Final Chapter 12 Flashcards
According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial crisis in 2007-2008 caused the unemployment rate to \_\_\_\_\_\_\_\_ and the level of real aggregate output to \_\_\_\_\_\_\_\_. Answers: decrease; decrease decrease; increase increase; increase increase; decrease
increase; decrease
A major technological advance shifts the
Answers:
long-run aggregate supply curve rightward and the short-run aggregate supply curve leftward.
short-run aggregate supply curve rightward but does not shift the long-run aggregate supply curve.
long-run and the short-run aggregate supply curves rightward.
long-run aggregate supply curve rightward but does not shift the short-run aggregate supply curve.
long-run and the short-run aggregate supply curves rightward.
Which of the following shift the LRAS curve rightward?
Answers:
an increase in the price level
a increase in the education level of the labor force
a decrease in the labor force
a decrease in the money wage
a increase in the education level of the labor force
\_\_\_\_\_\_\_\_ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment. Answers: All Keynesian Republican Classical
Keynesian
The U.S. monetary policy implemented in the recession of 2007-2009 was an attempt to
Answers:
decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing SAS.
decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing AD.
give billions of dollars to businesses and low- and middle-income Americans in order stimulate business investment and consumption expenditure, thereby increasing AD.
decrease the exchange rate in order to boost net exports, thereby increasing AD.
decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing AD.
\_\_\_\_\_\_\_\_ economists believe that the economy is self-regulating and always at full employment. Answers: New Keynesian Keynesian All Classical
Classical
One reason why many supply-side economists focus policy on lowering the top marginal tax rate is their belief that:
Answers:
it would bring about income equality throughout all taxpayers in the long-run.
it benefits the most deserving decision makers.
it would have the greatest positive influence on the decision makers in the economy with the highest marginal product (i.e. most productive in the economy).
it is system most fair to the members of congress.
it would have the greatest positive influence on the decision makers in the economy with the highest marginal product (i.e. most productive in the economy).
According to the Ricardo-Barro effect
Answers:
government deficits raise the real interest rate.
taxpayers fail to foresee that government deficits imply higher future taxes.
households increase their personal saving when governments run budget deficits.
government budget deficits increase households’ expected future disposable income.
households increase their personal saving when governments run budget deficits.
In a demand-pull inflation, the AD ( steps A to B) curve shifts ________ and the SRAS curve shifts ________ (steps B to C).
Answers: rightward; left ward rightward; rightward left ward; left ward left ward; rightward
rightward; left ward
Supply side economists focus policy change by lowering the :
Answers: highest (i.e. marginal tax rates). interest rates in the economy. average tax rates paid by most taxpayers. lowest tax rates paid by the poor.
highest (i.e. marginal tax rates).
The legs of the Keynesian school of thought are:
Answers: 1970s's Great Regulation. all of the answers in this question. President Roosevelt's New Deal. President Johnson's Great Society.
all of the answers in this question.
________ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.
Answers: All Monetarist Classical Keynesian
Monetarist
If the economy is on the negative slope of the Laffer curve and you raise taxes:
Answers: international trade will increase. national income will rise. tax revenues will rise. tax revenues will fall.
tax revenues will fall.
When the labor market is at full employment,
Answers: the SAS curve is horizontal. actual (real) GDP equals potential GDP. the price level equals the potential price level. the price level is stable.
actual (real) GDP equals potential GDP.
A Keynesian economist believes that
Answers:
if the economy was left alone, it would rarely operate at full employment.
the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic.
the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic.
the economy is self-regulating and always at full employment.
if the economy was left alone, it would rarely operate at full employment.
Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run?
Answers:
a decrease in the quantity of money
an increase in the price of oil that decreases aggregate supply
an increase in the stock of capital that increases aggregate supply
an increase in government expenditures
an increase in the price of oil that decreases aggregate supply
If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a:
Answers: velocity trap. 1970's. liquidity trap. new classical trap.
liquidity trap.
Which of the following changes does NOT shift the long-run aggregate supply curve?
Answers:
a tax hike that reduces the capital stock
a fall in the price level
a decrease in the labor force
a rise in number of college graduates in the labor force
a fall in the price level
Contactionary monetary policy:
Answers: fights inflation. fights communism. fights the increase in the national debt. fights recession.
fights inflation.
An decrease in the input prices (such as the money wage) ceteris paribus:
Answers:
decreases the short-run aggregate supply.
increases the short-run aggregate supply.
decreases the long-run aggregate supply.
increases aggregate demand.
increases the long-run aggregate supply.
increases the short-run aggregate supply.
Which of the following could start a demand-pull inflation?
Answers: an increase in imports an increase in government expenditures a decrease in the quantity of money an increase in the money prices of raw materials
an increase in government expenditures
________ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.
Answers: All Keynesian Monetarist Classical
Monetarist
Expansionary monetary policy:
Answers: fights communism. fights inflation. fights recession. fights the increase in the national debt.
fights recession.
If the money price of a resource such as oil falls, then the
Answers: LRAS curve shifts leftward. SRAS curve shifts rightward. LRAS curve shifts rightward. SARS curve shifts leftward.
SRAS curve shifts rightward.
