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HW_Chapter12&13 Q1 1 Point In his first State of the Union speech in January 2010, President Obama proposed a tax credit for small businesses and tax incentives for all businesses that invest in new plant and equipment. The anticipated effect of these proposals on aggregate demand is Save Answer A. positive, increasing AD at any given inflation rate. B. negative, decreasing AD at any given inflation rate. C. positive, causing movement up along the AD curve. D. negligible, since business decisions to spend are not
Q2 1 Point "The depreciation of the dollar from December 2008 to December 2009 had a positive effect on aggregate demand in the U.S." Is this statement true, false, or uncertain? Explain your answer. Save Answer Q3 1 Point Suppose that the White House decides to sharply decrease military spending without increasing government spending in other areas. This measure would, all else constant, cause aggregate demand to (1)____ . Save Answer A. False, since a dollar depreciation harms U.S. competitiveness in world markets. B. True, since a cheaper dollar increases net exports, a component of aggregate demand. C. False, since the dollar's value in foreign exchange markets has no bearing upon aggregate demand. D. Uncertain, since many other variables were changing at the same time. decrease increase not change
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Q4 2 Points Q4.1 1 Point Oil prices declined in the summer of 2008, following months of increases since the winter of 2007. Considering only this fall in oil prices, the impact on the short-run aggregate supply was Save Answer Q4.2 1 Point If the oil price decline is viewed as a temporary shock, the anticipated impact on the long-run aggregate supply is (1)__ . Save Answer A. an increase, since the fall in prices was a positive supply shock that lowered production costs. B. non-existant, since lower oil prices only impact aggregate demand. C. a decrease, since the decline in oil prices pushed the short- run aggregate supply curve downward. D. a decrease, since according to the law of supply, lower prices discourage production. unchanged negative positive
Q5 5 Points Let the economy initially be in long-run equilibrium at point 1 in the figure to the right. Now suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. Q5.1 1 Point According to the graph, the short-run effect of the White House policy is: Save Answer A. lower output, lower inflation, and unemployment above the natural rate. B.lower output, higher inflation, and unemployment above the natural rate. C.higher output, higher inflation, and unemployment below the natural rate. D.higher output, lower inflation, and unemployment at the natural rate.
Q5.2 1 Point At the short-run equilibrium shown in your graph, the economy has an output gap that is (1)__ Save Answer Q5.3 1 Point This suggests that the economy's self-correcting mechanism will "kick-in" to propel it toward (2)___ Save Answer positive zero negative a positive output gap zero inflation full employment
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Q5.4 1 Point The long-run equilibrium graph is below, with equilibrium at point 3. Compared to the original long-run equilibrium, the economy has, in the new long-run equilibrium at point 3, output that is (3)___, Save Answer higher unchanged lower
Q5.5 1 Point and inflation that is (4)___ . Save Answer higher unchanged lower
Q6 3 Points Suppose a Federal Reserve System Chairman known to have interest in fighting inflation is appointed when the economy finds itself in the short-run equilibrium shown in the figure to the right. Q6.1 1 Point Given the chairman's preferences, it may be anticipated that monetary policy will be (1)____ . Save Answer eased neutral tightened
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Q6.2 1 Point Compared to the original short-run equilibrium at point 1, the chairman's policy resulted in (2)___ inflation Save Answer Q6.3 1 Point and the (3)___ of full employment. Save Answer unchanged higher lower restoration abandonment
Q7 5 Points The Wall Street Journal , in a January 9, 2010 article, noted that "inflation-adjusted wages have slumped during 2009." An evaluation of the consistency of this statement with the aggregate demand and supply analysis of the recent U.S. economic crisis requires, obviously, that this analysis be undertaken. In the figure below, point 1 represents the approximate condition of the U.S. economy in late 2007 (December 2007 has been identified by the NBER as the peak of the most recent business cycle).
Q7.1 1 Point Consider : While multiple factors can be cited for the origins of the recent U.S. economic crisis, the proximate cause was a collapse of residential construction (investment) and concomitant implosions in consumer confidence and household wealth (consumption). Put more succinctly, the crisis was precipitated by a (1)____ . Save Answer Q7.2 1 Point In its short-run equilibrium at point 2, the U.S. economy experienced a substantial negative (2)____ gap. Save Answer Q7.3 1 Point Corresponding to this gap was a labor market into which excessive (3)____ emerged. Save Answer temporary supply shock positive demand shock negative demand shock inflation output tightness slack
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Q7.4 1 Point A labor market typified by excess supply will likely see (4) ___pressure on wages. Save Answer Q7.5 1 Point It can thus be claimed that the Wall Street Journal observation that "inflation-adjusted wages have slumped during 2009" is (5)___ with aggregate demand and supply analysis of the recent U.S. economic crisis. Save Answer upward downward consistent not consistent
Q8 5 Points Assessing the consequences of climate change on the economy is a popular topic in the media. With the economy initially at point 1 in the figure to the right, suppose that a series of wildfires destroys crops in the Western states at the same time a hurricane destroys refineries on the Gulf coast. Q8.1 1 Point According to the graph, the short-run effects of these negative supply shocks are: Save Answer A. lower output and deflation. B. lower output and less inflation. C. reduced output and unchanged inflation. D. lower output and more inflation.
