Exam 12: Inflation and Aggregate Supply

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

The aggregate demand curve shows the relationship between inflation and:

Starting from long-run equilibrium, an adverse inflation shock results in a short-run equilibrium with ___ inflation and ____ output.

For a fixed inflation rate target, a decrease in the inflation rate corresponds to a _____ the aggregate demand curve and a decrease in exogenous spending corresponds to a _____ the aggregate demand curve.

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

When inflation equals the value determined by past expectations and pricing decisions and output equals the level of short-run equilibrium output consistent with that inflation, the economy is said to be in ____ equilibrium.

A decrease in interest rates by the Fed based on a given and unchanged policy reaction function represents a ____ the aggregate demand curve, and lower interest rates resulting from a downward shift in the Fed's policy reaction function represents a _____ the aggregate demand curve.

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

The output losses from an adverse inflation shock are ____ and the output losses from a fall in potential output are ______.

An increase in interest rates by the Fed based on a given and unchanged policy reaction function represents a ____ the aggregate demand curve, and higher interest rates resulting from an upward shift in the Fed's policy reaction function represents a _____ the aggregate demand curve.

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

For a given level of inflation, if a resolution of international disputes leads to a cutback in government military spending, then the _____ shifts _____.

When actual output equals potential output and the inflation rate is equal to the expected rate of inflation, the economy is said to be in ______ equilibrium.

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 ___ and eventually to a long-run equilibrium at point ____.

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

When the Federal Reserve increases its target rate of inflation, it will set a _____ real interest rate at every inflation rate and the aggregate demand curve will _____.

Starting from long-run equilibrium, an increase in autonomous investment results in ____ output in the short run and _____ output in the long run.

When actual output equals potential output there is ____ output gap and the rate of inflation will tend to ____.

When there is a recessionary gap, inflation will ______, in response to which the Federal Reserve will ____ real interest rates, and output will _____.

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 establishing the long-run equilibrium at point ____.