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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, a decline 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:
22.1 Aggregate Demand
Q:
Everything else held constant, a decrease in government spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, a depreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, an increase in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, a decrease in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, an increase in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q:
Everything else held constant, an autonomous easing of monetary policy will cause
A) aggregate demand to increase.
B) aggregate demand to decrease.
C) the quantity of aggregate demand to increase.
D) the quantity of aggregate demand to decrease.
Q:
Everything else held constant, an autonomous tightening of monetary policy will cause
A) the quantity of aggregate demand to increase.
B) the quantity of aggregate demand to decrease.
C) aggregate demand to increase.
D) aggregate demand to decrease.
Q:
Everything else held constant, an autonomous easing of monetary policy will cause
A) the quantity of aggregate demand to increase.
B) the quantity of aggregate demand to decrease.
C) aggregate demand to decrease.
D) aggregate demand to increase.
Q:
Everything else held constant, an increase in government spending will cause
A) aggregate demand to increase.
B) aggregate demand to decrease.
C) the quantity of aggregate demand to increase.
D) the quantity of aggregate demand to decrease.
Q:
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A) raise; lowering
B) raise; raising
C) reduce; lowering
D) reduce; raising
Q:
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A) real; lowering
B) real; raising
C) nominal; lowering
D) nominal; raising
Q:
In deriving the aggregate demand curve a ________ inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output.
A) higher; raise; lowering
B) lower; raise; lowering
C) higher; lower; lowering
D) higher; lower; raising
Q:
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
A) there was an upward movement along the monetary policy curve.
B) there was a downward movement along the monetary policy curve.
C) the monetary policy curve shifted upward.
D) the monetary policy curve shifted downward.
Q:
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
A) the Fed pursued an autonomous monetary policy tightening.
B) the Fed pursued an autonomous monetary policy easing.
C) the Fed had an automatic negative response to inflation based on the Taylor rule.
D) the Fed had an automatic positive response to inflation based on the Taylor rule.
Q:
Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Q:
Based on the Taylor Principle, a central bank's endogenous response of raising interest rates when inflation rises
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Q:
An autonomous easing of monetary policy
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Q:
An autonomous tightening of monetary policy
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Q:
The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.
A) less; rise
B) more; fall
C) less; fall
D) more; rise
Q:
The upward slope of the MP curve indicates that
A) the central bank lowers real interest rates when inflation rises.
B) the central bank raises real interest rates when inflation falls.
C) the central bank raises nominal interest rates when inflation rises.
D) the central bank raises real interest rates when inflation rises.
Q:
The monetary policy (MP) curve indicates the relationship between
A) the Federal Funds Rate and the real interest rate.
B) the Federal Funds Rate and the inflation rate.
C) the inflation rate and the expected inflation rate.
D) the real interest rate the central bank sets and the inflation rate.
Q:
Because prices are sticky in the short-run, when the Federal Reserve raises the federal funds rate,
A) nominal interest rates fall.
B) real interest rates rise.
C) inflation falls.
D) real interest rates fall.
Q:
Because prices are slow to move in the short-run, when the Federal Reserve lowers the federal funds rate,
A) nominal interest rates rise.
B) real interest rates fall.
C) inflation falls.
D) real interest rates rise.
Q:
21.1 The Federal Reserve and Monetary Policy
Q:
Equilibrium output is reduced by an increase in
A) planned investment.
B) taxes.
C) government spending.
D) net exports.
Q:
Aggregate output is increased by a decrease in
A) autonomous consumption.
B) government spending.
C) planned investment.
D) net taxes.
Q:
Aggregate output is ________ related to autonomous consumer expenditure, and is ________ related to the level of taxes.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Q:
Aggregate output is ________ related to autonomous consumer expenditure, and is ________ related to planned investment spending.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Q:
If net exports decrease by 250 and the mpc is 0.75, equilibrium aggregate output
A) increases by 1000.
B) increases by 750.
C) decreases by 750.
