in U.S. interest rates? a. Your aunt puts more money in her savings account. 11. Other things the same, automatic stabilizers tend to a. raise expenditures during recessions and lower expenditures during expansions. 12. If the interest rate is below the Fed's target, the Fed should a. sell bonds to decrease the money supply. 13. Suppose a decrease in interest rates causes falling unemployment and rising output. To counter this, the Federal Reserve would a. Decrease the money supply 14. The wealth effect along an aggregate-demand curve stems from the idea that a higher price level a. decreases the real value of households' money holdings. 15. In the short run, open-market purchases a. increase investment and real GDP, and decrease interest rates. 16. When the interest rate increase, the opportunity cost of holding money a. increases, so the quantity of money demanded decreases. 17. If taxes a. decrease, then consumption increases, and aggregate demand shifts rightward 18. Suppose there is a tax decrease. To stabilize output, the Federal Reserve could a. decrease the money supply. 19. If the stock market crashes, then a. aggregate demand decreases, which the Fed could offset by purchasing bonds. 20. It is likely that a constitutional amendment that required the government always to run a balanced budget would a. eliminate the economy's automatic stabilizers. 21. If the Fed increases the money supply, a. the interest rate decreases, which tends to raise stock prices. 22. The Federal Open Market Committee is a. the group at the Federal Reserve that sets monetary policy. 23. Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve? a. With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers. 24. Fiscal policy affects the economy a. in both the short and long run. 25. Monetary policy affects the economy with a long lag, in part because a. changes in interest rates primarily influence investment spending, and firms make investment plans far in advance. 26. According to liquidity preference theory, if the price level decreases, then a. the interest rate falls because money demand shifts left. 27. Economists who are skeptical about the relevance of "liquidity traps" argue that a. a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero. 28. Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment? a. Increase government expenditures 29. The process of the investment accelerator involves a. positive feedback from aggregate demand to investment. 30. According to liquidity preference theory, if the price level decreases, then a. the interest rate falls because money demand shifts left. 31. When taxes decrease, interest rates a. b. Correct according to quizlet: increase, making the change in aggregate demand smaller. 32. Monetary policy a. can be described either in terms of the money supply or in terms of the interest rate. 33. If households view a tax cut as temporary, then the tax cut a. has less of an effect on aggregate demand than if households view it as permanent. 34. For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve? a. The interest-rate effect 35. Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium? a. Increase taxes 36. An increase in the money supply will a. reduce interest rates, increasing investment and aggregate demand 37. As the interest rate falls to equilibrium in the market for money, a. the quantity of money demanded rises, which would reduce a surplus of money. 38. Critics of stabilization policy argue that a. policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. 39. Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve? a. As the price level increases, the interest rate rises, so spending falls. 40. If the Fed conducts open-market sales, the money supply- decreases and aggregate demand shifts left. 41. Which of the Following Correctly Explains the Crowding Out Effect? a. An increase in government expenditures increases the interest rate and so reduces investment spending. 42. An example of an automatic stabilizer is a. Unemployment benefits 43. When the Fed increases the money supply, we expect a. interest rates to fall and stock prices to rise. 44. When there is an excess supply of money, a. people will try to get rid of money causing interest rates to fall. Investment increases. 45. Which of the following shifts aggregate demand to the left? a. A decrease in the money supply 46. In recent years, the federal reserve has conducted policy by setting a target for the a. Federal funds rate 47. If the Federal Reserve decided to raise interest rates, it could a. sell bonds to lower the money supply. 48. Shifts in aggregate demand affect the price level in a. Both the short and long run 49. In the short run, open-market purchases a. increase investment and real GDP, and decrease interest rates. CHAPTER 22 1. An improved functioning of the labor markets will shift a. the long-run Phillips curve to the left and the long-run aggregate supply curve to the right. 2. Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in a. the short run, but not the long run. 3. Which of the following would reduce the natural rate of unemployment? a. Neither an increase in unemployment compensation nor an increase in the rate of money growth 4. If taxes fall, then aggregate demand shifts a. right, making unemployment lower than otherwise. 5. Which of the following decreases inflation and increases unemployment in the short run? a. Either a decrease in government expenditures by itself or a decrease in the money supply growth rate by itself. 6. Which of the following are vertical? a. Both the long-run Phillips curve and the long-run aggregate supply curve 7. A vertical long-run Phillips curve is consistent with a. both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality. 8. According to the Phillips curve, unemployment and inflation are positively related in a. neither the long run nor the short run. 9. If policymakers decrease aggregate demand, then in the short run the price level a. falls and unemployment rises. 10. In the long run, policy that changes aggregate demand changes a. Only the price level. 11. By raising aggregate demand more than anticipated, policymakers a. Reduce unemployment temporarily 12. A movement to the left along a given short run Philips curve could be caused by a. Expansionary monetary policy, but not a reduction in the natural rate of unemployment. 