Assignment 5

Question 1

Suppose the unemployment rate is above the natural rate. We would expect to see:

Question 2

The Keynesian aggregate supply curve is highly elastic, perhaps even horizontal, because:

Question 3

In the long run, an increase in the money supply:

Question 4

An increase in government spending “crowds out” private investment because

Question 5

Suppose you have $100 to invest for a year and the nominal interest rate is 7%. If the inflation rate during the year is 3%, at the end of the year your real gain from the investment is:

Question 6

In the short run, decreases in the growth rate of the money supply will _______ nominal rates of interest and _______ real rates of interest.

Question 7

As the result of unanticipated inflation, workers are better off while firms are worse off if the actual inflation rate:

Answer 7

is less than the expected inflation rate.

Question 8

Suppose the government’s intial debt is $70 billion. If for the next three years the government runs deficits of $10, $25, and $40 billion, the government’s total debt at the end of the three years will be:

Question 9

Automatic stabilizers dampen economic fluctuations during expansions because tax payments _______ while transfer payments _______.

Answer 9

increase; decrease