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

An increase in aggregate supply causes stagflation.

In a binding situation, the interest rate is always zero.

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

Economic policies are effective at changing output when

The objective of a contractionary fiscal policy is to

During the recession of 1980-1982, output, the inflation rate, and the interest rate all increased.

Refer to the information provided in Figure 12.4 below to answer the questions that follow. Figure 12.4 -Refer to Figure 12.4. If the economy is currently at the intersection of AS and AD, stagflation would be caused by

If the Fed has a strong preference for stable prices relative to output, the ________ curve is relatively ________.

A binding situation occurred during the recession of

In 2007, the Fed engaged in inflation targeting when it lowered the interest rate in anticipation of a recession.

Refer to the information provided in Figure 12.2 below to answer the questions that follow. Figure 12.2 -Refer to Figure 12.2. The output multiplier is smallest when the aggregate demand curve shifts from

In a binding situation, the ________ curve is ________.

Inflation due to a decrease in aggregate demand is called demand-pull inflation.

When the economy is on the flat part of the AS curve, there is very little crowding out of planned investment.

Since 1970, the Fed generally ________ the interest rate when inflation was ________.

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________.

If the AD curve is relatively flat, the Fed is willing to accept large changes in output to keep the price level stable.

A decrease in the Z factors represents

Stagflation is an economic condition characterized by ________ unemployment and ________ inflation.

A sudden increase in aggregate demand causes a ________ inflation and ________ output.