Question 1

A major that resulted in the leftward shift of the aggregate demand curve in late 2008 was

Accepted Answer

A) a decrease in taxes. 
B) an increase in government spending. 
C) a price shock. 
D) a change in net exports. 
E) a decrease in consumer confidence. 
A) a decrease in taxes. 
B) an increase in government spending. 
C) a price shock. 
D) a change in net exports. 
E) a decrease in consumer confidence.

Question 2

The short-run effect of an increase in government purchases is

Accepted Answer

A) a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
B) a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
C) a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. 
D) a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. 
E) a leftward shift of the aggregate demand curve and movement along the inflation adjustment line. 
A) a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
B) a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. 
C) a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. 
D) a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. 
E) a leftward shift of the aggregate demand curve and movement along the inflation adjustment line.

Question 3

If oil prices increase,inflation will be permanently higher in the long run.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is the most appropriate explanation of a price shock?

Accepted Answer

A) A large shift in the AD curve 
B) A large shift in the aggregate expenditure line 
C) A shift in potential GDP 
D) A large change in a key commodity price 
E) A shift in the monetary policy rule line 
A) A large shift in the AD curve 
B) A large shift in the aggregate expenditure line 
C) A shift in potential GDP 
D) A large change in a key commodity price 
E) A shift in the monetary policy rule line

Question 5

A permanent price shock results in

Accepted Answer

A) a positive correlation between real GDP and inflation. 
B) no correlation between real GDP and inflation. 
C) an uncertain correlation between real GDP and inflation. 
D) a negative correlation between real GDP and inflation. 
E) a permanent decline in potential GDP. 
A) a positive correlation between real GDP and inflation. 
B) no correlation between real GDP and inflation. 
C) an uncertain correlation between real GDP and inflation. 
D) a negative correlation between real GDP and inflation. 
E) a permanent decline in potential GDP.

Question 6

A change in monetary policy will not cause the AD curve to shift.

Accepted Answer

A) True 
 B)False

Question 7

Suppose,for a certain economy,real and potential GDP are initially equal.Then government purchases permanently increase.Compared to the baseline,we would expect to see,in the medium run,

Accepted Answer

A) a decrease in consumption and an increase in both net exports and investment. 
B) a decrease in consumption,investment,and net exports. 
C) an increase in consumption,a decrease in net exports,and no change in investment. 
D) an increase in consumption and net exports and a decrease in investment. 
E) an increase in consumption and a decrease in both net exports and investment. 
A) a decrease in consumption and an increase in both net exports and investment. 
B) a decrease in consumption,investment,and net exports. 
C) an increase in consumption,a decrease in net exports,and no change in investment. 
D) an increase in consumption and net exports and a decrease in investment. 
E) an increase in consumption and a decrease in both net exports and investment.

Question 8

A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short run.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the income tax rate increases.What will happen to consumption,investment,and net exports in the short run and the long run? Explain your results,using a diagram with the aggregate demand curve and the inflation adjustment line.

Accepted Answer

If the income tax rate increases,disposa

Question 10

When Paul Volcker first started to head the Fed,the Federal Reserve began a policy of

Accepted Answer

A) reinflation. 
B) disinflation. 
C) accommodation. 
D) deflation. 
E) stagflation. 
A) reinflation. 
B) disinflation. 
C) accommodation. 
D) deflation. 
E) stagflation.

Question 11

All of the following are likely reasons for the 2007-09 recession in the United States except

Accepted Answer

A) a rightward shift of the AD curve. 
B) an upward shift of the IA line. 
C) an increase in potential GDP. 
D) a decrease in potential GDP. 
E) an increase in aggregate supply. 
A) a rightward shift of the AD curve. 
B) an upward shift of the IA line. 
C) an increase in potential GDP. 
D) a decrease in potential GDP. 
E) an increase in aggregate supply.

Question 12

Real business cycle theories emphasize price shocks.

