Question 1

Okun"s law is the relationship between real GDP and the .

Accepted Answer

A) negative; unemployment rate 
B) negative; inflation rate 
C) positive; unemployment rate 
D) positive; inflation rate

Question 2

You are given the information about the following leading indicators. For each indicator explain whether the information suggests that a recession or expansion should be expected in the future.
a. Average initial weekly claims for unemployment insurance rise. b. New building permits issued increases.
c. The interest rate spread between the 10-year Treasury note and the 3-month Treasury bill narrows.
d. The Index of Supplier Deliveries falls.

Accepted Answer

The answer of You are given the information about the...

Question 3

The advent of interest-earning checking accounts in the early 1980s led many households to keep a larger proportion of their income in checking accounts. Use the aggregate demand- aggregate supply model to illustrate graphically the impact in the short run and the long run of this change in money demand. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; v. the short-run equilibrium values; and
vi. the long-run equilibrium values. State in words what happens to prices and output in the short run and the long run.

Accepted Answer

The answer of The advent of interest-earning checking accounts in...

Question 4

The relationship between the quantity of goods and services supplied and the price level is called:

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) aggregate investment. 
D) aggregate production.

Question 5

The version of Okun"s law studied in Chapter 9 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun"s law predicts that real GDP would:

Accepted Answer

A) decrease by 1 percent. 
B) decrease by 2 percent. 
C) decrease by 3 percent. 
D) increase by 1 percent.

Question 6

Over the business cycle, investment spending consumption spending.

Accepted Answer

A) is inversely correlated with 
B) is more volatile than 
C) has about the same volatility as 
D) is less volatile than

Question 7

Explain the meaning of monetary neutrality and illustrate graphically that there is monetary neutrality in the long run in the aggregate demand-aggregate supply model. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; the direction the curves shift; v. the short-run equilibrium values; and vi. the long-run equilibrium values. Explain in words what your graph illustrates.

Accepted Answer

The answer of Explain the meaning of monetary neutrality and...

Question 8

The short run refers to a period:

Accepted Answer

A) of several days. 
B) during which prices are sticky and unemployment may occur. 
C) during which capital and labor are fully employed. 
D) during which there are no fluctuations.

Question 9

Short-run fluctuations in output and employment are called:

Accepted Answer

A) sectoral shifts. 
B) the classical dichotomy. 
C) business cycles. 
D) productivity slowdowns.

Question 10

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines) and no action is taken by the government:

Accepted Answer

A) prices will rise in both the short run and the long run. 
B) output will rise in both the short run and the long run. 
C) prices will rise in the short run and output will rise in the long run. 
D) output will rise in the short run and prices will rise in the long run.

Question 11

When the French money supply was reduced by 45 percent in 1724 only fell immediately.

Accepted Answer

A) prices output 
B) exchange rates 
C) interest rates

Question 12

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will and output will .

Accepted Answer

A) increase; increase 
B) decrease; decrease 
C) increase; decrease 
D) decrease; increase

Question 13

In the aggregate demand/aggregate supply model, long-run equilibrium occurs at the combination of output and prices where:

Accepted Answer

A) aggregate demand equals long-run aggregate supply. 
B) aggregate demand equals short-run aggregate supply. 
C) aggregate demand equals short-run and long-run aggregate supply. 
D) short-run aggregate supply equals long-run aggregate supply.

Question 14

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

Accepted Answer

A) short-run aggregate supply curve. 
B) long-run aggregate supply curve. 
C) price level in the short run. 
D) demand for real balances per unit of output.

Question 15

According to the quantity theory of money, if output is higher, real balances are required, and for fixed M this means P.

Accepted Answer

A) higher; lower 
B) lower; higher 
C) higher; higher 
D) lower; lower

Question 16

A difference between the economic long run and the short run is that:

Accepted Answer

A) the classical dichotomy holds in the short run but not in the long run. 
B) monetary and fiscal policy affect output only in the long run. 
C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. 
D) prices and wages are sticky in the long run only.

Question 17

The aggregate demand curve tells us possible:

Accepted Answer

A) combinations of M and Y for a given value of P. 
B) combinations of M and P for a given value of Y. 
C) combinations of P and Y for a given value of M. 
D) results if the Federal Reserve reduces the money supply.

Question 18

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

Accepted Answer

A) downward and to the left. 
B) downward and to the right. 
C) upward and to the left. 
D) upward and to the right.

Question 19

The long-run and short-run aggregate supply curves reflect fundamental differences between long-run and short-run macroeconomic analysis.
a. Graphically illustrate the long-run and short-run aggregate supply curves. Be sure to label the axes.
b. What determines the level of output in the long run versus the short run?
c. How do prices behave differently in the long run and the short run?

Accepted Answer

The answer of The long-run and short-run aggregate supply curves...

Question 20

Stabilization policy:

Accepted Answer

A) aims at keeping output and employment at their natural rates. 
B) always succeeds in keeping output and employment at their natural rates. 
C) is generally ineffective. 
D) does more harm than good.

Exam 9: Introduction to Economic Fluctuations