Exam 9: An Introduction to the Short Run

If $\tilde { Y } _ { t } = 0$ , the macroeconomy is:

John Maynard Keynes is famous for saying, "In the long run ________."

Which is responsible for dating business cycles?

According to the Phillips curve presented in the text, a positive macroeconomic shock:

Refer to the following figure when answering the next five questions. Figure 9.2: U.S. Output Fluctuations 1960-2012 (Source: BEA and CBO, data from Federal Reserve Economic Data, St. Louis Federal Reserve) -Consider Figure 9.2, which represents $\tilde { Y } _ { t }$ . In approximately what years did the U.S. economy experience its longest economic downturn, using the text's definition?

Post-World War II, the deepest recessionary gap occurred during the Volcker-Reagan recession in the early 1980s.

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I don't think the Phillips curve is very steep. What should we do to reduce these inflationary increases?" What do you respond?

If $\Delta \pi > 0$ , the macroeconomy is:

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high and I think the Phillips curve is horizontal. What should we do to reduce these inflationary increases?" How do you respond?

Refer to the following figure when answering Figure 9.1: Output versus Time -Considering Figure 9.1:

A country with a steep Phillips curve experiences a smaller increase in the rate of inflation than a country with a relatively flat Phillips curve, assuming the size of the positive demand shock in each country is the same.

If $\tilde { Y } _ { t } > 0$ , the macroeconomy is producing at its potential level of output.

Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential, not current, output and they interpret the decrease in output as a recession that leads current output to fall below potential output. In this scenario, policymakers believe that recessionary pressures are building and incorrectly respond by increasing interest rates, sending the economy into a recessionary gap.

Which of the following is NOT an example of a short-term macroeconomic "shock"?

Okun's law shows the ________ relationship between ________ and ________.

Defining $Y _ { t }$ as current output, $\bar { Y } _ { t }$ as potential output, and $\tilde { Y } _ { t }$ as short-run fluctuations, the equation $\tilde { Y } _ { t } = \left( Y _ { t } - \bar { Y } _ { t } \right) / \bar { Y } _ { t }$ is defined as the percentage deviation of current output from potential output.

An increase in planned investment expenditures is a short-term economic "shock."

Which of the following is NOT an example of a short-term macroeconomic "shock"?

The long-run model determines ________ and ________.

According to the text, which of the following can be used to characterize potential output? i. Assume a perfectly smooth trend is passing through the quarter-to-quarter movements in the real GDP. ii. Take averages of the surrounding actual GDP numbers. iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.