Contactionary monetary policy:
Answers: risks inflation. risks a stock market crash. risks recession. increases global dependence.
risks recession.
Demand-pull inflation persists because of
Answers:
continuing increases in real wage rates.
continuing increases in government expenditures.
continuing increases in the quantity of money.
continuing increases in aggregate supply.
continuing increases in the quantity of money.
The idea that a government budget deficit decreases investment is called
Answers: the capital investment effect. the crowding-out effect. government dissaving. the Ricardo-Barro effect.
the crowding-out effect.
________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.
Answers: Keynesian Monetarist Classical All
Keynesian
What caused the stagflation of the 1970s?
Answers: 1973 oil shock 1979 oil shock collapse of the Bretton-Woods fixed exchange rate system sharp increase in agriculture prices all of the answers in this question
all of the answers in this question
The long-run aggregate supply curve is
Answers:
vertical at the full employment level of real GDP.
upward sloping because of the effects of price level changes on real GDP.
horizontal at the full employment price level.
the same as the short-run aggregate supply curve.
vertical at the full employment level of real GDP.
Demand-pull inflation persists because of
Answers:
continuing increases in aggregate supply.
continuing increases in government expenditures.
continuing increases in real wage rates.
continuing increases in the quantity of money.
continuing increases in the quantity of money.
Which of the following events will increase long-run aggregate supply?
Answers: a decrease in expected profit an increase in the interest rate an increase in resource prices an advance in technology
an advance in technology
Expansionary monetary policy:
Answers:
decreases interest rates, increases investment, GDP, and decreases unemployment.
increases interest rates, decreases investment, GDP, and increases unemployment.
increases government spending, lowers taxes, increases GDP, and decreases unemployment.
decreases government spending, raises taxes, decreases GDP, and increases unemployment.
decreases interest rates, increases investment, GDP, and decreases unemployment.
Moving along the short-run aggregate supply curve, ________.
Answers: the money wage rate, the prices of other resources, and potential GDP remain constant the real wage rate is constant real GDP equals nominal GDP real GDP equals potential GDP
the money wage rate, the prices of other resources, and potential GDP remain constant
________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.
Answers: Classical All Monetarist Keynesian
Keynesian
Which of the following could start a demand-pull inflation?
Answers: an increase in the money prices of raw materials an increase in government expenditures an increase in imports a decrease in the quantity of money
an increase in government expenditures
The Great Depression, in which real GDP fell and unemployment rose, can be characterized as a ________.
Answers: long-run equilibrium recessionary gap inflationary gap full-employment equilibrium
recessionary gap
The Employment Act of 1946 states that it is the responsibility of the federal government to
Answers: promote full employment. maintain the inflation rate at below 10 percent per year. promote economic equality. All of the above answers are correct.
promote full employment.
/ equals
Answers: C + S + T. S + T + G. S + (T - G) + (M-X) C + T + G + (M-X).
S + (T - G) + (M-X)
If a tax cut increases people’s labor supply, then
Answers: tax cuts cannot affect aggregate demand. tax cuts decrease aggregate demand. tax cuts increase potential GDP. Both answers A and B are correct.
tax cuts increase potential GDP.
Economists who believe tax policy has a big effect on employment and potential GDP are called
Answers: libertarians. fiscalists. supply-siders. demand-siders.
supply-siders.
The “legs” of the Keynesian social safety net in the U.S. include:
Answers:
New Deal (1930s), Great Society (1960s), and Great Regulation (1970s).
none of the above.
tax cuts, government spending cuts, government regulation cuts.
Great Society (1930s), New Deal (1960s), and Great Regulation (1990s).
New Deal (1930s), Great Society (1960s), and Great Regulation (1970s).
The supply side school of thought proposed:
Answers: cutting government regulation. cutting the size of government. cutting the (top) marginal tax rates. doing all of the answers in this questions.
doing all of the answers in this questions.
Expansionary fiscal policy:
Answers:
increases government spending, lowers taxes, increases GDP, and decreases unemployment.
decreases government spending, raises taxes, decreases GDP, and increases unemployment.
increases interest rates, decreases investment, GDP, and increases unemployment.
decreases interest rates, increases investment, GDP, and decreases unemployment.
increases government spending, lowers taxes, increases GDP, and decreases unemployment.
A decrease in the price level accompanied by no change in the money wage rate or other input prices leads to ________ movement along the ________ aggregate supply curve.
Answers: a downward; long-run an upward; long-run a downward; short-run an upward; short-run
a downward; short-run
The nominal interest rate approximately equals which of the following?
Answers:
the real interest rate minus the growth rate of real GDP
the real interest rate plus the inflation rate
the real interest rate plus the growth rate of real GDP
the real interest rate minus the inflation rate
the real interest rate plus the inflation rate
When the price level rises, the long-run aggregate supply curve ________.
Answers: shifts rightward does not shift shifts leftward slopes upward
does not shift
The short-run aggregate supply curve is upward sloping because in the short run the
Answers:
money wage rate /input prices changes but the price level does not.
price level changes but the money wage/input prices rate does not.
both the money wage /input prices and the price level change.
neither the money wage/input prices nor the price level can change.
price level changes but the money wage/input prices rate does not.
