Exam 27: Aggregate Demand, Aggregate Supply, and Inflation

If households and firms expect higher rates of inflation, the ________ curve will shift ________.

The Fed has announced it views its long term target for the inflation rate as:

As inflation increases, households become ________ uncertain leading to ________ spending.

Lower rates of inflation increase planned spending because:

Refer to the accompanying figure. Starting from long-run equilibrium at point C, a favorable inflation shock that decreases inflation from π to π¹ will lead to a short-run equilibrium at point ________ creating ________ gap.

For a fixed target real interest rate and target inflation rate, when inflation increases, the Fed ________ interest rates, hence ________ short-run equilibrium output.

Starting from long-run equilibrium, the long-run impact of a war that raises government purchases, compared to the original equilibrium, is:

Higher rates of inflation reduce planned spending because:

Starting from long-run equilibrium, a favorable inflation shock results in a short-run equilibrium with ________ inflation and ________ output.

The self-correcting tendency of the economy means that falling inflation eventually eliminates:

Inflation inertia is the tendency for inflation to:

The tendency for inflation to change relatively slowly from year to year in industrial countries is called:

Starting from long-run equilibrium, a large increase in government purchases will result in a(n)________ gap in the short-run and ________ inflation and ________ output in the long-run.

The aggregate demand curve shifts to the right when the Fed:

Refer to the given figure. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as:

Starting from long-run equilibrium, the long-run impact(s)of an increase in autonomous consumption, compared to the original equilibrium, is:

An upward shift in the Fed's reaction function is equivalent to:

The economy pictured in the given figure has a(n)________ gap with a short-run equilibrium combination of inflation and output indicated by point ________.

An example of an adverse inflation shock is:

Starting from long-run equilibrium, a sharp drop in oil prices results in ________ output in the short run and ________ output in the long run.