13. One determinant of the long-run average unemployment rate is the a. minimum wage, while the inflation rate depends primarily upon the money supply growth rate. 14. If the unemployment rate is below the natural rate, then a. inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right. 15. If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower a. in the short run but not in the long run. 16. When monetary and fiscal policymakers decrease aggregate demand, which of the following costs to the economy is incurred in the short run? a. The price level decreases 17. In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have a. reduced unemployment and raised inflation. 18. An unfavorable supply shock will cause a. unemployment to rise and the short-run Phillips curve to shift right 19. Suppose Americans become optimistic about the future of the economy and, as a result, increase their current consumption expenditures. Which of the following would you expect to occur as a result of this change? a. In the short run, unemployment will decrease and inflation will rise. 20. A change in expected inflation shifts a. the short-run Phillips curve, but not the long run Phillips curve. 21. The natural rate of unemployment a. is the unemployment rate that the economy tends to move to in the long run. 22. An improved functioning of the labor markets will shift a. the long-run Phillips curve to the left and the long-run aggregate supply curve to the right. 23. Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by a. moving to the right along the short-run Phillips curve. 24. According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they a. decreased the money supply. 25. Proponents of rational expectations argued that the sacrifice ratio a. could be low because people might adjust their expectations quickly if they found anti-inflation policy credible. 26. The economy will move to a point on the short-run Phillips curve where unemployment is higher if a. the inflation rate decreases. 27. Disinflation would eventually cause a. the short-run Phillips curve, but not the long-run Phillips curve, to shift left. 28. Suppose that the money supply increases. In the short run, this increases prices according to a. both the short-run Phillips curve and the aggregate demand and aggregate supply model. 29. In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have a. reduced unemployment and raised inflation. 30. If the Federal Reserve decreases the growth rate of the money supply, in the long run a. inflation is lower while the unemployment rate is unchanged. 31. If policymakers expand aggregate demand, then in the long run a. prices will be higher and unemployment will be unchanged. 32. In 1980, the combination of inflation and unemployment the U.S. was experiencing a. followed two supply shocks that were triggered by the Organization of Petroleum Exporting Countries. 33. From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have a. raised inflation and reduced unemployment. 34. A basis for the slope of the short-run Phillips curve is that when unemployment is high there are a. downward pressures on prices and wages 35. If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action a. raises inflation but lowers unemployment. 36. If the central bank decreases the money supply, in the short run, output a. falls so unemployment rises 37. A movement to the left along a given short-run Phillips curve could be caused by a. expansionary monetary policy, but not a reduction in the natural rate of unemployment 38. If an increase in inflation permanently reduced unemployment, then a. Money would not be neutral and the long-run Phillips curve would slope downward. 39. Contractionary monetary policy a. leads to disinflation and makes the short-run Phillips curve shift left. 40. A favorable supply shock causes the price level to a. fall. To counter this a central bank could increase the money supply. 41. The theory by which people optimally use all available information when forecasting the future is known as a. rational expectations. 42. The short-run Phillips curve shows the combinations of a. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve. 43. Disinflation is defined as a a. Reduction in the rate of inflation 44. An improved functioning of the labor markets will shift a. The long run Phillips curve to the left and the long-run aggregate supply curve to the right 45. Which of the following would shift the long-run Phillips curve to the right? a. Increases in unemployment compensation 46. If there is an increase in the price of oil, then a. unemployment rises. If the central bank tries to counter this increase, inflation rises 47. The short-run relationship between inflation and unemployment is often called a. The phillips curve 48. According to the long-run Phillips curve, in the long run monetary policy influences a. The inflation rate but not the unemployment rate 49. If the government raises government expenditures, then in the short run, price a. Rise and unemployment falls 50. The economy will move to a point on the short-run Phillips curve where unemployment is higher if a. the inflation rate decreases 51. Closely watched indicators such as the inflation rate and unemployment are released each month by the a. Bureau of Labor Statistics. 52. Other things constant, which of the following would increase unemployment and reduce inflation? a. Businesses become pessimistic about the future of the economy. 53. A policy that lowered the natural rate of unemployment would shift a. Both the short-run and the long-run Phillips curves to the left 54. If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should a. increase the money supply growth rate, which raises the inflation rate. 55. Other things constant, which of the following would increase unemployment and reduce inflation? a. Businesses become pessimistic about the future of the economy. 56. If the government raises government expenditures, then in the short run, prices - rise and unemployment falls. 57. The natural rate of unemployment is the unemployment rate a. that the economy tends to move to in the long run. 58. How would a increase in the natural rate of unemployment affect the long-run Phillips curve? a. It would shift the long-run Phillips curve right.