Q8.2 1 Point Since the wildfires and hurricane are undoubtedly (1)___ in nature, Save Answer Q8.3 1 Point it follows that the economy's potential output is (2)___ . Save Answer Q8.4 1 Point Because the economy experienced a negative but temporary supply shock, it finds itself with a negative output gap, unleashing its (3)____ . Save Answer permanent continuous temporary lower higher unchanged self-correcting mechanism tendency to crash and burn
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Q8.5 1 Point In the figure to the right, the economy's new long-run equilibrium position will be point (4)____ . Save Answer 1 2
Q9 2 Points According to the Reserve Bank of New Zealand Act of 1989 (section 8): "The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices." Q9.1 1 Point This constitutes a (1)___ mandate for the conduct of monetary policy. Save Answer Q9.2 1 Point This mandate (2)___ consistent with a positive inflation rate target. Save Answer dual hierarchical is is not
Q10 4 Points Suppose the current administration decides to decrease government expenditures as a means to cut the existing government budget deficit. The aggregate economy is depicted in the graph below. Q10.1 1 Point If the Federal Reserve decides to stabilize the inflation rate, it will (1)___ the real interest rate at every inflation rate. Save Answer decrease increase not change
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Q10.2 1 Point As a result of this policy change, in the long run, the inflation rate will move (2)___ its target level, Save Answer Q10.3 1 Point output will be (3)___ potential output, Save Answer Q10.4 1 Point and the real interest rate will be at a (4)____ level compared to the previous long-run equilibrium. Save Answer closer to further from above below at permanently higher temporarily higher permanently lower temporarily lower
Q11 2 Points The recent debate about healthcare reform in the United States included arguments about how the proposed reform might affect the efficiency of the U.S. economy. In general, two outcomes are possible with the reforms in the healthcare system. The involvement of the government in the healthcare industry may encourage cost reduction. On the other hand, healthcare provision is already complicated, and the government will be yet another party involved in the decisions of patients and providers. The government will add a new decision maker with its own set of priorities, goals, and constraints. It is likely that both positive and negative effects on efficiency will result from these factors. What is not known is which effect will dominate. Q11.1 1 Point If the dominant effect from government involvement is cost reduction, then the proposed reform in health care would contribute to a (1)____ efficient economy. Save Answer more less
Q11.2 1 Point If the dominant effect from government involvement is putting yet another party into the mix, then the proposed reform in health care would contribute to a (2)___ efficient economy. Save Answer Q12 1 Point Suppose one could measure the welfare gains derived from eliminating output (and unemployment) fluctuations in the economy. If these gains are found to be relatively small for the average individual, this would provide support for the (1)___ case in the policy debate. Save Answer more less non-activist activist
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Q13 1 Point The following graphs describe two different short-run aggregate supply curves. In which situation is the case for nonactivist policy stronger? Explain why. Save Answer A. graph (b) because in that graph prices and wages are less flexible, necessitating bigger changes in policy for the same change in output. B. graph (b) because in that graph prices and wages are more flexible, necessitating bigger changes in policy for the same change in output. C. graph (a) because in that graph prices and wages are less flexible, necessitating bigger changes in policy for the same change in output. D. graph (a) because in that graph prices and wages are more flexible, necessitating bigger changes in policy for the same change in output.
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Q14 1 Point Would it be a good idea to have monetary policy makers set the federal funds rate solely using the Taylor rule? Save Answer Q15 1 Point Aggregate demand-aggregate supply analysis suggests that if the Federal Reserve wants to increase its inflation rate target in the long run: Save Answer A. Yes, it should be the Federal Reserve's only consideration in setting the federal funds rate because this would increase the Fed's efficiency. B. No, it should not be the Federal Reserve's only consideration in setting the federal funds rate because the Taylor rule coefficients are treated as constants and and this does not fit in with observations of the real world economy. C. No, it should not be the Federal Reserve's only consideration in setting the federal funds rate because the Fed looks at information besides the current inflation rate and the output gap in making policy. D. Yes, it should be the Federal Reserve's only consideration in setting the federal funds rate because this would free the Fed to concentrate on its higher priority goal of price stability. A. it should increase the real interest rate. B. it should cause the monetary policy curve to shift downward. C. it can increase the target in the long run only by tolerating a permanent output gap. D. the Taylor rule is the only information needed to determine the appropriate federal funds rate when doing so.
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Q16 1 Point The following table shows unemployment and inflation rates for Canada, during the 1972?1982 period: Considering the graph, how would you describe Canada's inflationary policy during the 1972 1982 period? Save Answer A. The period from 1972 to 1976 can be described as cost-push inflation, while from 1977 to 1982, inflation can be described as demand-pull inflation. B. The entire period from 1972 to 1982 can be described as cost-push inflation. C. The entire period from 1972 to 1982 can be described as demand-pull inflation. D. The period from 1972 to 1976 can be described as demand- pull inflation, while from 1977 to 1982, inflation can be described as cost-push inflation.
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Q17 3 Points Q17.1 1 Point The Taylor rule suggests that the policy rate target should be increased when the output gap is (1)___ . Save Answer Q17.2 1 Point This suggests the Taylor rule is perfectly consistent with (2) demand-pull inflation. Save Answer negative positive zero avoiding encouraging
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Q17.3 1 Point If policy makers utilizing the Taylor rule overestimate potential output for a significant period of time, the chance of Save Answer A. stagflation increases. B. cost-push inflation increases. C. demand-pull inflation increases. D. supply-side hyperinflation increases.
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Q18 1 Point
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Suppose that financial frictions f, denoted by , are determined by two factors: financial panic and asset purchases. Of the four figures shown above, the one that shows how a sufficiently large financial panic can pull the economy below the zero lower bound into a destabilizing deflationary spiral is Save Answer Save All Answers Submit & View Submission Figure A Figure B Figure C Figure D
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