Exam 9: Introduction to Economic Fluctuations

Alan Blinder's survey of firms found that the typical firm adjusts its prices:

Stagflation occurs when prices ______ and output ______.

Short-run fluctuations in output and employment are called:

According to the quantity theory of money,if output is higher,______ real balances are required,and for fixed M this means ______ P.

Explain the meaning of monetary neutrality and illustrate graphically that there is monetary neutrality in the long run in the aggregate demand-aggregate supply model.Be sure to label: i.the axes ii.the curves iii.the initial equilibrium values iv.the direction to which the curves shift v.the short-run equilibrium values vi.the long-run equilibrium values.Explain in words what your graph illustrates.

Suppose that laws are passed banning labour unions and that resulting lower labour costs are passed along to consumers in the form of lower prices.Use the aggregate demand-aggregate supply model to illustrate graphically the impact in the short run and the long run of this favourable supply shock.Be sure to label: i.the axes ii.the curves iii.the initial equilibrium values iv.the direction the curves shift v.the short-run equilibrium values vi.the long-run equilibrium values.State in words what happens to prices and output in the short run and the long run.

If the demand for money increases,but the Bank of Canada keeps the money supply the same,then in the short run output will:

If the long-run aggregate supply curve is vertical,then changes in aggregate demand affect:

Use the following to answer questions : Exhibit: Supply Shock -(Exhibit: Supply Shock)In this graph,assume that the economy starts at point A and there is a favourable supply shock that does not last forever.In this situation,point ______ represents short-run equilibrium and point ______ represents long-run equilibrium.

If the Bank of Canada reduces the money supply by 5 percent and the quantity theory of money is true,then output will fall 5 percent in the short run and:

The advent of interest-earning chequing accounts in the early 1980s led many households to keep a larger proportion of their income in chequing accounts.Use the aggregate demand-aggregate supply model to illustrate graphically the impact in the short run and the long run of this change in money demand.Be sure to label: i.the axes ii.the curves iii.the initial equilibrium values iv.the direction the curves shift v.the short-run equilibrium values vi.the long-run equilibrium values.State in words what happens to prices and output in the short run and the long run.

If the Bank of Canada reduces the money supply by 5 percent and the quantity theory of money is true,then:

The aggregate demand curve tells us possible:

Making use of Okun's law,it may be computed that if the Bank of Canada reduces the money supply 5 percent and the quantity theory of money is true,then the unemployment rate will rise about:

The results of Alan Blinder's survey of firms suggest all of the following are true except that:

Possible explanations for sticky magazine prices include the hypotheses that the costs of charging the wrong price may ______,and perhaps customers ______ frequent price changes inconvenient.

When GDP growth declines,investment spending typically ______ and consumption spending typically ______.

When the French money supply was reduced by 45 percent in 1724,only ______ fell immediately.

If the Bank of Canada accommodates an adverse supply shock,output falls ______ and prices rise ______.

Starting from long-run equilibrium,if the velocity of money increases (due to,for example,the invention of automatic teller machines)and no action is taken by the government: