Q&A Hero

Q: Suppose the U.S. economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant. A) no change; an increase B) no change; a decrease C) an increase; an increase D) a decrease; a decrease

Q: Suppose the economy is producing at the natural rate of output and the government passes legislation that severely restricts a company's ability to reduce production costs via outsourcing. Everything else held constant, this policy action will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run. A) an increase; an increase B) a decrease; a decrease C) a decrease; an increase D) no change; no change

Q: A positive supply shock causes ________ to ________. A) aggregate demand; increase B) aggregate demand; decrease C) short-run aggregate supply; decrease D) short-run aggregate supply; increase

Q: A negative supply shock causes ________ to ________. A) aggregate demand; increase B) aggregate demand; decrease C) short-run aggregate supply; decrease D) short-run aggregate supply; increase

Q: A decrease in the availability of raw materials that increases the price level is called a ________ shock A) negative demand B) positive demand C) negative supply D) positive supply

Q: If workers demand and receive higher real wages (a successful wage push), the cost of production ________ and the short-run aggregate supply curve shifts ________. A) rises; leftward B) rises; rightward C) falls; leftward D) falls; rightward

Q: Everything else held constant, when output is ________ the natural rate level, wages will begin to ________, decreasing short-run aggregate supply. A) above; fall B) above; rise C) below; fall D) below; rise

Q: Everything else held constant, when output is ________ the natural rate level, wages will begin to ________, increasing short-run aggregate supply. A) above; fall B) above; rise C) below; fall D) below; rise

Q: Everything else held constant, a decrease in the cost of production ________ aggregate ________. A) increases; demand B) decreases; demand C) increases; supply D) decreases; supply

Q: Everything else held constant, an increase in the cost of production ________ aggregate ________. A) increases; demand B) decreases; demand C) increases; supply D) decreases; supply

Q: Using the aggregate demand-aggregate supply model, explain and demonstrate graphically the short-run and long-run effects of an increase in the money supply.

Q: According to aggregate demand and supply analysis, the negative demand shock of 2000-2004 had the effect of A) increasing aggregate output, lowering unemployment, and raising inflation. B) decreasing aggregate output, raising unemployment, and raising inflation. C) increasing aggregate output, lowering unemployment, and lowering inflation. D) decreasing aggregate output, raising unemployment, and lowering inflation.

Q: Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) a decrease; an increase D) an increase; a decrease

Q: Suppose the U.S. economy is producing at the natural rate of output. An appreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the long run, everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy.) A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the U.S. economy is producing at the natural rate of output. An appreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy.) A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.) A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.) A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP the the short run and ________ in inflation in the short run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate and ________ in the inflation in the long run. A) an increase; an increase B) a decrease; a decrease C) a decrease; an increase D) no change; no change

Q: Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in inflation in the short run. A) an increase; an increase B) a decrease; a decrease C) no change; a decrease D) no change; no change

Q: Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run. A) an increase; an increase B) a decrease; a decrease C) a decrease; an increase D) no change; no change

Q: Assuming the economy is starting at the natural rate of output and everything else held constant, the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run, but in the long-run the only effect is a rise in inflation. A) a decrease; supply B) a decrease; demand C) an increase; supply D) an increase; demand

Q: The fact that an economy always returns to the natural rate level of output is known as A) the excess demand hypothesis. B) the price-adjustment mechanism. C) the self-correcting mechanism. D) the natural rate of unemployment.

Q: Which of the followings does not shift the short-run aggregate supply curve? A) supply shocks. B) persistent positive output gap. C) changes in expected inflation. D) an increase in output gap.

Q: The short-run aggregate supply curve shifts to the right when A) output gap is higher. B) output gap is lower. C) expected inflation is higher. D) expected inflation is lower.

Q: The long-run aggregate supply curve shifts to the right when there is A) an increase in the total amount of capital in the economy. B) an increase in the available technology. C) a decrease in the natural rate of unemployment.. D) A and B. E) A, B, and C.

Q: The long-run aggregate supply curve shifts to the right when there is A) a decrease in the total amount of capital in the economy. B) a decrease in the total amount of labor supplied in the economy. C) a decrease in the available technology. D) a decline in the natural rate of unemployment.

Q: Which of the following increases aggregate supply in the short-run, everything else held constant? A) An increase in the price of crude oil. B) A successful wage push by workers. C) Expectations of a higher inflation. D) A technological improvement that increases worker productivity.

Q: Everything else held constant, a change in workers' expectations about inflation will cause ________ to change. A) aggregate demand B) short-run aggregate supply C) the production function D) long-run aggregate supply

Q: Everything else held constant, if workers expect an increase in inflation, ________ aggregate supply ________. A) long-run; increases B) long-run; decreases C) short-run; decreases D) short-run; increases

Q: Everything else held constant, when actual output exceeds the natural rate of output ________ aggregate supply ________. A) short-run; decreases B) short-run; increases C) long-run; increases D) long-run; decreases

Q: ________ flexible wages and prices imply that the short-run aggregate supply curve is ________. A) More; flatter B) Less; steeper C) less; vertical D) More; steeper

Q: The long-run aggregate supply curve is a vertical line passing through A) the natural rate of output. B) the natural-rate price level. C) the actual rate of unemployment. D) the expected rate of inflation.

Q: The long-run aggregate supply curve is A) a vertical line through the non-inflationary rate of output. B) a vertical line through the current level of output. C) a vertical line through the natural rate level of output. D) a horizontal line through the current level of output.

Q: The long-run rate of unemployment to which an economy always gravitates is the A) normal rate of unemployment. B) natural rate of unemployment. C) neutral rate of unemployment. D) inflationary rate of unemployment.

