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

Graphically depict how spending shocks affect the IS curve.

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Tariffs on inputs lead to a _____ shock.

The 1973 OPEC oil embargo is an example of a negative _____ shock to the U.S. economy.

Take a look at the IS-MP-PC model shown here. If a spending shock causes the IS curve to shift right until the output gap is 0%, what will the new equilibrium real interest rate be?

If the Canadian dollar depreciates, which of the following graphs correctly represents the effect on the IS curve in Canada?

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation.

You are an economic adviser using the Fed model to analyze the economy. What is the effect of a rise in the risk premium in the economy?

In the IS-MP analysis in the Fed model, a decrease in net exports will shift the:

If the government lowers corporate taxes, which of the following graphs correctly represents the effect on the IS curve?

Consumers receive more disposable income. Analyze this shock graphically, and explain using the Fed model.

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the vertical axis will show you the:

If a spending shock reduces aggregate expenditure by $40 billion and the multiplier is 2, then the IS curve will shift:

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

Classify the following as a financial shock, a spending shock, or a supply shock. (a) The U.S. dollar depreciates. (b) Tariffs raise the price of steel. (c) The stock market booms. (d) Liquidity risk increases.

In the IS-MP analysis in the Fed model, a rise in the interest rate causes a:

Which of the following graphs correctly represents the effect on the Phillips curve if there is widespread production technology improvement in Bangladesh?

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

When using the Fed model to diagnose the economy, if inflation rises even though the economy is weak or if it falls even though the economy is strong, then the economy has been hit by _____ shock.