Question 1

A price shock occurs when

Accepted Answer

A)  the monetary policy rule changes. 
B)  the Fed acts to raise interest rates. 
C)  the spending balance changes. 
D)  key commodity prices change. 
E)  the AD curve shifts to the right. 
A)  the monetary policy rule changes. 
B)  the Fed acts to raise interest rates. 
C)  the spending balance changes. 
D)  key commodity prices change. 
E)  the AD curve shifts to the right.

Question 2

Suppose exports increase. According to the shares of spending model from Chapter 7, what would happen to interest rates, consumption, investment, and net exports in the long run? According to this chapter's model, which is made up of the aggregate demand curves and the inflation adjustment line, what will happen to interest rates, consumption, investment, and net exports in the long run?

Accepted Answer

According to the model in Chapter 7, an

Question 3

A temporary growth slowdown results in a

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  boom. 
D)  fall in the price level. 
E)  recession. 
A)  disinflation. 
B)  deflation. 
C)  boom. 
D)  fall in the price level. 
E)  recession.

Question 4

Suppose the income tax rate increases. What will happen to consumption, investment, and net exports in the short run and the long run? Explain your results, using a diagram with the aggregate demand curve and the inflation adjustment line.

Accepted Answer

If the income tax rate increases, dispos

Question 5

The long-run effect of increased government purchases is crowding out.

Accepted Answer

A) True 
 B)False

Question 6

If government purchases decrease, in the short run

Accepted Answer

A)  consumption will increase as income increases. 
B)  consumption, investment, and net exports will increase as income increases. 
C)  consumption and investment will increase as income increases. 
D)  consumption will fall and net exports will increase as income falls. 
E)  consumption will increase, and real GDP will remain at potential GDP. 
A)  consumption will increase as income increases. 
B)  consumption, investment, and net exports will increase as income increases. 
C)  consumption and investment will increase as income increases. 
D)  consumption will fall and net exports will increase as income falls. 
E)  consumption will increase, and real GDP will remain at potential GDP.

Question 7

Exhibit 25-3 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Inflation } \
\text { (percent) }
\end{array} & \begin{array} { c } 
\text { Real GDP } \
\text { (billions of } \
\text { dollars) }
\end{array} \
\hline 4.5 & 6,700 \
\hline 3.5 & 6,800 \
\hline 2.5 & 6,900 \
\hline 1.5 & 7,000 \
\hline 5 & 7,100 \
\hline
\end{array}$$
-Suppose the GDP deflator is 100 in 2015 and 101 in 2016.
 (A) Suppose the econamy is at potential GDP in 2015 ant 2016 . What is the rate of inflation in 2016 ?
(B) Suppose instead that real GDP is abave patential GDP in 2016. Haw is the adjustrent back ta potential made in this situation?

Accepted Answer

(A) The rate of infletion in 2016 is 1 p

Question 8

A change in the price of a key commodity such as oil, usually because of a shortage, that causes a shift in the inflation adjustment line is known as a

Accepted Answer

A)  commodity shock. 
B)  price shock. 
C)  price revamping. 
D)  disinflation. 
E)  None of these 
A)  commodity shock. 
B)  price shock. 
C)  price revamping. 
D)  disinflation. 
E)  None of these

Question 9

In the long run, a price shock results in

Accepted Answer

A)  an inflation rate greater than the baseline. 
B)  an inflation rate the same as the baseline. 
C)  an inflation rate lower than the baseline. 
D)  a permanent decline in potential GDP. 
E)  real GDP being less than potential GDP. 
A)  an inflation rate greater than the baseline. 
B)  an inflation rate the same as the baseline. 
C)  an inflation rate lower than the baseline. 
D)  a permanent decline in potential GDP. 
E)  real GDP being less than potential GDP.

Question 10

Suppose oil prices increase sharply. Trace the short-run, medium-run, and long-run effects this will have on the economy.

Accepted Answer

The initial impact will be an upward shi

Question 11

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

Accepted Answer

A) True 
 B)False

Question 12

If the Fed is worried about inflation and raises interest rates, then in the short run

Accepted Answer

A)  the aggregate demand curve will shift to the left. 
B)  the aggregate demand curve will shift to the left, and the inflation adjustment line will shift down because the target inflation rate has decreased. 
C)  the inflation adjustment line will shift down because the target inflation rate has decreased. 
D)  the inflation adjustment line will shift up because the target inflation rate has increased. 
E)  the aggregate demand curve will shift to the right. 
A)  the aggregate demand curve will shift to the left. 
B)  the aggregate demand curve will shift to the left, and the inflation adjustment line will shift down because the target inflation rate has decreased. 
C)  the inflation adjustment line will shift down because the target inflation rate has decreased. 
D)  the inflation adjustment line will shift up because the target inflation rate has increased. 
E)  the aggregate demand curve will shift to the right.

