Exam 32: The Fed Model: Linking Interest Rates, Output, and Inflation

A supply shock is any change in:

The economy shown here begins at a 0% output gap. A rise in the risk premium by 2% leads to:

In 2017, nearly 7.6% of Vietnamese imports were integrated circuits, which are used in the manufacture of electronics. If the price of integrated circuits rises significantly, what effect does this have on the Phillips curve in Vietnam?

The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:

Once you have identified the unexpected inflation from the Phillips curve:

Consider the following headlines, and classify them as financial shocks, spending shocks, or supply shocks. (a) "Nominal wages rise - workers delighted!" (b) "War imminent - government defense spending ramps up!" (c) "Central bank raises real interest rates!"

If the U.S. dollar appreciates, which of the following graphs correctly represents the effect on the IS curve?

You are an economic adviser using the Fed model to analyze the economy. What is the effect of a fall in consumer spending on the economy?

The third step in analyzing a macroeconomic shock is to:

In the IS-MP analysis in the Fed model, a rise in investment will shift the:

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to fall, then the economy has been hit by _____ shock.

Which of the following graphs correctly represents a decrease in the risk premium on the MP curve?

When using the Fed model, the first step is to:

Graphically depict how financial shocks affect the MP curve.

Which of the following graphs correctly represents a positive spending shock on the IS curve?

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the:

In the IS-MP analysis in the Fed model, if the Federal Reserve lowers the federal funds rate, the:

When using the Fed model to diagnose the economy, if the output gap has shifted without much movement in the real interest rate, then the economy has been hit by _____ shock.

As part of a stimulus package, the government of South Africa implements an infrastructure fund. Analyze this shock graphically, and explain using the Fed model.

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the: