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

If the economy is on the flat part of the aggregate supply curve, contractionary fiscal policy works well to decrease the price level with little decrease output.

An increase in AD will primarily increase output when the economy is on the flat part of the AS curve.

Demand-pull inflation is initiated by an increase in aggregate demand.

When analyzing the effects of cost shocks, what primarily matters is the shape of

In a binding situation, a decrease in the Z factors

In a binding situation, changes in net taxes do not shift the AD curve.

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

Other things equal, cost-push inflation results in output ________ and the price level ________.

In a binding situation,

Which of the following would shift the aggregate demand curve to the left?

Decreases in net taxes, increases in the Z factors, and increases in government spending are contractionary policies.

Since the end of 2008, there has been a zero interest rate bound in the U.S. economy.

Zero interest rate bound means the interest rate cannot go below zero.

The Fed generally had ________ interest rates in the 1970s and early 1980s to fight ________.

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 D.

For an economy to experience both a recession and inflation at the same time,

A leftward shift in the aggregate supply curve generates a ________ inflation and ________ output.

In a binding situation, the Fed rule calls for

If an increase in the Z factors resulted in a very large change in the price level and a very small change in aggregate output

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