Exam 12: The Business Cycle, Inflation, and Deflation

Which of the following could NOT start a demand-pull inflation?

Over the last several years, the money supply in Indonesia as increased by 9 percent in 2003 to 14 percent in 2005 and 23 percent in 2007. At the same time, real GDP has grown steadily at over 4 percent annually. These changes would be shown as I. rightward shifts of the AD curve II. a movement down along the short-run Phillips curve III. rightward shifts of the LAS curve

Stagflation is the result of

Suppose oil prices rise. The Fed can ________ the quantity of money to ________ the unemployment rate back to its natural rate.

-In the figure above, draw a short-run Phillips curve and a long-run Phillips curve if the expected inflation rate is 4 percent and the natural unemployment rate is 6 percent. Explain how the two change in the short run if: a) slower growth in aggregate demand causes a recession. b) the inflation rate increases. c) the natural unemployment rate increases.

Moving along a short-run Phillips curve

-The figure above shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the U.S. economy. The economy is currently at point A. A demand-pull rise in the price level will initially move the economy to point ________ and to point ________.

Which of the following are TRUE? I. New Keynesian economists believe that money wage rates are influenced by rational expectations of The price level. II. New classical economists believe that money wage rates are influenced by rational expectations of the price level. III. New classical economists believe expected changes in aggregate demand trigger business cycles.

"All for One, but None for All" In an article regarding how Great Britain and France are addressing the economic crisis in 2008, Britain's prime minister "is eager to encourage consumer spending" while France's president "wants to boost investment in both the private and public sectors." Both leaders are concerned because "hardly a day goes by without some manufacturing company announcing painful restructuring, plant closures or temporary lay-offs." Www)ft.com, 11/24/2008 If consumption and investment are increased by the governments' policies, we would expect ________ and a ________ the short-run Phillips curve.

-In the above figure, if people correctly anticipate the increases in aggregate demand and the resulting inflation, the path will be from

As far as demand-pull inflation goes, the United States

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

If the short-run Phillips curve shifts rightward, what happens to the relationship between inflation and unemployment? If the short-run Phillips curve shifts leftward, what happens to the relationship between inflation and unemployment?

An increase in the expected inflation rate leads to a movement upward along the short-run Phillips curve.

According to the new classical theory, ________ policy changes have no effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP.

According to real business cycle theory proponents, an increase in productivity ________ the demand for loanable funds, ________ the demand for labor, and ________ the supply of labor. The real interest rate will ________.

The early 1990s were the last period of substantial demand-pull inflation in the U.S.

-In the above figure, suppose the economy starts at point A. The short-run response to an increase in the growth rate of the quantity of money in the monetarist business cycle theory moves the economy to point

The long-run Phillips curve is

-In the above figure, suppose that the economy is at point A. An expected increase in the inflation rate to 6 percent will result in a movement to point