Question 1

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

Accepted Answer

A) confirmed the neutrality of money because no real variables were affected by this nominal change. 
B) confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level. 
C) confirmed that money is not neutral in the short run because both output and prices dropped. 
D) contradicted Okun's law because decreases in output were not associated with increases in unemployment. 
A) confirmed the neutrality of money because no real variables were affected by this nominal change. 
B) confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level. 
C) confirmed that money is not neutral in the short run because both output and prices dropped. 
D) contradicted Okun's law because decreases in output were not associated with increases in unemployment. C

Question 2

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

Accepted Answer

A) aggregate demand is greater than long-run aggregate supply. 
B) aggregate demand equals short-run aggregate supply. 
C) aggregate demand equals short-run and long-run aggregate supply. 
D) short-run aggregate supply equals long-run aggregate supply. 
A) aggregate demand is greater than long-run aggregate supply. 
B) aggregate demand equals short-run aggregate supply. 
C) aggregate demand equals short-run and long-run aggregate supply. 
D) short-run aggregate supply equals long-run aggregate supply. C

Question 3

The aggregate demand curve is the _____ relationship between the quantity of output demanded and the _____.

Accepted Answer

A) positive; money supply 
B) negative; money supply 
C) positive; price level 
D) negative; price level 
A) positive; money supply 
B) negative; money supply 
C) positive; price level 
D) negative; price level D

Question 4

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:

Accepted Answer

A) increases. 
B) decreases. 
C) does not change. 
D) may either increase or decrease. 
A) increases. 
B) decreases. 
C) does not change. 
D) may either increase or decrease.

Question 5

Holding output, Y, fixed, a reduction in the demand for money is the equivalent of a(n) _____ in velocity and will shift the aggregate demand curve to the _____.

Accepted Answer

A) increase; right 
B) increase; left 
C) decrease; right 
D) decrease; left 
A) increase; right 
B) increase; left 
C) decrease; right 
D) decrease; left

Question 6

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Bank of Canada could move the economy more rapidly back to full employment output by:

Accepted Answer

A) increasing the money supply, but at the cost of permanently higher prices. 
B) decreasing the money supply, but at the cost of permanently lower prices. 
C) increasing the money supply, which would restore the original price level. 
D) decreasing the money supply, which would restore the original price level. 
A) increasing the money supply, but at the cost of permanently higher prices. 
B) decreasing the money supply, but at the cost of permanently lower prices. 
C) increasing the money supply, which would restore the original price level. 
D) decreasing the money supply, which would restore the original price level.

Question 7

The dilemma facing the Bank of Canada in the event that an unfavourable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate but with a _____ price level or allow the price level to return to its original level but with a _____ level of output in the short run.

Accepted Answer

A) higher; higher 
B) higher; lower 
C) lower; lower 
D) lower; higher 
A) higher; higher 
B) higher; lower 
C) lower; lower 
D) lower; higher

Question 8

Why is the aggregate supply curve vertical in the long run and horizontal in the short run?

Accepted Answer

Aggregate supply is the relationship bet

Question 9

The natural level of output is:

Accepted Answer

A) affected by aggregate demand. 
B) the level of output at which the unemployment rate is zero. 
C) the level of output at which the unemployment rate is at its natural level. 
D) permanent and unchangeable. 
A) affected by aggregate demand. 
B) the level of output at which the unemployment rate is zero. 
C) the level of output at which the unemployment rate is at its natural level. 
D) permanent and unchangeable.

Question 10

A supply shock does not occur when:

Accepted Answer

A) a drought destroys crops. 
B) unions push wages up. 
C) the Bank of Canada increases the money supply. 
D) an oil cartel increases world oil prices. 
A) a drought destroys crops. 
B) unions push wages up. 
C) the Bank of Canada increases the money supply. 
D) an oil cartel increases world oil prices.

Question 11

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will _____, and output will _____.

Accepted Answer

A) increase; increase 
B) decrease; decrease 
C) increase; decrease 
D) decrease; increase 
A) increase; increase 
B) decrease; decrease 
C) increase; decrease 
D) decrease; increase

Question 12

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:

Accepted Answer

A) slopes upward and to the right. 
B) slopes downward and to the right. 
C) is horizontal. 
D) is vertical. 
A) slopes upward and to the right. 
B) slopes downward and to the right. 
C) is horizontal. 
D) is vertical.

Question 13

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

Accepted Answer

A) both the short run and the long run. 
B) neither the short run nor the long run. 
C) the short run but not in the long run. 
D) the long run but not in the short run. 
A) both the short run and the long run. 
B) neither the short run nor the long run. 
C) the short run but not in the long run. 
D) the long run but not in the short run.

