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.

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

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

The main objective of contractionary monetary policy is to:

decrease the aggregate price level.

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

When the budget is in deficit, the government generally:

increases the public debt to fund the deficit.

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

reduce real output but not the price level.

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 long-run Phillips curve is:

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

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.

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

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

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

Decreasing administered interest rates

Mainstream economists favor:

the use of discretionary monetary policy and fiscal policy

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Unit 6 Econ Review

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Questions 19

Answers

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

Unit 6 Econ Review Flashcards | StudBud