Q: The aggregate supply curve shows the relationship between A) the level of inputs and aggregate output. B) the inflation rate and the level of inputs. C) the wage rate and the level of employment. D) the inflation rate and the level of aggregate output supplied.

Q: The aggregate supply curve is the total quantity of A) raw materials offered for sale at different inflation rates. B) final goods and services offered for sale at the current inflation rate. C) final goods and services offered for sale at different inflation rates. D) intermediate and final goods and service offered for sale at different inflation rates.

Q: Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

Q: Everything else held constant, which of the following does not cause aggregate demand to increase? A) An increase in net exports B) An increase in government spending C) An increase in taxes D) An increase in consumer optimism

Q: Everything else held constant, aggregate demand increases when A) net exports decrease. B) taxes increase. C) planned investment spending increases. D) the money supply decreases.

Q: Everything else held constant, aggregate demand increases when A) taxes are cut. B) government spending is reduced. C) animal spirits decrease. D) the money supply is reduced.

Q: Everything else held constant, a decrease in planned investment expenditure ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, an increase in planned investment expenditure ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, a decrease in net exports ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, an increase in net exports ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, a balanced budget increase in government spending (that is, an increase in government spending that is matched by an identical increase in net taxes) will A) increase aggregate demand, but not by as much as if just government spending increases. B) increase aggregate demand by more than if just government spending increases. C) not affect aggregate demand. D) decrease aggregate demand.

Q: Everything else held constant, an increase in net taxes ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, a decrease in net taxes ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, a decrease in government spending ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, an increase in government spending ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, an increase in financial frictions________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, when financial frictions increase, the real cost of borrowing ________ so that planned investment spending ________ at any given inflation rate. A) increases; falls B) decreases; falls C) decreases; rises D) increases; rises

Q: Everything else held constant, an autonomous monetary policy tightening ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: Everything else held constant, an autonomous monetary policy easing ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply

Q: By looking at aggregate demand via its component parts, we can conclude that the aggregate demand curve is downward sloping because A) a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending. B) a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending. C) a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending. D) a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending.

Q: By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes A) an increase in real interest rates, an increase in investment spending, and a decline in aggregate output demand. B) a decline in real interest rates, a decrease in investment spending, and an increase in aggregate output demand. C) a decline in real interest rates, an increase in investment spending, and an increase in aggregate output demand. D) an increase in real interest rates, a decline in investment spending, and a decline in aggregate output demand.

Q: One way to derive aggregate demand is by looking at its four component parts, which are: A) consumer expenditures, planned investment spending, government spending, and net exports. B) consumer expenditures, actual investment spending, government spending, and net exports. C) consumer expenditures, planned investment spending, government spending, and gross exports. D) consumer expenditures, planned investment spending, government spending, and taxes.

Q: The total quantity of an economy's final goods and services demanded at different inflation rates is A) the aggregate supply curve. B) the aggregate demand curve. C) the Phillips curve. D) the aggregate expenditure function.

Q: The aggregate demand curve is the total quantity of an economy's A) intermediate goods demanded at different inflation rates. B) intermediate goods demanded at a particular inflation rate. C) final goods and services demanded at a particular inflation rate. D) final goods and services demanded at different inflation rates.

Q: 23.1 Aggregate Demand

Q: In the late 1990s, M2 velocity ________, suggesting a ________ normal relationship between M2 and macroeconomic variables. A) stabilized; less B) stabilized; more C) slowed; less D) slowed; more

Q: In the early 1990s, M2 growth underwent a dramatic ________, which some researchers believe ________ be explained by traditional money demand functions. A) surge; cannot B) surge; can C) slowdown; cannot D) slowdown; can

Q: Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s, with M2 velocity moving ________ with the opportunity cost of holding M2. A) poorly; erratically B) poorly; closely C) well; erratically D) well; closely

Q: Conventional money demand functions tended to ________ money demand in the middle and late 1970s, and ________ velocity beginning in 1982. A) overpredict; overpredict B) overpredict; underpredict C) underpredict; overpredict D) underpredict; underpredict

Q: Starting in 1974, the conventional M1 money demand function began to severely ________ the demand for money. Stephen Goldfeld labeled this phenomenon "the case of the missing ________." A) underpredict; velocity B) overpredict; velocity C) underpredict; money D) overpredict; money

Q: Starting in 1974, the conventional M1 money demand function began to A) severely underpredict the demand for money. B) severely overpredict the demand for money. C) predict more precisely the demand for money. D) do none of the above.

Q: In one of the earliest studies on the link between interest rates and money demand using United States data, James Tobin concluded that the demand for money is A) sensitive to interest rates. B) not sensitive to interest rates. C) not sensitive to changes in income. D) not sensitive to changes in bond values.

Q: What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

Q: The speculative demand for money may not exist because A) banks now pay interest on some types of checkable deposits. B) there are alternative riskless assets paying higher returns than the return on money. C) the transactions demand can be shown to depend on interest rates. D) government regulations have eliminated risk in the financial markets.

Q: Because Treasury bills pay a higher return than money and have no risk A) the transactions demand for money may be zero. B) the precautionary demand for money may be zero. C) the speculative demand for money may be zero. D) all three of the above motives for holding money will be zero.

Q: Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings. A) wealth; diversifying B) risk; specializing C) return; diversifying D) risk; diversifying

Q: Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________. A) medium of exchange; transaction costs B) medium of exchange; risk C) store of wealth; transaction costs D) store of wealth; risk

Q: Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of A) reducing risk. B) reducing income. C) avoiding taxes. D) reducing transactions cost.