Exam 13: Using the Economic Fluctuations Model

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession, the aggregate demand inflation adjustment model is of no use. Please comment.

A reduction in the inflation rate is called

The medium run is usually

The difference between the medium run and the long run is that inflation is constant in the long run.

The recession in the United States during the 2007-09 period are best explained by changes in fiscal policy.

When Paul Volcker first started to head the Fed, the Federal Reserve began a policy of

If real GDP stays below potential GDP,

By definition, real GDP can never be above potential GDP.

The most recent recession of the United States occurred

Suppose there is a sharp decline in oil prices. According to the theory of economic fluctuations,

In 2008, stock markets in the United States and worldwide registered

According to the spending allocation model, what happens if there is an increase in the share of GDP allocated to government purchases? What happens to the other spending shares? According to the economic fluctuations model, what happens if there is an increase in government purchases as a share of GDP? What happens to the other spending shares? Are the two models the same? What additional insight does the economic fluctuations model introduce?

All of the inflation that occurred in the 1970s can be explained by reinflation policies.

A permanent price shock results in

Suppose the economy is initially at potential GDP. (A) Draw an agregate demand curve and price adjustrient line, and label the intial equilibriun with an $A$ . (B) Suppose guverment purchases increase. Illustrate the short-run effect an your diagram. Label the new equilibrium writh a $A$ . (C) Eigalain the short-run effect an $C , I , Q , X , R$ , and infletion as campared to baseline. (D) Illustrate the long-run effect on your diagram and label the long-run equilibriun writh $C$ (E) Eoglain the long-run effect an $C , I , G , X , R$ and inflation as campared to baseline.

It is difficult to determine whether a price shock is permanent or temporary.

Exhibit 25-1 -Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the long run as a result of the change in spending?

Changes in monetary policy can immediately affect the inflation rate in the economy.

Which of the following is the best definition of disinflation?

The short-run effects of an increase in government purchases are that inflation will ____, and real GDP will ____.