Macro Final – Flashcards
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The figure above shows the blues of the components of GDP for the year 2006. Based on the data shown, which of the following statements regarding the components of GDP are false?
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Consumer spending on services is less than the sum of spending on durable and nondurable goods.
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Use the graph above showing the percentage of GDP comprised of goods and services to help identify which of the following statements is true.
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The percentage of U.S. GDP composed of goods has fallen consistently since at least 1980.
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What are the four major categories of expenditure?
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Consumption, investment, government purchases, and net exports.
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What are the four categories of income?
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Wages, interest, rent, and profit.
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Coffee beans purchased by a coffee shop
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Intermediate good
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One share of Google stock
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Neither
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A new pick-up truck purchased by a consumer
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Final good
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A new home purchased by a family
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Final good
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Which of the following equations sums up the components of GDP?
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Y = C+ I + G + NX
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The following table illustrates the value added approach to calculating GDP.
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Firm: Cotton farmer, Value of Product: Raw Cotton = $1, Value Added By: The cotton farmer, and Value Added Equals: 1. Firm: Textile mill, Value of Product: Cotton when into cotton fabric = $3, Value Added By: The textile mill, and Value Added Equals: 2. Firm: Shirt Company, Value of Product: Fabric made into a shirt = $5, Value Added By: The shirt company, and value Added Equals: 12. Firm: L.L. Bean, Value of Product: Shirt sold on L.L. Bean's website = $35, Value Added By: L.L. Bean, Value Added Equals: 20. Total Value Added: 35
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Why is GDP an imperfect measurement of total production in the economy?
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GDP does not include household production or production the underground economy.
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Real GDP per capita is often used as a measure of general well-being. While increase in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
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The value of leisure is not included, GDP does not include crime rates or income distribution, and the costs of pollution are not included. ANSWER: All of the above.
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Use the graph to help determine which one of the following statements regarding nominal and real GDP is FALSE
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When nominal GDP increases, real GDP falls.
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Nominal GDP: 2011 = $13,295 2012 = $14,041 Real GDP: 2011 = $11,519 2012 = $11,767
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In 2011, the value of the GDP deflator is 115. In 2012, the value of the GDP deflator is 119.
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Suppose the base is 2001. Looking at GDP date from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP.
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RGDP ; NGDP because prices are rising.
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Based on the above table and graph, which of the following statements regarding total production and total income is true?
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Each measure of production and income gives a different value for total production and income.
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The table and figure above show GDP measured in terms of the total income received by households. Use the table and figure to help determine which of the following statements about the division of income is false.
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Gross domestic income is measured precisely.
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Disposable personal income is
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Personal income minus personal taxes.
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Which of the following would be included in the gross national product (GNP) of the U.S?
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Production from the US firm that operates in Mexico.
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The largest component of gross domestic income is
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Wages
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National income is
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GDP minus depreciation.
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Personal income is
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National income minus retained corporate earnings plus government transfer payments and interest on government bonds.
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In April 2007, the working-age population of the US was 231.3 million. The working-age population is divided into those in the labor force (152.6 million) and those not in the labor force (78.7 million). The labor force is divided into the employed (145.8 million) and the unemployed (6.8 million). Those not in the labor force are divided into those not available to for work (77.3 million) and those available for work (1.4 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.4 million) and those currently not working for other reasons (1.0 million).
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The unemployment rate is 6.8 million/152.6 million*100=4.5% ; The labor force participation rate is 152.6 million/231.3 million*100=66% ANSWER: BothA and B above are true.
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How does the US economy create and destroy millions of jobs each year?
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In the market system, new firms are constantly entering and exiting various industries ; some businesses are expanding, while others are contracting.
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The BLS uses the established survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage.
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It does not include information about self-employed people ; it is based on company payroll and not on unverifiable answers.
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Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
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1. Underemployed people are considered employed. 2. Discouraged workers are not considered unemployed. 3. It fails to account for illegal activities. 4. It does not account for inaccurate responses to the Current Population Survey. ANSWER: All of the above
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What is typical of the length of unemployment tin the modern (post-Great Depression-era) US economy?
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Unemployment lasts less than six months.
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Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
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Number of unemployed/Number in labor force*100
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Suppose John Q. Worker is currently unemployed. Each day, John spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John's unemployment status?
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Frictionally unemployed
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When the economy is at full employment,
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1. The unemployment rate is greater than zero. 2. The natural rate of unemployment prevails 3. All remaining unemployment is either frictional or structural. ANSWER: All of the above.
