Exam 22: Understanding Business Cycle Fluctuations

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Where would the economy be operating relative to the dynamic aggregate demand curve, the short-run aggregate supply curve and the long-run aggregate supply curve, if the economy is experiencing an expansionary gap?

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Question 1

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First of all, the intersection of the dynamic aggregate demand curve and the short-run aggregate supply curve determines the current inflation and the current output.If the economy is experiencing an expansionary gap, the current level of output exceeds the potential output, so we know we are not on the long-run aggregate supply curve.The current short-run aggregate supply curve is lower than where it should be for long-run equilibrium.The expansionary gap will put upward pressure on inflation.As this happens the short-run aggregate supply curve will shift upwards, decreasing the expansionary gap, until the current inflation equals the expected inflation and current output equals potential output.

If monetary policymakers are more concerned about output fluctuations than inflation fluctuations:

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Question 2

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Which of the following would shift the short-run aggregate supply curve to the right?

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Question 3

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The longest recession since the 1940's began in:

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Question 4

If the monetary policy reaction curve has a relatively flat slope, the dynamic aggregate demand curve is likely to have a:

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Question 5

Opportunistic disinflation occurs when policymakers:

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Question 6

An increase in the rate of inflation:

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Question 7

More than once in our history government officials tried to slow rapidly rising inflation by instituting wage and price controls, in essence, making it illegal to raise prices.In terms of the model, which includes aggregate demand, short-run aggregate supply and long-run aggregate supply, describe what the intended result of the officials would be and what the likely result may be.

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Question 8

Increases in productivity result in:

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Question 9

Which of the following is not correct with regard to the definition of a recession as used by the NBER?

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Question 10

Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the:

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Question 11

Explain why real business cycle theory renders the short-run aggregate supply curve irrelevant.

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Question 12

If monetary policymakers do not change their inflation target and aggregate demand shifts left:

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Question 13

Central bankers with a relatively flat monetary policy reaction curve will:

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Question 14

A reduction in the central bank's inflation target will result in:

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Question 15

The period 1974-1975 is somewhat unique in U.S.economic history due to the fact that:

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Question 16

Use the long-run model from Chapter 22 to describe the adjustment process the economy would go through from an increase in potential output.

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Question 17

If prices and wages are slow to adjust ("sticky," rather than flexible):

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Question 18

In 2001 a combination of tax cuts and increased defense spending did not have the same inflationary effect as the similar policy in the 1960s.Explain the difference.

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Question 19

Disinflation occurs when:

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Question 20

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Exam 22: Understanding Business Cycle Fluctuations

Where would the economy be operating relative to the dynamic aggregate demand curve, the short-run aggregate supply curve and the long-run aggregate supply curve, if the economy is experiencing an expansionary gap?

If monetary policymakers are more concerned about output fluctuations than inflation fluctuations:

Which of the following would shift the short-run aggregate supply curve to the right?

The longest recession since the 1940's began in:

If the monetary policy reaction curve has a relatively flat slope, the dynamic aggregate demand curve is likely to have a:

Opportunistic disinflation occurs when policymakers:

An increase in the rate of inflation:

Increases in productivity result in:

Which of the following is not correct with regard to the definition of a recession as used by the NBER?

Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the:

Explain why real business cycle theory renders the short-run aggregate supply curve irrelevant.

If monetary policymakers do not change their inflation target and aggregate demand shifts left:

Central bankers with a relatively flat monetary policy reaction curve will:

A reduction in the central bank's inflation target will result in:

The period 1974-1975 is somewhat unique in U.S.economic history due to the fact that:

Use the long-run model from Chapter 22 to describe the adjustment process the economy would go through from an increase in potential output.

If prices and wages are slow to adjust ("sticky," rather than flexible):

In 2001 a combination of tax cuts and increased defense spending did not have the same inflationary effect as the similar policy in the 1960s.Explain the difference.

Disinflation occurs when:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Modern Monetary Policy and the Challenges Facing Central Bankers

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