Unit 4 Exam

Question 1

What explains shifts in SRAS?

Answer 1

Productivity/Technology
Input costs "supply shocks"
Future Expectations about Prices
Government Policies 
(regulation, business taxes, subsidies)

Question 2

AD Changes

Changes in Consumption

Answer 2

Changes in disposable income
Credit conditions
Expectations regarding future prices
Value of assets (portfolio)
Tax policy

Question 3

CF =

Answer 3

a + (MPC)Yd

Question 4

Changes in Investment Spending

Answer 4

Prices of capital goods
In technology
Planned inventories
Outlook about economy
Business taxes/subsidies
Existing stock of capital goods

Question 5

real interest rate =

Answer 5

nominal interest rate - rate of inflation

Question 6

Leakages

Answer 6

Savings
Taxes
Imports

Question 7

Injections

Answer 7

Investment
Transfer Payments
Subsidies
Govt Spending
Exports

Question 8

APC =

Answer 8

C / Yd

Question 9

APS =

Answer 9

S / Yd

Question 10

(APC + APS) =

Answer 10

1

Question 11

MPC =

Answer 11

change in consumption divided by change in disposable income

Question 12

MPS =

Answer 12

change in spending divided by change in disposable income

Question 13

Realistic MPC of U.S. economy

Answer 13

0.96

Question 14

Simple Spend Multiplier

Answer 14

1 / (1-MPC)

Question 15

What explains LRAS

Answer 15

change in land/labor/capital(stock)/entrepreneurship/technology

Question 16

Investment in AS/AD

Answer 16

In the short run, I is considered part of AD

In the long run, I is considered parto f AS

Question 17

3 Factors in the SLOPE of AD

Answer 17

Real Balances Effect
Interest Rate Effect
Foreign Purchases Effect

Question 18

Classical Economists think AS shifts because…

Answer 18

Productivity (L,L,C,E), cost of inputs (supply shocks), exp. about inflation

Question 19

Keynesian

Answer 19

Belief in active government
Suspicion of market outcomes
Public spending and taxation have a crucial role in managing demand
Economy can be stable when not at employment

Question 20

Keynesian Stabilization Policy

Answer 20

Suggests active role for governments and central banks to manage AD
Artificially influencing AD to get economy close to full employment is known as STABILIZATION POLICY

Question 21

Two complementary varieties of Stabilization Policy:

Answer 21

Fiscal Policy

Monetary Policy

Question 22

Fiscal Policy

Answer 22

using the powers of the budget by government to influence C behavior (disposable income)

Question 23

Monetary Policy

Answer 23

A central bank’s ability to influence the size of the money supply in order to artificially stimulate investment spending (real interest rates)

Question 24

Economic Schools of Thought

Answer 24

Economic splits into classical, Keynesian, and supply-side. Keynesian splits into monetary and fiscal policy. Classical economy splits into neo-classical, rational expectations, and monetarists.

Question 25

Fiscal policy is conducted by…

Answer 25

Government through budget

Question 26

Monetary policy is conducted by…

Answer 26

the Federal Reserve