macro econ problem sets 3 and 4

question

High and persistent inflation is caused by excessive growth in the quantity of money in the economy.

answer

question

If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.

answer

question

An increase in the price of imported cars is captured by the CPI but not by the GDP deflator.

answer

question

It is impossible for real interest rates to be negative.

answer

question

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, lenders will gain at the expense of borrowers.

answer

question

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be less than they expected, workers will gain at the expense of firms.

answer

question

The producer price index (PPI) is constructed to measure the change in price of total production.

answer

question

Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.

answer

question

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

answer

question

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

answer

question

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.

answer

question

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

answer

question

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

answer

question

Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.

answer

question

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

answer

question

The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.

answer

question

The term business cycle implies that economic fluctuations follow a regular, predictable pattern.

answer

question

A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.

answer

question

A change in the money supply changes only nominal variables in the long run.

answer

question

A decrease in the money supply causes the interest rate to rise so that investment falls.

answer

question

Inflation can be measured by all of the following except the

answer

Finished goods price index

question

If the CPI is 200 in year 1990 and 300 today, then $600 in 1990 has the same purchasing power as ________ today.

answer

900$

question

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent.

answer

5,3

question

In 1999, the CPI was 124.0 In 2000, it was 130.7. What was the rate of inflation over this period?

answer

5.4%

question

The "basket" on which the CPI is based is composed of

answer

products purchased by the typical consumer

question

If inflation is 8% and the real interest rate is 3%, then the nominal interest rate should be

answer

11%

question

When inflation rises, people will desire to hold

answer

less money and will go to the bank more frequently

question

Menu costs refers to

answer

the cost of more frequent price changes induced by higher inflation

question

If the price level doubles,

answer

the value of money has been cut in half

question

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to

answer

shift aggregate demand to the right

question

Which of the following statements is true regarding the long run aggregate supply curve? The long run aggregate supply curve

answer

is vertical bc an equal change in all prices and wages leaves output unaffectedq

question

Suppose the economy is initially in long run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

answer

prices fall, output falls

question

Which of the following events shifts the short run aggregate supply curve to the right?

answer

a drop in oil prices

question

During the Great Depression, the United States experienced a the short run aggregate supply curve; during the 1970s oil crisis, the United states experiences a in the short run aggregate supply curve.

answer

movement down along, leftward shift

question

Most economists believe that classical theory describes the world

answer

in the long run

question

The aggregate-demand curve shows that a decrease in the price level

answer

increases the real value of goods and services demanded in the economy

question

Which of the following would help explain why the aggregate demand curve slopes downward?

answer

a lower price level reduces the interest rate which encourages greater spending on investment goods

question

Which of the following cost of inflation does not occur when inflation is constant and predictable?

answer

arbitrary redistribution of wealth

question

aggregate demand shifts left if

answer

government purchases decrease and shifts left if stock prices fall

question

According to the Figure: Shifts of the AD-AS Curves, and increase in wages in the short run is illustrated by panel:

answer

panel d- SRAS moves left

question

There is a positive relationship between the quantity of investment spending and the interest rate.

answer

false

question

Between 1929 and 1933, the U.S. economy moved upward from left to right along its short-run aggregate supply curve.

answer

false

question

When the price level increases and people want to hold more money, interest rates decrease.

answer

false

question

A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level.

answer

false

question

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

answer

question

In the short run, changes in the money supply changes interest rates but not real output and prices.

answer

false

question

The purchasing power of money increased during the oil crisis of 1979 because the aggregate price level increased but the growth rate of the money supply was faster than the increase in the price level.

answer

false

question

The dollar amount of the wage paid is called the sticky wage.

answer

false

question

Stagflation is the combination of inflation and rising aggregate output.

answer

fALSE

question

An increase in the price of oil is likely to shift the short-run aggregate supply curve to the right.

answer

false

question

Refer to Figure above. If the economy is at point X, the appropriate monetary policy is to: (x is behing LRAS, where SRAS and AD curve meet.)

