Exam 12: Inflation and Aggregate Supply

For a given level of inflation, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the _____ shifts _____.

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 ___ creating _____gap.

Starting from a long-run equilibrium, an increase in potential output leads to _____ gap in the short run and to ___ rates of inflation in the long run.

When actual output is less than potential output, there is ______ output gap and the inflation rate will ____.

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

Based on the figure below. Starting from long-run equilibrium at point C, a decrease in government spending that decreases aggregate demand from AD¹ to AD will lead to a short-run equilibrium at__ creating _____gap.

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

A vertical line showing an economy's potential output is called the _____, while a horizontal line showing the current rate of inflation is called the ____.

An upward shift in the Fed's policy reaction function is a _____ of monetary policy, and the aggregate demand curve _______.

A vertical line showing the economy's potential is called the:

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

For a given level of inflation, if a rise in the stock market makes consumers more willing to spend, known as the wealth effect, then the _____ shifts _____.

When actual output equals potential output and the inflation rate is stable, the economy is said to be in ____ equilibrium.

As inflation decreases, households become _____ uncertain leading to _____ spending.

The aggregate demand curve is downward sloping for all of the following reasons EXCEPT for the:

The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:

Based on the figure below, an economy in short-run equilibrium at point A has a(n) _______ gap. The gap could be eliminated by the self-correcting mechanism of the economy and eventually achieve long-run equilibrium at point ____ or the central bank could intervene with monetary easing and the long-run equilibrium would be at point ____.

Based on the figure below. An economy is currently in long-run equilibrium at point B, at an inflation rate of π', which is too high for to sustain economic growth. If an anti-inflationary policy is enacted, the economy will be in short-run equilibrium at point ___ creating _____gap.

Starting from long-run equilibrium, a large tax increase will result in a(n) _____ gap in the short-run and ____ inflation and ____ output in the long-run.

According to the text, the Fed and other policy makers are concerned about: