Exam 9: Introduction to Economic Fluctuations

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is and the aggregate demand curve shifts .

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is and the aggregate demand curve shifts .

When a long-term aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:

Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model in:

The statistical relationship between changes in real GDP and changes in the unemployment rate is called:

The economy of Macroland is initially in long-run equilibrium. A severe drought causes an adverse supply shock. a. What happens to prices and output in the short run? b. What would happen to prices and output in the long run if there is no policy accommodation? c. If the Central Bank of Macroland wants to prevent the short-run changes in price and output, what policy action could it take? How would the results of this policy action differ from the prices and output that would result in the long run with no policy action?

The natural level of output is:

Throughout much of the 1990s, the United States experienced declining energy prices. Assume that the U.S. economy was in long-run equilibrium before these declines began. a. Use the aggregate demand-aggregate supply model to illustrate graphically the short-run and long-run impact of this decline on output and prices. b. If the Federal Reserve attempted to offset this deviation from the natural rate in the short run, should the money supply be increased or decreased?

If an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, using the quantity theory of money as a theory of aggregate demand, this curve slopes to the right and gets as it moves farther to the right.

A central bank reduces the money supply in an economy initially in long-run equilibrium. a. What will happen to output and prices in the short run? b. What will happen to unemployment in the short run? c. What will happen to output and prices in the long run?

A decline in the Index of Supplier Deliveries is typically an indicator of a future in economic production and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury Bill is typically an indicator of a future in economic production.

If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect:

If the short-run aggregate supply curve is horizontal, then the:

The economic response to the overnight reduction in the French money supply by 20 percent in 1724,

Business cycles are:

If all prices are stuck at a predetermined level, then when a short-run aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:

The principal method used by the Federal Reserve to change the money supply is through open-market operations. Use the aggregate demand-aggregate supply model to illustrate graphically the impact in the short run and the long run of a Federal Reserve decision to increase open-market purchases. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; v. the short-run equilibrium values; and vi. the long-run equilibrium values. State in words what happens to prices and output in the short run and the long run.

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent:

Along an aggregate demand curve, which of the following are held constant?