Exam 27: Policy Effects and Cost Shocks in the Asad Model

In a binding situation,an increase in the Z factors

Refer to the information provided in Figure 27.2 below to answer the question(s) that follow. Figure 27.2 -Refer to Figure 27.2. Firms respond to an increase in government spending by mostly raising their prices when the aggregate demand curve shifts from

The views of the new classical economists are consistent with a vertical aggregate supply curve in both the short run and the long run.

Refer to the information provided in Figure 27.4 below to answer the question(s) that follow. Figure 27.4 -Refer to Figure 27.4. If the economy is currently at the intersection of AS and AD, stagflation would be caused by

For an economy to experience both economic growth and inflation at the same time

If the economy is on the steep part of the aggregate supply curve, the output multiplier is close to zero.

If the AD curve is relatively flat, the Fed is willing to accept large changes in output to keep the price level stable.

If the Fed has a strong preference for stable prices relative to output, the ________ curve is relatively ________.

An increase in net taxes at a given price level leads to

Decreases in net taxes, increases in the Z factors, and increases in government spending are contractionary policies.

In a binding situation, changes in net taxes do not shift the AD curve.

Stagflation is an economic condition characterized by ________ unemployment and ________ inflation.

Refer to the information provided in Figure 27.1 below to answer the question(s) that follow. Figure 27.1 -Refer to Figure 27.1. An aggregate demand shift from AD¹ to AD⁰ can be caused by

If the economy is on the steep part of its aggregate supply curve, expansionary policy will mostly increase the price level.

When the economy is not producing at capacity, economic policies are

Refer to the information provided in Figure 27.3 below to answer the question(s) that follow. Figure 27.3 -Refer to Figure 27.3. The aggregate supply curve shifting from AS₁ to AS₂ will cause

An economic condition characterized by high unemployment and excessive inflation is called

Refer to the information provided in Figure 27.2 below to answer the question(s) that follow. Figure 27.2 -Refer to Figure 27.2. The tax multiplier is largest (in absolute value) when the aggregate demand curve shifts from

The objective of a contractionary fiscal policy is to

Refer to the information provided in Figure 27.1 below to answer the question(s) that follow. Figure 27.1 -Refer to Figure 27.1. Suppose the economy is at Point A, a decrease in government purchases can cause a movement to Point