Question 14

A short-run aggregate supply curve shows fixed _____, and a long-run aggregate supply curve shows fixed _____.

Accepted Answer

A) output; output 
B) prices; prices 
C) prices; output 
D) output; prices 
A) output; output 
B) prices; prices 
C) prices; output 
D) output; prices

Question 15

Explain the meaning of monetary neutrality and illustrate graphically that there is monetary neutrality in the long run in the aggregate demand-aggregate supply model. 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. Explain in words what your graph illustrates.

Accepted Answer

​ @#IMG-DLM& Monetary neutrality is the property t

Question 16

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

Accepted Answer

A) both Central Bank A and Central Bank B should increase the quantity of money. 
B) Central Bank A should increase the quantity of money, whereas Central Bank B should keep it stable. 
C) Central Bank A should keep the quantity of money stable, whereas Central Bank B should increase it. 
D) both Central Bank A and Central Bank B should keep the quantity of money stable. 
A) both Central Bank A and Central Bank B should increase the quantity of money. 
B) Central Bank A should increase the quantity of money, whereas Central Bank B should keep it stable. 
C) Central Bank A should keep the quantity of money stable, whereas Central Bank B should increase it. 
D) both Central Bank A and Central Bank B should keep the quantity of money stable.

Question 17

The relationship between the quantity of goods and services supplied and the price level is called:

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) aggregate investment. 
D) aggregate production. 
A) aggregate demand. 
B) aggregate supply. 
C) aggregate investment. 
D) aggregate production.

Question 18

Suppose that laws are passed banning labour unions and that resulting lower labour costs are passed along to consumers in the form of lower prices. Use the aggregate demand-aggregate supply model to illustrate graphically the impact in the short run and the long run of this favourable supply shock. 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.

Accepted Answer

@#IMG-DLM& In the short run output incre

Question 19

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 = 3 × M / P, and M = 1,000.
a.If the economy is initially in long-run equilibrium, what are the values of P and Y?
b.Now suppose a supply shock moves the short-run aggregate supply curve to P = 1.5. What are the new short-run P and Y?
c.If the aggregate demand curve and long-run aggregate supply curve are unchanged, what are the long-run equilibriumPandYafter the supply shock?
d.Suppose that after the supply shock the Bank of Canada wanted to hold output at its long-run level. What level of M would be required? If this level of M were maintained, what would be long-run equilibrium P and Y?

Accepted Answer

a.P = 1.0; Y = 3,000

Question 20

Assuming velocity is constant, the aggregate demand curve tells us possible:

Accepted Answer

A) combinations of M and Y for a given value of P. 
B) combinations of M and P for a given value of Y. 
C) combinations of P and Y for a given value of M. 
D) results if the Bank of Canada reduces the money supply. 
A) combinations of M and Y for a given value of P. 
B) combinations of M and P for a given value of Y. 
C) combinations of P and Y for a given value of M. 
D) results if the Bank of Canada reduces the money supply.

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

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

The aggregate demand curve is the _ relationship between the quantity of output demanded and 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:

Holding output, Y, fixed, a reduction in the demand for money is the equivalent of a(n) _ in velocity and will shift the aggregate demand curve to the _.

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Bank of Canada could move the economy more rapidly back to full employment output by:

Why is the aggregate supply curve vertical in the long run and horizontal in the short run?

The natural level of output is:

A supply shock does not occur when:

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will _, and output will _.

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:

A short-run aggregate supply curve shows fixed _, and a long-run aggregate supply curve shows fixed _.

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

The relationship between the quantity of goods and services supplied and the price level is called:

Assuming velocity is constant, the aggregate demand curve tells us possible:

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Exam 10: Introduction to Economic Fluctuations

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

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

The aggregate demand curve is the _____ relationship between the quantity of output demanded and 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:

Holding output, Y, fixed, a reduction in the demand for money is the equivalent of a(n) _____ in velocity and will shift the aggregate demand curve to the _____.

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Bank of Canada could move the economy more rapidly back to full employment output by:

Why is the aggregate supply curve vertical in the long run and horizontal in the short run?

The natural level of output is:

A supply shock does not occur when:

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will _____, and output will _____.

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:

A short-run aggregate supply curve shows fixed _____, and a long-run aggregate supply curve shows fixed _____.

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

The relationship between the quantity of goods and services supplied and the price level is called:

Assuming velocity is constant, the aggregate demand curve tells us possible:

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

The aggregate demand curve is the _ relationship between the quantity of output demanded and the _.

Holding output, Y, fixed, a reduction in the demand for money is the equivalent of a(n) _ in velocity and will shift the aggregate demand curve to the _.

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will _, and output will _.

A short-run aggregate supply curve shows fixed _, and a long-run aggregate supply curve shows fixed _.