Exam 11: The Is-Mp Model: Adding Inflation and the Open Economy

Figure 11.1 -Refer to Figure 11.1...Assume the economy is in equilibrium at Ȳ₁ = 0.Other things equal,a negative demand shock such as the Great Recession would result in a movement from point ________ to point ________.

Figure 11.1 -Refer to Figure 11.1..Assume the economy is in equilibrium at Ȳ₁ = 0.Other things equal,a surge in household wealth will result in a movement from point ________ to point ________.

The financial market shock that occurred during the Great Recession increased the default-risk premium,and the housing shock that also occurred during the recession reduced wealth and residential construction.These two events would result in

When the Phillips curve was viewed as a structural relationship,it was believed that the central bank could

If the inflation rate in 2013 was 2.5%,and because of that people expect the inflation rate in 2014 will also be 2.5%,these people are said to have

The oil shock of 2007-2008 saw the price of oil rising from less than $60 a barrel in March 2007 to over $145 a barrel in July 2008,and decreasing again to just over $30 a barrel in December 2008.Assuming the economy was at potential GDP prior to the oil shock,the decrease in the price of oil,such as what occurred between July 2008 and December 2008,acts as a positive supply shock,resulting in

Under a fixed exchange rate system,at high domestic real interest rates net capital outflows are ________,so the central bank ________ foreign-exchange reserves.

The oil shock of 2007-2008 saw the price of oil rising from less than $60 a barrel in March 2007 to over $145 a barrel in July 2008,and decreasing again to just over $30 a barrel in December 2008.Assuming the economy was at potential GDP prior to the oil shock,the decrease in the price of oil,such as what occurred between July 2008 and December 2008,acts as a positive supply shock,causing the inflation rate to ________ and the output gap to ________.

Under a fixed exchange rate system,at high domestic real interest rates the demand for domestic currency ________,so the central bank ________ foreign-exchange reserves.

Under a fixed exchange rate system,if the government decides to devalue its currency,net exports will ________ and the IS curve will shift to the ________.

Figure 11.2 -Refer to Figure 11.2..Assume the economy is in equilibrium at Ȳ₁,where real GDP equals potential GDP,and then the economy experiences a positive demand shock.Other things equal,the positive demand shock is best represented by a(n)

Assume the economy is in equilibrium at ??= 0,where real GDP equals potential GDP,and the economy experiences a positive demand shock.What policy could the Bank of Canada use to keep the inflation rate from rising? Use the IS-MP model and the Phillips curve to explain your answer.

An increase in the real interest rate outside of Canada will ________ the demand for the dollar and ________ the demand for foreign financial assets.

Figure 11.2 -Refer to Figure 11.2..Assume the economy is in equilibrium at Ȳ₁,where real GDP equals potential GDP.The economy experiences a negative demand shock,and the Bank of Canada responds by decreasing real interest rates to bring real GDP and inflation back to their original levels.Other things equal,the Bank of Canada's response following the negative demand shock is best represented by a(n)

An increase in the real interest rate outside of Canada will cause net capital outflows to ________ and cause the dollar to ________ relative to other currencies.

A decrease in the unemployment rate that is accompanied by an decrease in the inflation rate is represented by a(n)________ the Phillips curve.

Once economists take into consideration changes in the expected inflation rate and supply shocks,the Phillips curve

Suppose the economy is in equilibrium with an output gap equal to zero and the actual inflation rate equals the expected inflation rate.If the economy experiences a negative demand shock,real GDP will become ________ potential GDP and the economy will move to the ________ along an existing Phillips curve.

Under a fixed exchange rate system,at low domestic real interest rates the demand for domestic currency ________,so the central bank ________ foreign-exchange reserves.

A decrease in the unemployment rate that is accompanied by an increase in the inflation rate is represented by a ________ the Phillips curve.