Exam 9: Introduction to Economic Fluctuations

Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2(M/P) and M = 1,500. A) If the economy is initially in long-run equilibrium, what are the values of P and Y? B) What is the velocity of money in this case? C) Suppose because banks start paying interest on checking accounts, the aggregate demand function shifts to Y = (1.5)(M/P). What are the short-run values of P and Y? D) What is the velocity of money in this case? E) With the new aggregate demand function, once the economy adjusts to long-run equilibrium, what are P and Y? F) What is the velocity now?

If Fed A cares only about keeping the price level stable and Fed B cares only about keeping output at its natural level, then in response to an exogenous increase in the price of oil:

The short-run aggregate supply curve is horizontal at:

The results of Alan Blinder"s survey of firms suggest all of the following except that:

The version of Okun"s law studied in Chapter 9 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate fell by 1 percentage point over a year, Okun"s law predicts that real GDP would:

Which of the following is an example of a demand shock?

The relationship between the quantity of output demanded and the aggregate price level is called:

Measures of average workweeks and of suppliers' deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate future economic activity and slower deliveries tend to indicate future economic activity.

In the long run, the level of output is determined by the:

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased:

The long run refers to a period:

Suppose you are an economist working for the Federal Reserve when droughts in the Southeast and floods in the Midwest substantially reduce food production in the United States. Use the aggregate demand-aggregate supply model to illustrate graphically your policy recommendation to accommodate this adverse supply shock, assuming that your top priority is maintaining full employment in the economy. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the terminal equilibrium values. State in words what happens to prices and output as a combined result of the supply shock and the recommended Fed accommodation.

Long-run growth in real GDP is determined primarily by , while short-run movements in real GDP are associated with .

If the short-run aggregate supply curve is horizontal and the Federal Reserve increases the money supply, then:

The long-run aggregate supply curve is vertical at the level of output:

Leading economic indicators are:

In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where:

Most economists believe that prices are:

If Fed A cares only about keeping the price level stable and Fed B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

Most economists believe that the classical dichotomy: