Exam 15: Modern Macroeconomics: From the Short Run to the Long Run

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions: -According to the application, as individuals increase spending on health- care:

According to Say's law:

If the economy is producing at a level above full employment, wages will have to fall until equilibrium is restored.

In the long run, the level of output:

Fiscal policy affects the real interest rate through its impact on:

When the unemployment rate is greater than the natural rate, wages and prices will fall eventually.

Classical economists assumed:

Monetary neutrality implies that a decrease in the money supply will:

Keynes and Friedman disagreed on the speed of adjustment of nominal wages to changes in prices.

Figure 15.3 -Refer to Figure 15.3. At full employment equilibrium, investment would decrease from $15 billion to $10 billion if:

When the economy is in a liquidity trap, the adjustment process without active policy:

Classical economists believed that:

Recall Application 2, "Elections, Political Parties, and Voter Expectations," to answer the following questions: -According to the application, which political party puts more emphasis on fighting inflation?

In the long run, without government intervention, the economy responds to a decrease in aggregate demand with:

Recall Application 1, "Avoiding a Liquidity Trap," to answer the following questions: -Which of the following most likely caused the low short- term interest rates in 2008?

When the economy is producing above full employment, the unemployment rate is below the natural rate. This makes it more difficult for:

Which of the following sequence of events occurs in response to an expansionary fiscal policy?

Monetary neutrality implies that an increase in the money supply will:

What does the Say's Law imply about the possibility of an economy in a recession or a boom?

Suppose the economy is initially operating at the potential level of output. Graphically illustrate and explain what effect a one- time increase in government spending will have on output and the price level in the short run and in the long run.