Exam 12: The Business Cycle, Inflation, and Deflation

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor that is creating business cycles? I. Keynesian cycle theory II. real business cycle theory III. monetarist cycle theory

An increase in the natural unemployment rate shifts

How do defenders of the real business cycle theory, (RBC theory) respond to critics of the theory?

Which of the following is NOT an aggregate demand, mainstream theory of the business cycle?

What, according to the monetarist theory of the business cycle, leads to changes in real GDP?

Suppose aggregate demand increases by less than expected. Which of the following describes what will occur?

In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds leads to a ________ quantity of saving and a ________ real interest rate.

The long-run Phillips curve is vertical at the natural unemployment rate.

A key difference between the new classical and the new Keynesian views of the business cycle is the role played by

To prevent cost-push inflation

-The figure above shows the initial aggregate demand curve, AD₀, the initial short-run aggregate supply curve, SAS₀, and the long-run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Then, Atlantia's oil producers form a price-fixing organization and increase the price of oil. Suppose that potential GDP does not change and that Atlantia's Central Bank responds by increasing the quantity of money. Draw necessary curves in the figure to show the effects of this on Atlantia's real GDP and price level. a) In the short run, what happens to aggregate supply and aggregate demand? b) What are the new short-run equilibrium real GDP and price level? c) In the long run, if Atlantia's continue to hike the price of oil and the Central Bank continues to increase the quantity of money, what happens to aggregate supply and aggregate demand? d) If Atlantia's oil producers continue to hike the price of oil and Atlantia's Central Bank responds by increasing the quantity of money, what process unfolds?

-In the above figure, the economy is at point A. The inflation rate unexpectedly falls by two percentage points. As a result, the economy moves to point

The key ripple effect in real business cycle theory is the ________ decision and it depends on the ________.

In real business cycle models, in order to increase real GDP after a negative technology shock, the government can I. increase the quantity of money. II. decrease the quantity of money.

During a demand-pull inflation, if the Fed tries to maintain a level of real GDP above potential GDP

Cost-push inflation is an inflation that results from an initial

The ________ cycle theory states that only unexpected fluctuations in aggregate demand are the main source of business cycles.

Suppose that managers forecasted a large decline in expected sales and profits and so their confidence plummets. According to the ________, this forecast might start a business cycle.

If people correctly expect an increase in aggregate demand, their money wage rate ________ immediately, and the SAS curve shifts ________.

-In the above figure, suppose that the economy currently is at point A. If the inflation rate rises and this rise is anticipated by the public, the economy moves to a point such as point