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Suppose that Sally J. Society lost her job as an underwater welder. In looking for a new job, she discovered that the only available jobs are for economists and that there ate no openings for underwater welders because the reader is now obsolete. If Sally decides to return to school to earn an Economics degree, what is the best classification of her unemployment status?
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Structurally unemployed
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"Paying good wages and keeping your people working for you is good business.. Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." What is Costco's CEO referring to?
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Efficiency wages
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How do unemployment insurance payments in the US and social insurance programs in other countries increase the unemployment rate?
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The decrease the opportunity cost of job search.
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Which of the following makes changes in the CPI overstate the true inflation rate?
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1. New product bias 2. Substitution bias 3. Increase in quality bias ANSWER: All of the above
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Which of the following can give an early warning of future increases in the price level?
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Producer price index
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Your father earned $34,000 per year in 1984. To the nearest dollar, what is the equivalent to in 2008 if the CPI in 2008 is 215 and the CPI in 1984 is 104.
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$70,288
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2008: Nominal Average Hourly Earnings = $16.00 CPI = 202 2009: Nominal Average Hourly Earnings = $17.00 CPI = 207 2012: Nominal Average Hourly Earnings = $18.00 CPI = 209
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What is the real average hourly wage in 2009? $8.21 What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010? Both real and nominal average hourly earnings increased.
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If a 3-month Treasury bill pays 5.5% and the change in the consumer price index is 4.7%, what is the real interest rate?
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0.8%
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T or F "A wage rising slower than the rate of inflation is actually falling."
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True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
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Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation?
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Leanders lose from a lower real interest rate ; borrowers gain from a lower real interest rate.
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Which of the following does NOT lead to long-run economic growth?
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Increase in average wages
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Potential GDP
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Increases over time as technological change occurs and increases over time as the labor force grows. ANSWER: B and C only
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If real GDP equals $11, 567 billion in 2006 and $11, 916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita to double?
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23.2 years.
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Firms that act as financial intermediaries match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and lenders?
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1. Allows savers to spread their money among many financial investments. 2. Collects and communicates information about borrowers and savers. 3. Provides an east method of exchanging a financial security for money.
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Correct or Incorrect "Saving money is not lending. How can it be? When i save my money, I put it in a bank. I don't loan it out to someone else."
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Incorrect. The supply of loanable funds is determined by household saving.
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In a closed economy, the values of GDP, consumption spending, investment spending, transfer payments, and taxes are as follows: Y = $13 trillion C = $10 trillion I = $4 trillion TR = $3 trillion T = $4 trillion
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What is the value of private saving and public saving? Private saving equals $2 trillion and public saving equals $2 trillion.
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Panel (a) above shows an idealized business cycle. Panel (b) shows an actual business cycle by plotting fluctuations in real GDP during the period from 1999 to 2002. Which of the following statements is NOT true:
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Inconsistent movements in real GDP around the business cycle peak can mean that the beginning and ending of a recession are clear-cut.
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Panel (a) shows movements in real GDP for each quarter from the beginning of 1990 through the end of 2006. Panel (b) shows movements in the number of passenger aircraft shipped by Bowing for the same years. Use the graphs above to determine which one of the following statements is true:
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The effects of the recession on Boeing are much more dramatic and long-lived than the effects on the economy as a whole.
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Use the graph to help determine which one of the following statements regarding inflation and business cycles is true.
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Toward the end of the 1991-2001 expansion, the inflation rate began to rise.
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Use the graph to help determine which one of the following statements regarding unemployment and business cycles is true.
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The unemployment rate usually continues to rise even after the recession has ended.
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Use the graph to help determine which one of the following statements regarding fluctuations in real GDP is true.
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In the first half of the 20th century, real GDP had much more severe sings than in the second half of the 20th century.
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What is the general relationship between the business cycle and unemployment and inflation?
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During an expansion, unemployment falls and inflation increases.
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During the expansion phase of the business cycle, production, employment, and income
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increase
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During the recession phase of the business cycle, production, employment, and income
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decrease
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The figure above shows the level of GDP per capita around the world in 2006. GDR is measured in US dollars, corrected for differences across countries in the cost of living. Use the figure to help identify which one of the following statements is true:
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Western Europe, Australia, Canada, Japan, New Zealand, and the United States are high-income countries.
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Why do economic growth rates matter?
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1. High growth rates coincide with improved living standards. 2. When a country sustains high growth rates, life expectancy at birth increases. 3. High levels of sustained economic growth reduce infant mortality. ANSWER: All of the above
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Suppose two countries, Country A and Country B, have a similar real GDP per capita. Country A has an average economic growth rate of 2% and Country B has an average economic growth rate of 3.3%. Un the long run, what can we predict about living standards in the two countries?
