Question 1

Consider an economy in a long-run equilibrium with Y = 40 and π = 3.A demand shock in period one causes output to rise to 45 and inflation rises to 4.Then,the updating of expected inflation to equal 4 causes output in period two to decline to 43.85,and inflation to rise to 4.77.Assuming no further shocks,calculate the values of output and inflation for period three.

Accepted Answer

Moving from period one to period two,the...

Question 2

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience a decrease?

Accepted Answer

A)  according to the Phillips curve,the ensuing negative unemployment gap would exert inflationary pressures
B)  according to Okun's Law,the ensuing negative unemployment gap would be consistent with a positive output gap
C)  according to the AD-AS framework,the LRAS curve would shift to the right and the ensuing output gap would have to be closed by subsequent rightward shifts in the AS curve to a lower equilibrium level of inflation
D)  all of the above
E)  none of the above

Question 3

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%.By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%.Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation?

Accepted Answer

A)  The AD curve likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982.
B)  Due to the autonomous tightening of monetary policy,a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982.
C)  By 1982,it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986.
D)  all of the above
E)  none of the above

Question 4

The aggregate demand curve has a negative slope,because households and businesses respond to an increase in ________ by reducing their expenditures.

Accepted Answer

A)  the inflation rate
B)  output
C)  the real interest rate
D)  all of the above
E)  none of the above

Question 5

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By the end of 1986 the inflation rate had been brought down to 1.9%.Which of the following is true about the Volcker Disinflation?

Accepted Answer

A)  lower inflation resulted from a tightening of monetary policy
B)  by raising the federal funds rate to over 20%,the Federal Reserve stimulated the economy resulting in lower levels of both inflation and the unemployment rate by the early 1980s
C)  the unemployment rate was brought down by 1982 but it took longer to reach lower inflation rates
D)  all of the above
E)  none of the above

Question 6

12.2 Equilibrium in Aggregate Demand and Supply Analysis
AD - AS Equilibrium 
-On the graph above,if inflation is rising,while the quantity demanded and output are rising,the economy may be at a point on ________.

Accepted Answer

A)  the aggregate supply curve above the aggregate demand curve
B)  the aggregate supply curve below the aggregate demand curve
C)  the aggregate demand curve above the aggregate supply curve
D)  the aggregate demand curve below the aggregate supply curve
E)  none of the above

Question 7

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

Accepted Answer

A)  causing an upward spike in the real interest rate
B)  reducing autonomous spending by households and businesses
C)  reducing government spending on high-tech equipment
D)  all of the above
E)  none of the above

Question 8

The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________.

Accepted Answer

A)  capital and labor inputs
B)  technology
C)  the natural rate of unemployment
D)  all of the above
E)  none of the above

Question 9

Which equation is a plausible aggregate demand curve?

Accepted Answer

A)  π = 2 + 0.3Y
B)  Y = 50 - 1.25π
C)  Y = 250 - 80r
D)  π = 5 - 0.4 (U - 6) 
E)  none of the above

Question 10

A change in the output gap is likely to lead to ________.

Accepted Answer

A)  a change in inflation
B)  a change in expected inflation
C)  a shift of the short-run aggregate supply curve
D)  all of the above
E)  none of the above

Exam 12: The Aggregate Demand and Supply Model

The aggregate demand curve has a negative slope,because households and businesses respond to an increase in ________ by reducing their expenditures.

Correct Answer
verified

The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________.

Correct Answer
verified

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

Correct Answer
verified

A change in the output gap is likely to lead to ________.

Correct Answer
verified

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By the end of 1986 the inflation rate had been brought down to 1.9%.Which of the following is true about the Volcker Disinflation?

Correct Answer
verified

12.2 Equilibrium in Aggregate Demand and Supply Analysis AD - AS Equilibrium -On the graph above,if inflation is rising,while the quantity demanded and output are rising,the economy may be at a point on ________.

Correct Answer
verified

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience a decrease?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Moving from period one to period two,the...
View Answer

Which equation is a plausible aggregate demand curve?

Correct Answer
verified

Exam 12: The Aggregate Demand and Supply Model

The aggregate demand curve has a negative slope,because households and businesses respond to an increase in ________ by reducing their expenditures.

Correct AnswerverifiedShow Answer

The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________.

Correct AnswerverifiedShow Answer

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

Correct AnswerverifiedShow Answer

A change in the output gap is likely to lead to ________.

Correct AnswerverifiedShow Answer

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By the end of 1986 the inflation rate had been brought down to 1.9%.Which of the following is true about the Volcker Disinflation?

Correct AnswerverifiedShow Answer

12.2 Equilibrium in Aggregate Demand and Supply Analysis AD - AS Equilibrium -On the graph above,if inflation is rising,while the quantity demanded and output are rising,the economy may be at a point on ________.

Correct AnswerverifiedShow Answer

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience a decrease?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedMoving from period one to period two,the...View AnswerShow Answer

Which equation is a plausible aggregate demand curve?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Moving from period one to period two,the...
View Answer

Correct Answer
verified