Question 13

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

Accepted Answer

A)  downward movement along the monetary policy line. 
B)  leftward shift of the monetary policy line. 
C)  upward movement along the monetary policy line. 
D)  rightward shift of the monetary policy line. 
E)  rightward shift of the AD curve. 
A)  downward movement along the monetary policy line. 
B)  leftward shift of the monetary policy line. 
C)  upward movement along the monetary policy line. 
D)  rightward shift of the monetary policy line. 
E)  rightward shift of the AD curve.

Question 14

Data for the U.S. economy in the 2007-09 period show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Accepted Answer

A) True 
 B)False

Question 15

Interest rates typically rise prior to a recession.

Accepted Answer

A) True 
 B)False

Question 16

A major that resulted in the leftward shift of the aggregate demand curve in late 2008 was

Accepted Answer

A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  a price shock. 
D)  a change in net exports. 
E)  a decrease in consumer confidence. 
A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  a price shock. 
D)  a change in net exports. 
E)  a decrease in consumer confidence.

Question 17

A price shock has the same effect as a demand shock.

Accepted Answer

A) True 
 B)False

Question 18

The initial response of real GDP to a change in aggregate spending is referred to as

Accepted Answer

A)  a depression. 
B)  a boom. 
C)  a recession. 
D)  the short run. 
E)  a recovery. 
A)  a depression. 
B)  a boom. 
C)  a recession. 
D)  the short run. 
E)  a recovery.

Question 19

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the long run,

Accepted Answer

A)  an increase in consumption, a decrease in net exports, and no change in investment. 
B)  no change in consumption, investment, or net exports. 
C)  no change in consumption and a decrease in both net exports and investment. 
D)  a decrease in the sum of consumption, investment, and net exports. 
E)  an increase in consumption, a decrease in investment, and a decrease in net exports. 
A)  an increase in consumption, a decrease in net exports, and no change in investment. 
B)  no change in consumption, investment, or net exports. 
C)  no change in consumption and a decrease in both net exports and investment. 
D)  a decrease in the sum of consumption, investment, and net exports. 
E)  an increase in consumption, a decrease in investment, and a decrease in net exports.

Question 20

A demand shock is a shift in the aggregate demand curve, whereas a price shock is typically a shift in the supply curve.

Accepted Answer

A) True 
 B)False

A price shock occurs when

A temporary growth slowdown results in a

Suppose the income tax rate increases. What will happen to consumption, investment, and net exports in the short run and the long run? Explain your results, using a diagram with the aggregate demand curve and the inflation adjustment line.

The long-run effect of increased government purchases is crowding out.

If government purchases decrease, in the short run

A change in the price of a key commodity such as oil, usually because of a shortage, that causes a shift in the inflation adjustment line is known as a

In the long run, a price shock results in

Suppose oil prices increase sharply. Trace the short-run, medium-run, and long-run effects this will have on the economy.

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

If the Fed is worried about inflation and raises interest rates, then in the short run

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

Data for the U.S. economy in the 2007-09 period show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Interest rates typically rise prior to a recession.

A major that resulted in the leftward shift of the aggregate demand curve in late 2008 was

A price shock has the same effect as a demand shock.

The initial response of real GDP to a change in aggregate spending is referred to as

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the long run,

A demand shock is a shift in the aggregate demand curve, whereas a price shock is typically a shift in the supply curve.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth Around the World

International Trade

International Finance

Filters

Exam 13: Using the Economic Fluctuations Model

A price shock occurs when

A temporary growth slowdown results in a

Suppose the income tax rate increases. What will happen to consumption, investment, and net exports in the short run and the long run? Explain your results, using a diagram with the aggregate demand curve and the inflation adjustment line.

The long-run effect of increased government purchases is crowding out.

If government purchases decrease, in the short run

A change in the price of a key commodity such as oil, usually because of a shortage, that causes a shift in the inflation adjustment line is known as a

In the long run, a price shock results in

Suppose oil prices increase sharply. Trace the short-run, medium-run, and long-run effects this will have on the economy.

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

If the Fed is worried about inflation and raises interest rates, then in the short run

Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)

Data for the U.S. economy in the 2007-09 period show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.

Interest rates typically rise prior to a recession.

A major that resulted in the leftward shift of the aggregate demand curve in late 2008 was

A price shock has the same effect as a demand shock.

The initial response of real GDP to a change in aggregate spending is referred to as

Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the long run,

A demand shock is a shift in the aggregate demand curve, whereas a price shock is typically a shift in the supply curve.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth Around the World

International Trade

International Finance

Filters