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Country B's living standards will increase much more rapidly in the long run.
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The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the cases of increases in long-run labor productivity. What are the key factors that determine labor productivity?
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Technological change and quantity of capital per hour worked.
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New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge in both nontrivial and non excludable. Hoe does the federal government intervene in the market to increase the amount of knowledge capital?
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1. Subsidies 2. Public education 3. Patents ANSWER: All of the above
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Consider the per-worker production function to the right. Equal increases in the quantity of capital per hour worked lead to ______ increases in output per hour worked.
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diminishing
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Consider the figure to the right. Which of the following is responsible for the upward shifts in the per-worker production function?
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Technological change
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Based on the data from the figure on the right which one of the following statements is false?
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The growth rate of real GDP per hour worked has continually accelerated over time.
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According to the figure at the right, productivity increased after 1995 almost as quickly as it slowed after 1972, leading many economists to discuss a "new economy." The "new economy" emerged as a result of what?
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1. Increased use of the Internet 2. Improvements in data processing 3. Innovations in information technology ANSWER: All of the above
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Refer to the table to the right. Why has productivity growth in the US been faster than in most other industrial countries?
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1. Flexible labor markets 2. Efficient financial markets
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Compared to the period between 1950 and 1972, the productivity of US workers between 1973 and 1994.
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Slowed by more than one percentage point per year.
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The figure to the right illustrates the relationship between weak and strong rule-of-law countries and economic growth. In addition to a country;s failure to enforce rule-of-law, what else explains why more low-income countries do NOT experience rapid growth as catch-up line predicts.
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1. Shortage of childhood vaccinations 2. Inability to borrow money needed for investment 3. Lengthy civil wars Answer: All of the above
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Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through
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Foreign direct investment
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Strong rule-of-law countries grow more rapidly than weak rule-of-law countries. What factor will most likely improve economic growth in weak rule-of-law countries?
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Political reform
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What can low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved technology?
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Provide savings incentives
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The aggregate expenditure model can be written in terms of four spending categories. Which equation shoes the relationship between aggregate expenditure and the four spending categories?
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AE = C + I + G + NX
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What is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP?
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Inventories decrease, GDP increases, and employment increases.
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We say that the economy as a whole is in macroeconomic equilibrium if
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1. Total spending equals GDP 2. Aggregare expenditure equals GDP 3. Aggregate expenditure equals total production 4. Total spending equals total production ANSWER: All of the above
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In the aggregate expenditure model, when is planned investment greater than actual investment?
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When there is an unplanned decrease in inventories.
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We can use the diagram to the right to compare movements in real consumption between 1979 and 2006
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Consumption follows a smooth, upward trend. Government purchases grew steadily for most of the period shown, with the exception of the mis-1990s. The US has imported more goods and services than it exported during most of the years shown.
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An increase in the price level
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will decrease consumption.
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An increase in household wealth
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will increase consumption
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An increase in expected future income
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will increase consumption.
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An increase in current disposable income
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will increase consumption.
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An increase in the interest rate
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will decrease consumption.
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Which of the following is NOT included int he calculation of total government purchases?
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Unemployment insurance benefits paid for by the federal government.
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The relationship between the marginal propensity to consume and the marginal propensity to save can best be described as
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MPC = 1 - MPS MPC + MPS = 1 MPS = 1 - MPC ANSWER: All of the above
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An increase in the US price level relative to other countries; price levels
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will decrease net exports
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An increase in the growth rate of US GDP relative to other countries'
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will decrease new exports
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An increase in the exchange rate between the dollar and other currencies
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will decease new exports
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Which of the following will increase planned investment spending on the part of firms?
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1. A lower real interest rate 2. Increased optimism about future demand for its product
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When potential real GDP is equal to 70, this economic is in
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recession
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The amount of the shortfall unplanned aggregate expenditure is equal to
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the vertical distance between AE and the 45 line at the level of potential real GDP.
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Indicate which of the following is correct about the multiplier effect.
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1. The multiplier ignores the effect on real GDP of imports, inflation and interest rates. 2. The larger the MPC, the more additional consumption that occurs. 3. A decrease in autonomous spending decreases real GDP by a multiple of the change. ANSWER: All of the above
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What is the effect on real GDP of a $175 billion change in planned investment if the MPC is 0.75?
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700 billion.
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In the figure at right, a $20 trillion increase in planned investment increase the AE line from AE1 to AE2. However, real GDP increased by $40 trillion. Why?
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The multiplier effect.
