Exam 12: Inflation and Aggregate Supply

If policymakers deem inflation as being too high, then the policy response should be monetary _____, which shifts aggregate demand______.

Based on the figure, the economy is initially in long-run equilibrium at point A If there is a favorable supply shock that increases potential output and shifts the long-run aggregate supply curve from LRAS to LRAS', then there is initially _____ gap and the short-run aggregate supply curve will _____.

At short-run equilibrium inflation _______ and output equals ______.

High levels of inflation ___ the real value of money and, hence, ____ short-run equilibrium output.

For a given level of inflation, if there is a greater willingness by foreigners to purchase domestic goods, then the _____ shifts _____.

Refer to the figure below._____ inflation will eventually move the economy pictured in the diagram from short-run equilibrium at point ____ to long-run equilibrium at point ____,

If policymakers attempt to offset an adverse inflation shock with monetary _____, the resulting long-run equilibrium will be at _____ inflation rate compared to allowing the self-correcting mechanism return the economy to potential output.

Inflation inertia is the result of the behavior of ____ and the existence of ______.

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

At a short-run equilibrium _____, while at a long-run equilibrium _____.

When no output gap exists actual output _____ potential output and the rate of inflation will tend to ______.

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

Based on the figure below. 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 ___ and eventually to a long-run equilibrium at point ____, if left to self-correcting tendencies.

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

For a given level of inflation, if bright prospects for the future of the economy cause businesses to increase their investment in new capital, then the _____ shifts _____.

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.

Refer to the figure below. 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

Because decreases in inflation increase aggregate spending and short-run equilibrium output:

Graphically long-run equilibrium occurs at the intersection of the aggregate demand curve and the:

A downward shift in the Fed's policy reaction function corresponds to a _____ the aggregate demand curve and a decrease in exogenous spending corresponds to a _____ the aggregate demand curve.