Chapter 10/11 Summary

A decrease in the real money supply, other things being equal, will shift the LM curve:
a.upward and to the left.
b.upward and to the right.
c.downward and to the left.
d.downward and to the right.
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A decrease in the real money supply, other things being equal, will shift the LM curve:
a.upward and to the left.
b.upward and to the right.
c.downward and to the left.
d.downward and to the right.
a. upward and to the left.
A short-run aggregate supply curve shows fixed _____, and a long-run aggregate supply curve shows fixed _____.
a.output; prices
b.output; output
c.prices; output
d.prices; prices
c. prices; output
Assume that the money demand function is ( M / P ) d = 2,200 - 200 r, where r is the interest rate in percent. If the price level is fixed at P= 2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at:
a.1,400.
b.1,600.
c.1,800.
d.2,000.
b.1,600.
Assuming velocity is constant, the aggregate demand curve tells us possible:
a.combinations of P and Y for a given value of M.
b.combinations of M and Y for a given value of P.
c.combinations of M and P for a given value of Y.
d.results if the Federal Reserve reduces the money supply.
a. combinations of P and Y for a given value of M.
In the Keynesian-cross analysis, assume that the analysis of taxes is changed so that taxes, T , are made a function of income, as in T = T + tY , where T and t are parameters of the tax code and t is positive but less than 1. As compared to a case where t is zero, the multiplier for government purchases in this case will:
a. be equal to 1.
b. be bigger.
c. not change.
d. be smaller.
d. be smaller.
In the Keynesian-cross model, fiscal policy has a multiplying effect on income because fiscal policy:
a. increases the amount of money in the economy.
b. changes income, which changes consumption, which further changes income.
c. is government spending and, therefore, more powerful than private spending.
d. changes the interest rate.
b. changes income, which changes consumption, which further changes income.
Most economists believe that prices are:
a. flexible in both the short and long runs.
b. sticky in both the short and long runs.
c. flexible in the long run but many are sticky in the short run.
d. flexible in the short run but many are sticky in the long run.
c. flexible in the long run but many are sticky in the short run.
Short-run fluctuations in output and employment are called:
a. sectoral shifts.
b. productivity slowdowns.
c. business cycles.
d. the classical dichotomy.
c. business cycles.
Stabilization policy refers to policy actions aimed at:
a. equalizing incomes of households in the economy.
b. maintaining constant shares of output going to labor and capital.
c. reducing the severity of short-run economic fluctuations.
d. preventing increases in the poverty rate.
c. reducing the severity of short-run economic fluctuations.
When firms experience unplanned inventory accumulation, they typically:
a. build new plants.
b. lay off workers and reduce production.
c. hire more workers and increase production.
d. call for more government spending.
b. lay off workers and reduce production.