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The general algebraic version of the aggregate expenditure model can be written as follows, where letters with "bars" represent fixed or autonomous values. C = C + MPC (Y) I = I G = G NX = NX
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If you think of the aggregate expenditure function as a lone on the 45 line diagram, the intercept would be C + I + G + NX If you think of the aggregate expenditure function as a line on the 45 line diagram, the slope would be MPC
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In the diagram to the right, moving from point A to point B is called a __________ the AD curve. Moving from point a to point C is referred to as a ________ the AD curve.
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Movement along Shift in
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Indicate which of following would cause a shift in the aggregate demand curve from point A to point C.
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1. Increased consumer optimism 2. Lower taxes 3. Monetary policy 4. Change in the US exchange rate relative to other currencies
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Consider the downward-sloping aggregate demand (AD) curve to the right. Which of the following results in a movement from point A to point C?
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1. Interest rate effect 2. Wealth effect
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A change in the price level causes a ________ the short-run aggregate supply curve. In the figure, this is shown by moving from point ________. A change in any other facts causes a _________ the SPAS curve. In the figure, this is shown by moving from point __________.
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Movement along, A to B Shift in, B to C
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How does a decrease in the price level affect the quantity of real GDP supplied in the long run?
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Change in the price level do not affect the level of GDP in the long run.
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An increase in the labor force or capital stock is illustrated as a ____________. An increase in the expected price of an important natural resource is indicated by ______________. An improvement in technology is shown as a ____________. An increase in the expected future price level causes ____________.
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Shift from A to B A shift from B to A Shift from A to B a shift from B to A
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Consider the figure to the right. Why does the short-run aggregate supply curve slope upward?
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1. Firms and workers fail to predict changes in the price level. 2. Contracts keep wages "sticky". 3. Prices of final goods rise more quickly than the prices of inputs. ANSWER: All of the above
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Suppose that initially, the economy is in long-run macroeconomic equilibrium at point A. If there is increased increased pessimism about the future of the economy, the AD curve will shift from ______. The new short-run macroeconomic equilibrium occurs at ________. Long-run adjustment will shift the SRAS curve from ____________ as worker adjust to lower-than-expected prices. The new long-run macroeconomic equilibrium occurs at _____.
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AD0 to AD1. Point B SRAS0 to SRAS1 Point C
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According to the dynamic AD-AS model, what is the most common cause of inflation?
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AD increases by more than LRAS and total spending increases faster than total production.
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The US dollar can best be described as
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Fiat money
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Which of the following is NOT a function of money?
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Acceptability
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The use of money
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1. Allows for greater specialization 2. Reduces the transaction costs of exchange. 3. Eliminates the double coincidence of wants. ANSWER: All of the above
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Credit cards are
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included in neither the M1 definition of the money supply nor in the M2 definition.
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The figure to the right shows a breakdown of the M1 definition of the money supply. Which area corresponds to the amount of checking account deposits?
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C
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The M2 definition of the money supply includes
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M1, savings accounts, small time deposits and money markets.
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Banks use deposits to make consumer loans to households and commercial loans to businesses. Bank will loan out every penny of their deposits in order to make a profit.
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False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.
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Suppose the reserve requirement is 15%. What is the effect on total checkable deposits in the economy if bank reserves increase by $60 billion?
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$400 billion increase
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An initial increase in a bank's reserves will increase checkable deposits.
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By an amount greater than the increase in reserves.
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In 2008, the required reserve ratio for a bank's first $9.3 million in checking account deposits was zero. It was 3 percent on deposits between $9.3 million and $43.9 million, and 10% deposits above $43.9 million. In most cases, and for simplicity, we assume that the required reserve ratio is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10. Is the real-world deposit multiplier than, less than, or equal to the simple deposit multiplier?
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Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.
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In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?"
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A bank run involves one bank; a bank panic involves many banks.
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The US is divided into ____ Federal Resere Districts. The Federal Reserve Bank's Board of Governors consists of ___ members appointed by the president of the US to 14-year, non-renewable terms. One of the board members is appoint to a ____ year, renewable term as the chairman.
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12 7 4
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Which of the following is a monetary policy tool used by the Federal Reserve Bank?
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1. Decreasing the rate at which banks can borrow money from the Federal Reserve. 2. Buying $5-- million worth of government securities, such as Treasury bills. 3. Increasing the reserve requirements from 10% to 12.5% ANSWER: All of the above
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In addition to the Federal Reserve Bank, what other economic actors influence the money supply?
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Households, firms, and banks.
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Which of the following is true with respect to hyperinflation?
