Deck 19: Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Question 1

Which of the following statements is false?

A)a nations' natural level of output can increase as a result of growth
B)imperfection in product markets can lead to temporary deviations in a nation's output from its long-run natural level
C)sticky wages cannot lead to temporary deviations in a nation's output from its long-run natural level
D)none of the above

Answer 1

C

Question 2

Which of the following statements is false?

A)expansionary fiscal or monetary policy can increase the nation's output temporarily above its natural level
B)expansionary fiscal or monetary policy can used to correct a recession but only at the expense of higher prices in the nation
C)a recession cannot be eliminated automatically even if domestic prices are flexible downward
D)when prices are not flexible downward inflation may be less costly that recession

Answer 2

C

Question 3

The correlation between the degree of central bank independence and average rate of inflation tends to be

A)negative
B)positive
C)there is no correlation
D)none of the above

Answer 3

A

Question 4

An increase in the money supply with constant prices leads to a

A)leftward shift in the LM curve
B)movement along a given aggregate demand curve
C)rightward shift in the aggregate demand curve
D)rightward shift in the IS curve

Question 5

During the last decade the inflation rate in the U.S.has been roughly

A)0%
B)3%
C)5%
D)8%

Question 6

The long run aggregate supply curve is

A)independent of prices and is vertical at the nation's natural rate of output
B)dependent on prices and is vertical at the nation's natural rate of output
C)independent of prices and is horizontal at the nation's natural rate of output
D)dependent on prices and is horizontal at the nation's natural rate of output

Question 7

A reduction in the general price level with a constant money supply is shown by a

A)leftward shift in the LM curve
B)movement down along a given aggregate demand curve
C)rightward shift in the aggregate supply curve
D)a rightward shift in the IS curve

Question 8

Which of the following statements is false with regard to the effect of macroeconomic policies?

A)they generally cause shifts in the aggregate demand curve
B)they can possibly increase long-run growth
C)they can help correct supply shocks that increases production costs but only at the expense of even higher inflation
D)they always cause shifts in the long-run aggregate supply curve

Question 9

The aggregate demand curve (AD)for an open economy is derived from the

A)IS curve
B)LM curve
C)BP curve
D)all of the above

Question 10

With high short-term international capital flows,fixed exchange rates,and flexible prices

A)monetary policy is effective
B)fiscal policy is effective
C)both fiscal and monetary policies are effective
D)neither fiscal policy nor monetary policies are effective

Question 11

The aggregate demand curve for an open economy under fixed exchange rates is

A)less elastic than if the economy were closed
B)more elastic than in the economy were closed
C)more elastic than in the economy operated with flexible exchange rates
D)all of the above

Question 12

The aggregate demand curve (AD)for closed economy is derived from the

A)IS curve
B)LM curve
C)FE curve
D)IS and LM curves

Question 13

An autonomous improvement in the nation's trade balance under fixed exchange rates will cause the nation's aggregate demand curve to

A)shift to the right
B)shift to the left
C)remain unchanged
D)any of the above

Question 14

An autonomous short term capital inflow or reduced capital outflow results in a

A)rightward shift in aggregate demand under flexible exchange rates and a leftward shift under fixed exchange rates
B)rightward shift in aggregate demand under flexible exchange rates and no shift under fixed exchange rates
C)leftward shift in aggregate demand under flexible exchange rates and a rightward shift under fixed exchange rates
D)leftward shift in aggregate demand under flexible exchange rates and a no shift under fixed exchange rates

Question 15

An autonomous short-term capital outflow under flexible exchange rates causes the nation's aggregate demand curve to

A)shift to the right
B)shift to the left
C)remain unchanged
D)any of the above

Question 16

Output in the short run exceeds the natural level of output if expected prices

A)exceed actual prices
B)are lower than actual prices
C)are equal to actual prices
D)any of the above

Question 17

Stagflation is most likely to be caused by

A)both a leftward shift in aggregate supply and a rightward shift in aggregate demand
B)both a rightward shift in aggregate supply and a rightward shift in aggregate demand
C)a leftward shift in aggregate supply
D)a leftward shift in aggregate demand

Question 18

An increase in government expenditures leads to

A)a rightward shift in the IS curve
B)a rightward shift in the AD curve
C)an increase in the level of national income
D)all of the above

Question 19

A nation's output in the short-run can

A)exceed its natural level
B)fall short of its natural level
C)equal to its natural level
D)any of the above

Question 20

In general,as the economy expands or contracts over the business cycle

A)prices change rapidly
B)prices remain unchanged except in a recession
C)prices remain unchanged until the economy reaches full employment
D)prices change,but slowly

Question 21

What is the natural level of output?

Question 22

Why does the ease of combating a recession with expansionary fiscal or monetary policy depend on how flexible prices are downward?

Question 23

What conditions lead to the stagflationary environment of the 1970s?

Question 24

How does an increase in government expenditure impact aggregate demand?

Question 25

Suppose that the economy is in long-run equilibrium,and people in other countries suddenly decide to purchase fewer US goods.Explain the short-run effects on the US economy under both fixed and flexible exchange rates.

Question 26

Inflation targeting refers to:

A)central banks targeting a precise number for the inflation rate.
B)central banks targeting a range for the inflation rate.
C)fiscal policies that target a precise number for the inflation rate.
D)fiscal policies that target a range for the inflation rate.

Question 27

Suppose that the economy is in long-run equilibrium,and interest rates in the rest of the world rise.Explain the short-run effects on the US economy under fixed and flexible exchange rates.

Question 28

Which of the following is a correct statement about the effects of monetary and fiscal policies?

A)Monetary policy is effective under a fixed exchange rate regime,but not under flexible rates.
B)A monetary shock will shift the aggregate demand curve in the same direction,whether exchange rates are fixed or flexible.
C)A real shock will shift the aggregate demand curve under fixed but not flexible exchange rates.
D)Monetary policy can always be used to correct real shocks,whether exchange rates are fixed or flexible.

Question 29

Why is monetary policy ineffective under a fixed exchange rate system?

Question 30

Empirical evidence suggests which of the following about central bank independence and inflation rates?

A)More independent central banks are associated with lower rates of inflation.
B)More independent central banks are associated with constant rates of inflation.
C)More independent central banks are associated with higher rates of inflation.
D)There is no observable relationship between inflation rates and central bank independence.