Accepted Answer

A) True 
 B)False

Question 13

If the Fed is worried about inflation and raises interest rates,then in the short run

Accepted Answer

A) the aggregate demand curve will shift to the left. 
B) the aggregate demand curve will shift to the left,and the inflation adjustment line will shift down because the target inflation rate has decreased. 
C) the inflation adjustment line will shift down because the target inflation rate has decreased. 
D) the inflation adjustment line will shift up because the target inflation rate has increased. 
E) the aggregate demand curve will shift to the right. 
A) the aggregate demand curve will shift to the left. 
B) the aggregate demand curve will shift to the left,and the inflation adjustment line will shift down because the target inflation rate has decreased. 
C) the inflation adjustment line will shift down because the target inflation rate has decreased. 
D) the inflation adjustment line will shift up because the target inflation rate has increased. 
E) the aggregate demand curve will shift to the right.

Question 14

If government purchases decrease,in the short run

Accepted Answer

A) consumption will increase as income increases. 
B) consumption,investment,and net exports will increase as income increases. 
C) consumption and investment will increase as income increases. 
D) consumption will fall and net exports will increase as income falls. 
E) consumption will increase,and real GDP will remain at potential GDP. 
A) consumption will increase as income increases. 
B) consumption,investment,and net exports will increase as income increases. 
C) consumption and investment will increase as income increases. 
D) consumption will fall and net exports will increase as income falls. 
E) consumption will increase,and real GDP will remain at potential GDP.

Question 15

The figure below shows the effect of a 2001 increase in government purchases on the hypothetical path of real GDP compared to the path of potential GDP (the baseline)between 2001 and 2005.    (A)Using the AD curve and IA line analysis,explain what is occurring between 2001 and 2002.
(B)Using the AD curve and IA line analysis,explain what is occurring between 2002 and 2004.
(C)Using the AD curve and IA line analysis,explain what is occurring between 2004 and 2005.

Accepted Answer

(A) As a result of the increase in gover

Question 16

If the price of salt quadruples,will this cause a price shock? Explain.

Accepted Answer

No.Salt is not an important co

Question 17

Suppose real and potential GDP are initially equal.If government purchases change,which of the following best explains what will happen first?

Accepted Answer

A) Potential GDP will change by the same amount as aggregate expenditure. 
B) The AD curve will shift. 
C) Both the AD curve and the IA line will shift. 
D) The IA line will shift. 
E) There will be movement along the AD curve. 
A) Potential GDP will change by the same amount as aggregate expenditure. 
B) The AD curve will shift. 
C) Both the AD curve and the IA line will shift. 
D) The IA line will shift. 
E) There will be movement along the AD curve.

Question 18

Which of the following would lead to higher inflation in the long run?

Accepted Answer

A) A decrease in consumer confidence 
B) An increase in imports 
C) An increase in taxes 
D) An increase in government spending 
E) An increase in the savings rate 
A) A decrease in consumer confidence 
B) An increase in imports 
C) An increase in taxes 
D) An increase in government spending 
E) An increase in the savings rate

Question 19

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession,the aggregate demand inflation adjustment model is of no use.Please comment.

Accepted Answer

This statement is incorrect.It's true it

Question 20

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S.economy from 2007 to 2009.

Accepted Answer

The spending boom caused by rising housi

Exam 25: Using the Economic Fluctuations Model

A major that resulted in the leftward shift of the aggregate demand curve in late 2008 was

The short-run effect of an increase in government purchases is

If oil prices increase,inflation will be permanently higher in the long run.

Which of the following is the most appropriate explanation of a price shock?

A permanent price shock results in

A change in monetary policy will not cause the AD curve to shift.

Suppose,for a certain economy,real and potential GDP are initially equal.Then government purchases permanently increase.Compared to the baseline,we would expect to see,in the medium run,

A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short run.

Suppose the income tax rate increases.What will happen to consumption,investment,and net exports in the short run and the long run? Explain your results,using a diagram with the aggregate demand curve and the inflation adjustment line.

When Paul Volcker first started to head the Fed,the Federal Reserve began a policy of

All of the following are likely reasons for the 2007-09 recession in the United States except

Real business cycle theories emphasize price shocks.

If the Fed is worried about inflation and raises interest rates,then in the short run

If government purchases decrease,in the short run

If the price of salt quadruples,will this cause a price shock? Explain.

Suppose real and potential GDP are initially equal.If government purchases change,which of the following best explains what will happen first?

Which of the following would lead to higher inflation in the long run?

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession,the aggregate demand inflation adjustment model is of no use.Please comment.

Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S.economy from 2007 to 2009.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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