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Chapter 33 Quizzes

STUDY
PLAY
Which of the following statements about economic fluctuations istrue ?
A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.
According to the interest-rate effect, aggregate demand slopes downward (negatively) because
lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.
Which of the following wouldnot cause a shift in the long-run aggregate-supply curve?
an increase in price expectations
Which of the following isnot a reason why the aggregate-demand curve slopes downward?
the classical dichotomy/monetary neutrality effects
In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to
shift aggregate demand to the right.
Which of the following statements is true regarding the long-run aggregate-supply curve? The long-run aggregate-supply curve
is vertical because an equal change in all prices and wages leaves output unaffected.
According to the wealth effect, aggregate demand slopes downward (negatively) because
lower prices increase the value of money holdings and consumer spending increases.
The natural rate of output is the amount of real GDP produced
when the economy is at the natural rate of unemployment.
Suppose the price level falls. Because of fixed nominal wage contracts, firms become less profitable and they cut back on production. This is a demonstration of the
sticky-wage theory of the short-run aggregate-supply curve.
Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the
misperceptions theory of the short-run aggregate-supply curve.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in theshort run ?
Prices fall; output falls.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in thelong run ?
Prices fall; output is unchanged from its initial value.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in theshort run ?
Prices rise; output falls.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in thelong run ?
Output and the price level are unchanged from their initial values.
Stagflation occurs when the economy experiences
rising prices and falling output.
Which of the following events shifts the short-run aggregate-supply curve to the right?
a drop in oil prices
Refer to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers wished to move output to its long-run natural rate, they should attempt to
shift aggregate demand to the right.
Refer to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers allow the economy to adjust to the long-run natural rate on its own
people will reduce their price expectations and the short-run aggregate supply will shift right.
According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause
prices to rise and output to remain unchanged.
Policymakers are said to "accommodate" an adverse supply shock if they
respond to the adverse supply shock by increasing aggregate demand, which further raises prices.
Over the last 50 years, U.S. real GDP has grown at about 5 percent per year
False: The U.S. economy has grown at about 3 percent per year.
Investment is a particularly volatile component of spending across the business cycle
True
An increase in price expectations shifts the long-run aggregate-supply curve to the left.
False
If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate-supply curve should be vertical.
True
Economists refer to fluctuations in output as the "business cycle" because movements in output are regular and predictable.
False
One reason aggregate demand slopes downward is the wealth effect: A decrease in the price level increases the value of money holdings and consumer spending rises
True
If the Federal Reserve increases the money supply, the aggregate-demand curve shifts to the left.
False
The misperceptions theory explains why the long-run aggregate-supply curve is downward sloping.
False: It explains why the short-run aggregate-supply curve is upward sloping.
A rise in price expectations that causes wages to rise causes the short-run aggregate-supply curve to shift left.
True
If the economy is in a recession, the economy will adjust to long-run equilibrium on its own as wages and price expectations rise.
False: In a recession, the economy adjusts to long-run equilibrium as wages and prices fall.
In the short run, if the government cuts back spending to balance its budget, it will likely cause a recession.
True
The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level.
True
A rise in the price of oil tends to cause stagflation
True
In the long run, an increase in government spending tends to increase output and prices
False: In the long run, it tends to increase prices, but it has no impact on output.
If policymakers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand
False
The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run
True
Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports
False
An increase in the expected price level shifts the short-run aggregate supply curve to the right
False
In the long-run, an increase in aggregate demand increases the price level, but not real GDP.
True
Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.
True
Which of the following rises during recessions?
layoffs but not consumer spending
Which of the following accounts for about two-thirds of the decline in output during a recession?
the decline in investment spending alone
Which of the following fall during a recession?
both retail sales and employment
Which of the following effects provide incentives for consumers to spend less when the price level rises?
the wealth effect and the interest-rate effect
Which of the following decreases in response to the interest-rate effect from an increase in the price level?
both investment and consumption
When the price level increases, the real value of people's money holdings
falls, so they spend less.
As the price level rises, the exchange rate
rises, so exports fall and imports rise.
As the price level rises, the interest rate
rises, so the supply of dollars in the market for foreign currency exchange shifts left.
In 2008 home prices declined. A decline in the price of assets such as houses shifts
aggregate demand left.
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?
both the increased funding for states and the tax cuts
Which of the following shifts aggregate demand to the right?
both an investment tax credit and a decrease in income tax rates
Other things the same, which of the following is correct?
If speculators lose confidence in the American economy, the dollar depreciates. Aggregate demand shifts right.
Which of the following shifts aggregate demand right?
the implementation of an investment tax credit but not a decrease in the price level
The aggregate demand curve shifts right if either
speculators lose confidence in U.S. assets or recessions in foreign countries end.
The long-run aggregate supply curve shifts right if
either immigration from abroad increases or technology improves.
Which of the following would shift the long-run aggregate supply curve right?
an increase in the capital stock, but not an increase in the price level
Other things the same, continued technological progress and continued increases in the money supply would unambiguously lead to
rising real GDP only.
If wages are sticky, then a greater than expected increase in the price level
reduces the costs of production, so the aggregate quantity of good and services rises.
When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is
less than it desires and increase its production.
Which of the following shifts the short-run aggregate supply curve to the right?
a decrease in the expected price level
Suppose government expenditures increase. In the short run, the price level
rises. So if wages are sticky, production is increased because it is more profitable.
Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to
rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?
as people revise their price level expectations downward, firms and workers strike bargains for lower nominal wages.
If output is above its natural rate, then according to sticky-wage theory
workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.
If output is above its natural rate, then according to sticky-wage theory
workers and firms will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.