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Exam 12: Policy Effects and Cost Shocks in the Asad Model

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Question 61

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In a binding situation, the ________ curve is ________.

A) AD; horizontal
B) AD; vertical
C) AS; horizontal
D) AS; vertical

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Question 62

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An increase in aggregate supply causes stagflation.

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Question 63

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If the AD curve is relatively flat, the Fed is willing to accept large changes in output to keep the price level stable.

Inflation due to a decrease in aggregate demand is called demand-pull inflation.

When the economy is on the flat part of the AS curve, there is very little crowding out of planned investment.

Refer to the information provided in Figure 12.2 below to answer the questions that follow. Figure 12.2 -Refer to Figure 12.2. The output multiplier is smallest when the aggregate demand curve shifts from

If the long-run aggregate supply curve is vertical, fiscal policy will have no effect on the price level.

Since 1970, the Fed generally ________ the interest rate when inflation was ________.

Stagflation is an economic condition characterized by ________ unemployment and ________ inflation.

If the economy is on the steep portion of the AS curve and taxes decrease, ________ crowds out ________.

A sudden increase in aggregate demand causes a ________ inflation and ________ output.

A decrease in the Z factors represents

In 2007, the Fed engaged in inflation targeting when it lowered the interest rate in anticipation of a recession.

In a binding situation, the interest rate is always zero.

Economic policies are effective at changing output when

If the Fed has a strong preference for stable prices relative to output, the ________ curve is relatively ________.

A binding situation occurred during the recession of

The objective of a contractionary fiscal policy is to

During the recession of 1980-1982, output, the inflation rate, and the interest rate all increased.

Refer to the information provided in Figure 12.4 below to answer the questions that follow. Figure 12.4 -Refer to Figure 12.4. If the economy is currently at the intersection of AS and AD, stagflation would be caused by