Exam 17: Issues in Macroeconomic Theory and Policy

The figure below shows the aggregate demand curve, the long-run aggregate supply curve, and the short-run aggregate supply curve in an economy. Based on the figure, if an increase in aggregate demand from AD₀ to AD₁ is fully anticipated, the economy will move from point A to point _____ in the short run.Figure-1

Which of the following is true?

From early 2007 to mid-2008, the short-run aggregate supply curve of the United States shifted to the left.

If commercial banks increase their borrowing from the Fed at a time when the Fed is selling government securities, the borrowing of the commercial banks from the Fed will tend to:

The time required to identify an appropriate policy and get it approved by Congress is known as _____.

Critics of the rational expectations theory believe that:

With rational expectations, a policy that would increase AD would lead to:

If people respond quickly to policy changes that imply future inflation will increase, the short run aggregate supply curve will shift upward due to their changed expectations.

According to the rational expectations view, the government can change real output by:

Inflation targeting may lead to a liquidity trap.

Which of the following is an expansionary monetary policy?

Indexing protects parties against unanticipated price increases by writing contracts that automatically change the prices of goods or services.

A cut in taxes, other things being equal, will:

The loans that ended up in the hands of low-risk borrowers were called subprime loans.

One main argument against indexing is that:

A decrease in government purchases, other things being equal, will tend to _____.

An impact lag refers to the time required to:

During the recession of 2008-09, _____.​

If the public has rational expectations and the Fed reduces both reserve requirements and the discount rate, this would result in:

Because of lag problems, policies intended to stabilize the economy may actually destabilize the economy.