Mainstream economists favor:

the use of discretionary monetary policy and fiscal policy

According to monetarists (classicalists), an expansionary fiscal policy:

will be ineffective because the interest rate will rise and crowd out ID

Suppose you are told that the short-run Phillips curve has shifted downward. Which of the following must have happened?

The SRAS curve has shifted to the right.

In an Ample Reserve System, which of the following would be the appropriate response to a high rates of inflation?

Increase the Interest on Reserves

The economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact is...

No change in the natural rate of unemployment and an increase in inflation.

A economy has AMPLE RESERVES, it enters a recession.Which monetary policy can restore full employment output in shortrun

Decreasing administered interest rates

If the prices and wages are inflexible downward, a decrease in aggregate demand will:

reduce real output but not the price level.

Suppose the Fed buys bonds. We can expect this transaction to:

Increase the money supply,increase bond prices, and decrease interest rates

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n):

Decrease in the price level and no change in employment.

The main objective of contractionary monetary policy is to:

decrease the aggregate price level.

The long-run Phillips curve is:

Vertical at the non-accelerating-inflation rate of unemployment (NAIRU)

When the budget is in deficit, the government generally:

increases the public debt to fund the deficit.

Refer to the diagram. The move of the economy from c to d on a short-run Phillips Curve PC2 would be explained by an:

Inflation above the natural rate

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Unit 6 Econ Review

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Questions 19

Answers

1
Mainstream economists favor:
the use of discretionary monetary policy and fiscal policy
a monetary rule.
wage and price controls.
a balance–budget amendment.
2
An decrease in the supply of money will lead to ______ in equilibrium real GDP and _______ in equilibrium interest rate.
A. a decrease; a decrease
an increase; an increase
a decrease; an increase
an increase; a decrease
3
The correct equation for the Equation of Exchange is.. (equation of monetarism)
MP=YV
Y=MX+B
MY=PV
MV=PY
4
According to monetarists (classicalists), an expansionary fiscal policy:
should be used only when unemployment exceeds 6% of the labor force
will be effective, provided the money supply is held constant.
will be ineffective because the interest rate will rise and crowd out ID
should not be permitted so long as a public debt exists.
5
Suppose you are told that the short-run Phillips curve has shifted downward. Which of the following must have happened?
The AD curve has shifted to the right.
The SRAS curve has shifted to the left.
The AD curve has shifted to the left.
The SRAS curve has shifted to the right.
6
In an Ample Reserve System, which of the following would be the appropriate response to a high rates of inflation?
Increase personal income taxes
Decrease Administered Rates
Increase government spending
Increase the Interest on Reserves
7
The federal budget tends to move toward _________ as the economy _________.
a balanced budget; contracts
deficit; expands
deficit; contracts
surplus, contracts
8
The economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact is...
A decrease in the natural rate of unemployment and an increase in inflation
No change in the natural rate of unemployment and no change in inflation.
No change in the natural rate of unemployment and an increase in inflation.
A decrease in the natural rate of unemployment and no change in inflation.
9
A economy has AMPLE RESERVES, it enters a recession.Which monetary policy can restore full employment output in shortrun
Decreasing administered interest rates
Decreasing government spending
Increasing the required reserve ratio
Increasing the policy rate
10
If the prices and wages are inflexible downward, a decrease in aggregate demand will:
reduce the price level but not real output.
reduce real output but not the price level.
decrease short–run aggregate supply.
increase short–run aggregate supply.
11
Suppose the Fed buys bonds. We can expect this transaction to:
increase the money supply,decrease bond prices, and decrease interest rates
decrease the money supply,decrease bond prices, and increase interest rates
decrease the money supply,increase bond prices, and decrease interest rates
Increase the money supply,increase bond prices, and decrease interest rates
12
Changes in “animal spirits” will affect actual output through changes in this area:
government expenditure and taxes.
business investment.
money supply and interest rates.
labor productivity and technological progress.
13
If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n):
Increase in the price level and unemployment.
Decrease in the price level and employment.
Decrease in the price level and no change in employment.
Increase in the price level and no change in employment.
14
The main objective of contractionary monetary policy is to:
decrease the aggregate price level.
raise the level of potential output.
close a recessionary gap.
increase investment.
15
The long-run Phillips curve is:
Up Slope, shows a direct relationship between unemployment and inflation
Vertical at the non-accelerating-inflation rate of unemployment (NAIRU)
vertical, but unrelated to the NAIRU.
the same as the short-run Phillips curve.
16
The below diagram depicts the Keynesian theory
False
True
17
Velocity of money is the number of times per MONTH the average dollar is spent on final goods and services.
True
False
18
When the budget is in deficit, the government generally:
increases the public debt to fund the deficit.
raises taxes to raise revenue.
decreases military spending to reduce spending.
sells public assets like national parks to raise revenue.
19
Refer to the diagram. The move of the economy from c to d on a short-run Phillips Curve PC₂ would be explained by an:
increase in aggregate supply in the economy.
Inflation above the natural rate
decrease in aggregate demand in the economy.
Inflation below the natural rate

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