answer

increase the money supply and decrease interest rates.

question

Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

answer

decrease gvmt purchases

question

According to the Figure: Short-Run Equilibrium, if the economy is at equilibrium at Y1 and P1 (where SRAS and AD meet past the LRAS), the appropriate policy to return the economy to potential output would be a(n):

answer

increase in taxes

question

If the aggregate price level rises, holding everything constant, consumers will:

answer

need more money to purchase the same basket off goods, which will lead to an increse in the demand for money, hence the interest rate increases and a reduction in the qty of agg output demanded via a decrease in investment demand

question

nominal wages are sticky bc

answer

wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is signifigant

question

If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

answer

increases,decresases, left

question

an increase in the ag price level will increase

answer

the qty of aggregate outpu supplied in the short run

question

unexpected rising in commodity prices lead to a ___ shock

answer

negative supply

question

Refer to Figure above. If there is a significant increase in government spending, in the short run the _____ curve will shift to the _____.

answer

SRAS right

question

which factor will shift the SRAS right

answer

widespread decrease in commodity prices

question

The long run in macroeconomic analysis is a period:

answer

in which prices and nominal wages are flexible

question

Refer to Figure above. At point F (POINT IS ON SRAS BEHIND LRAS), potential output is _____ than actual output and unemployment is _____.

answer

Higher, high

question

If there is an inflationary gap, nominal wages _____, and the _____ curve shifts _____ until the economy reaches long-run equilibrium.an increase in government spending on military equipment.

answer

rise, SRAS, left

question

if the gvmt increases income tax rates the ag demand curve is likely to

answer

shift to the left

question

the agg demand curve is negatively sloped in part because of the impact of

answer

the wealth effect on consumption

question

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the _____ curve slopes _____.

answer

wealth, aggregate demand, downward

question

Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%.

answer

-10

question

Refer to Figure above. The level of income associated with Y1 in panel (b) (equilibrium point is past LRAS):

answer

reveals an inflationary gap compared with Yp.

question

a simultaneous rise in productivity and nominal wages would shift the SRAS to the

answer

left if the rise in nominal wages is larger than the rise in productivity

question

a decrease in the money supply is likely to cause a ____ in borrowing, and____ in interest rates and an ______ in aggregate demand

answer

decrease, increase, decrease

1 of 70

question

High and persistent inflation is caused by excessive growth in the quantity of money in the economy.

answer

question

If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.

answer

question

An increase in the price of imported cars is captured by the CPI but not by the GDP deflator.

answer

question

It is impossible for real interest rates to be negative.

answer

question

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, lenders will gain at the expense of borrowers.

answer

question

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be less than they expected, workers will gain at the expense of firms.

answer

question

The producer price index (PPI) is constructed to measure the change in price of total production.

answer

question

Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.

answer

question

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

answer

question

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

answer

question

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.

answer

question

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

answer

question

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

answer

question

Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.

answer

question

answer

question

The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.

answer

question

The term business cycle implies that economic fluctuations follow a regular, predictable pattern.

answer

question

A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.

answer

question

A change in the money supply changes only nominal variables in the long run.

answer

question

A decrease in the money supply causes the interest rate to rise so that investment falls.

answer

question

Inflation can be measured by all of the following except the

answer

Finished goods price index

question

If the CPI is 200 in year 1990 and 300 today, then $600 in 1990 has the same purchasing power as ________ today.

answer

900$

question

answer

5,3

question

In 1999, the CPI was 124.0 In 2000, it was 130.7. What was the rate of inflation over this period?