D) decreases by 1000.
Q:
If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output increases by
A) 250.
B) 500.
C) 750.
D) 1000.
Q:
If net exports increase by 100 and the mpc is 0.75, equilibrium aggregate output increases by
A) 100.
B) 250.
C) 400.
D) 750.
Q:
In an open economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending.
B) consumer expenditure, planned investment spending, and government spending.
C) consumer expenditure, actual investment spending, government spending, and net exports.
D) consumer expenditure, planned investment spending, government spending, and net exports.
Q:
In a closed economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending.
B) consumer expenditure, planned investment spending, and government spending.
C) consumer expenditure, actual investment spending, government spending, and net exports.
D) consumer expenditure, planned investment spending, government spending, and net exports.
Q:
Situation 20-2Assume a closed economy. Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, net taxes equals $50, and the mpc equals 0.9.Using the information in situation 20-2, if government increases their spending by $50 and increases net taxes by 50, then equilibrium aggregate output will change byA) -$100.B) -$50.C) $50.D) $100.
Q:
Assume equilibrium at full employment for an economy characterized by the simple Keynesian model. If the government raises taxes to eliminate a budget deficit, then
A) the rate of unemployment will increase.
B) the level of aggregate output will increase.
C) the price level will increase.
D) the rate of interest will fall.
Q:
A tax cut initially
A) increases consumption expenditure by an amount greater than the tax cut.
B) increases consumption expenditure by an amount equal to the tax cut.
C) increases consumption expenditure by an amount that is less than the value of the tax cut.
D) has no effect on consumption expenditure.
E) reduces consumption expenditure by an amount that is less than the value of the tax cut.
Q:
The Keynesian framework indicates that government can play an important role in determining aggregate output by
A) changing the level of government spending or taxes.
B) raising consumer confidence.
C) raising investor confidence.
D) changing the money supply and interest rates.
Q:
In the simple Keynesian framework, declines in planned investment spending that produce high unemployment can be offset by raising
A) taxes.
B) government spending.
C) consumer confidence.
D) business confidence.
Q:
Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________, which are influenced by emotional waves of optimism and pessimismfactors he referred to as "animal spirits."
A) unplanned investment spending
B) actual investment spending
C) planned investment spending
D) autonomous consumer expenditures
Q:
Keynes believed that changes in autonomous spending were dominated by changes in
A) consumer expenditure.
B) autonomous consumer expenditure.
C) investment spending.
D) taxes.
E) none of the above.
Q:
Situation 20-1Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.Using the information contained in Situation 20-1, if planned investment decreases by $100, the equilibrium aggregate output will change byA) -$1,000.B) $-100.C) $100.D) $1,000.
Q:
If aggregate demand equals output,
A) the economy is in a recession.
B) output will increase.
C) output will fall.
D) the economy is at its equilibrium level.
Q:
When the level of unplanned inventory investment is equal to zero, the economy is
A) in disequilibrium.
B) in a recession.
C) in equilibrium.
D) overheating
Q:
If actual output is greater than equilibrium output, firms will ________ output to keep from ________ inventories.
A) increase; accumulating
B) increase; depleting
C) decrease; depleting
D) decrease; accumulating
Q:
If actual output is less than equilibrium output, firms will ________ output to keep from ________ inventories.
A) increase; accumulating
B) increase; depleting
C) decrease; depleting
D) decrease; accumulating
Q:
If aggregated demand is less than actual output, unplanned inventory ________ will cause output to ________.
A) accumulation; rise
B) depletion; fall
C) depletion; rise
D) accumulation; fall
Q:
If aggregate demand falls short of current output, business firms will ________ production to ________ inventories.
A) cut; keep from accumulating
B) expand; keep from accumulating
C) cut; build up
D) expand; build up
Q:
If aggregate demand is less than the level of aggregate output, then ________ inventory investment will be ________.
A) planned; positive
B) actual; positive
C) actual; negative
D) planned; negative