Exam 12: Policy Effects and Cost Shocks in the Asad Model

If wages adjust fully to price increases, fiscal policy will have no effect on output in the long run.

If the economy is on the steep part of the aggregate supply curve, the output multiplier is close to zero.

Demand-pull inflation and cost-push inflation both lead to a higher price level and lower output.

Of the following recessionary periods in the United States, in which was the 3-month Treasury bill rate the highest?

In a binding situation,

If firms increase their prices because of a change in inflationary expectations, the AS curve will shift to the left.

If wages quickly adjust to price changes, the aggregate supply curve quickly becomes vertical.

When the AD curve is relatively flat,

An increase in future price expectations may act like a cost shock, shifting the aggregate supply curve to the left.

The aggregate demand curve would shift to the left if

An increase in aggregate demand causes stagflation.

Refer to the information provided in Figure 12.2 below to answer the questions that follow. Figure 12.2 -Refer to Figure 12.2. An expansionary fiscal policy would be most effective in raising output with little or no inflation when the aggregate demand curve shifts from

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1 -Refer to Figure 12.1. Suppose the economy is at Point A. A(n) ________ can cause a movement to Point E.

Other things equal, an increase in the Z factors will ________ the equilibrium price level and ________ equilibrium output.

If the AD curve is vertical, a positive cost shock will cause ________ in output and ________ in the price level.

Refer to the information provided in Figure 12.2 below to answer the questions that follow. Figure 12.2 -Refer to Figure 12.2. In response to an increase in government spending, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

The Fed acted aggressively in lowering the interest rate during the recession(s) of

If the long-run aggregate supply curve is vertical, fiscal policy will have no effect on output.

The objective of an expansionary fiscal policy is to

12.3 Shocks to the System Refer to the information provided in Figure 12.3 below to answer the questions that follow. Figure 12.3 -Refer to Figure 12.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS₂. If the government decides to counter the effects of higher oil prices by increasing net taxes, then the price level will be ________ than P₂ and output will be ________ than Y₂.