answer

5.4%

question

The "basket" on which the CPI is based is composed of

answer

products purchased by the typical consumer

question

If inflation is 8% and the real interest rate is 3%, then the nominal interest rate should be

answer

11%

question

When inflation rises, people will desire to hold

answer

less money and will go to the bank more frequently

question

Menu costs refers to

answer

the cost of more frequent price changes induced by higher inflation

question

If the price level doubles,

answer

the value of money has been cut in half

question

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to

answer

shift aggregate demand to the right

question

Which of the following statements is true regarding the long run aggregate supply curve? The long run aggregate supply curve

answer

is vertical bc an equal change in all prices and wages leaves output unaffectedq

question

answer

prices fall, output falls

question

Which of the following events shifts the short run aggregate supply curve to the right?

answer

a drop in oil prices

question

answer

movement down along, leftward shift

question

Most economists believe that classical theory describes the world

answer

in the long run

question

The aggregate-demand curve shows that a decrease in the price level

answer

increases the real value of goods and services demanded in the economy

question

Which of the following would help explain why the aggregate demand curve slopes downward?

answer

a lower price level reduces the interest rate which encourages greater spending on investment goods

question

Which of the following cost of inflation does not occur when inflation is constant and predictable?

answer

arbitrary redistribution of wealth

question

aggregate demand shifts left if

answer

government purchases decrease and shifts left if stock prices fall

question

According to the Figure: Shifts of the AD-AS Curves, and increase in wages in the short run is illustrated by panel:

answer

panel d- SRAS moves left

question

There is a positive relationship between the quantity of investment spending and the interest rate.

answer

false

question

Between 1929 and 1933, the U.S. economy moved upward from left to right along its short-run aggregate supply curve.

answer

false

question

When the price level increases and people want to hold more money, interest rates decrease.

answer

false

question

A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level.

answer

false

question

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

answer

question

In the short run, changes in the money supply changes interest rates but not real output and prices.

answer

false

question

answer

false

question

The dollar amount of the wage paid is called the sticky wage.

answer

false

question

Stagflation is the combination of inflation and rising aggregate output.

answer

fALSE

question

An increase in the price of oil is likely to shift the short-run aggregate supply curve to the right.

answer

false

question

Refer to Figure above. If the economy is at point X, the appropriate monetary policy is to: (x is behing LRAS, where SRAS and AD curve meet.)

answer

increase the money supply and decrease interest rates.

question

Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

answer

decrease gvmt purchases

question

answer

increase in taxes

question

If the aggregate price level rises, holding everything constant, consumers will:

answer

question

nominal wages are sticky bc

answer

wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is signifigant

question

If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

answer

increases,decresases, left

question

an increase in the ag price level will increase

answer

the qty of aggregate outpu supplied in the short run

question

unexpected rising in commodity prices lead to a ___ shock

answer

negative supply

question

Refer to Figure above. If there is a significant increase in government spending, in the short run the _____ curve will shift to the _____.

answer

SRAS right

question

which factor will shift the SRAS right

answer

widespread decrease in commodity prices

question

The long run in macroeconomic analysis is a period:

answer

in which prices and nominal wages are flexible

question

Refer to Figure above. At point F (POINT IS ON SRAS BEHIND LRAS), potential output is _____ than actual output and unemployment is _____.

answer

Higher, high

question

If there is an inflationary gap, nominal wages _____, and the _____ curve shifts _____ until the economy reaches long-run equilibrium.an increase in government spending on military equipment.

answer

rise, SRAS, left

question

if the gvmt increases income tax rates the ag demand curve is likely to

answer

shift to the left

question

the agg demand curve is negatively sloped in part because of the impact of

answer

the wealth effect on consumption

question

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the _____ curve slopes _____.

answer

wealth, aggregate demand, downward

question

Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%.

answer

-10

question

Refer to Figure above. The level of income associated with Y1 in panel (b) (equilibrium point is past LRAS):

answer

reveals an inflationary gap compared with Yp.

question

a simultaneous rise in productivity and nominal wages would shift the SRAS to the

answer

left if the rise in nominal wages is larger than the rise in productivity

question

a decrease in the money supply is likely to cause a ____ in borrowing, and____ in interest rates and an ______ in aggregate demand

answer

decrease, increase, decrease

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