AP Macro Unit 5: Stabilization Policy

Question 1

What is on the y-axis of the market for loanable funds?

Accepted Answer

r

Question 2

If people expect a decrease in the inflation rate, the short-run Phillips curve will

Accepted Answer

shift down

Question 3

The difference between deficit and debt is

Accepted Answer

Deficit is for a single year and debt is long-term

Question 4

The Laffer curve shows the relationship between

Accepted Answer

tax rates and government revenue

Question 5

In the long run, the Phillips curve is

Accepted Answer

vertical

Question 6

The idea that maintaining unemployment below a certain level will cause inflation is

Accepted Answer

the natural rate hypothesis

Question 7

If aggregate demand decreases, what will happen on the short-run Phillips curve?

Accepted Answer

movement along the curve to the right

Question 8

Inflation caused by a negative supply shock is

Accepted Answer

cost-push

Question 9

Which school of economics believes in rational expectations?

Accepted Answer

Classical

Question 10

The government will have a deficit if

Accepted Answer

Taxes < spending + transfers

Question 11

What's the best way for a country to get out of debt?

Accepted Answer

Cut spending and/or raise taxes

Question 12

If there is an increase in MPS, what will happen on the market for loanable funds?

Accepted Answer

Increase in supply

Question 13

Crowding out can happen when the government borrows money and interest rates

Accepted Answer

increase

Question 14

The idea that nominal interest rates and the inflation rate will change together is called

Accepted Answer

the Fisher effect

Question 15

After a change in money supply, what two things return to their original levels in the long run

Accepted Answer

nominal interest rates, output

Question 16

The real business cycle hypothesis says that business cycles are caused by changes in

Accepted Answer

productivity

Questions 16