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1. It is caused by central bank increasing the money supply at a rate much greater than the growth rate of real GDP. 2. It can be hundreds-even thousands-of percentage points per year. 3. In the presence of hyperinflation, firms and households avoid holding money. ANSWER: All of the above
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Which of the following is true with respect to Irving Fisher's quantity equation, M x V = P x Y?
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V = Average number of times a dollar is spent on goods and services V = P x Y/M M = M1 definition of the money supply P = the GDP deflator ANSWER: All of the above
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According to the quantity theory of money, inflation results from which of the following?
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The money supply grows faster than real GDP.
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After September 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal policy?
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NO. The increase in defense spending after that date was designed to achieve homeland security objectives.
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What is the difference between federal government purchases and federal government expenditures?
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Government purchases are included in government expenditures.
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Problem: Recession Policy: Expansionary Actions: Increased Gov't spending or decreases taxes Result: Real GDP and price level rise
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Problem: Rising inflation Policy: Contractionary Actions: Decrease gov't spending or ^Taxes Result: Real GDP and price level fall
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Consider the figures below. Determine which combination of fiscal policies shifted Ad1 to Ad2 in each figure and retuned the economy to long-run macroeconomic equilibrium.
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Example (A): Expansionary fiscal policy. Example (B): Contractionary fiscal policy.
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The figure to the right illustrates the economy using the Dynamic Aggregate Demand and Aggregate Supply Model. If actual real GDP in 2006 occurs at point B and potential GDP occurs at LRASo6, we would expect the federal government to pursue a _______ fiscal policy. If the government's policy is successful, what is the effect of the policy on the following macroeconomic indicators? Actual real GDP ______________. Potential real GDP ______________. Price level ____________. Unemployment ____________.
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Contractionary Decrease Does not change Decreases Increases
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Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reachers point (B). We would expect the federal government to pursue what type of policy in order to move Ad2 to Ad2policy and reach equilibrium (point C) in the second period? If the federal government's policy is successful, what is the effect on the following macroeconomic indictors? Actual real GDP: ___________ Potential real GDP: ___________ Price level: _____________ Unemployment: _____________
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Expansionary fiscal policy. Increases Does not change Increases Decreases
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Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reacher point (B). What policy would the federal government likely pursue in order to move AD2 to AD2policy and reach equilibrium (point C0 in the second period?
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Increase government spending
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One-time tax rebates, such as those in 2001 and 2008, increase consumption spending by less than a permanent tax cut because one-time tav rebates increase.
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Current income
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Consider the figure to the right. An increase in government spending shifted the aggregate demand curve from AD1 to AD2. As a result, both price level and real GDP increased. What can be said, however, about the increase in real GDP?
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It increased by less than indicated by a multiplier with a constant price level.
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As a result of crowding out in the short run, the effect on real GDP of an increase in government spending is often
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less than the increase in government spending
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Does government spending ever reduce private spending?
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Yes, due to crowding out.
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How does a budget deficit act as an automatic stabilizer and reduce the severity of a recession?
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1. During recessions, tax obligations fall due to falling wages and profits. 2. Transfer payments to households increase. 3. Consumers spend more than they would in the absence of social insurance programs, like unemployment. ANSWER: All of the above
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Increased government debt can lead to higher interest rates and, as a result, crowding out of private investment spending. In terms of borrowing (debt-spending), what will offset the effect of crowding out in the long run so that government debt noises less of a problem to the economy?
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1. Debt-spending on education. 2. Debt-spending on highways and ports. 3. Debt-spending on research and development. ANSWER: All of the above
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When is it considered "good policy" for the government to run a budget deficit?
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When borrowing is used for long-lived capital goods.
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Policy that is specifically designed to affect aggregate supply and increase incentives to work, save, and start a business, by reducing the tax wedge is called
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supply-side economics.
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What are the gains to be had from simplifying the tax code?
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1. Increased efficiency of households and firms. 2. Resources from the tax preparation industry freed up for other endeavors. 3. Greater clarity of the decisions made by households and firms. ANSWER: All of the above
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From an understaning of the multiplier process, explain why an increase in the tax rate would decrease the size of the government purchases multiplier. The value of the government purchases multiplier would decrease because in the formula for the multiplier? Similarly, explain why a decrease in the marginal propensity to import would increase the size of the government purchases multiplier. The value of the government purchases multiplier would decrease because in the formula for the multiplier the denominator is
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The MPC is multiplied by (1 - t). 1- [MPC x (1-t) - MPI]
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If actual inflation is higher than expected inflation, the
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actual real age is less than the expected real wage: unemployment falls.
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If, in the long run, real GDP returns to it potential level, then in the long run,
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the Phillips curve is vertical.
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Why doesn't the Phillips curve represent a permanent trade-off between unemployment and inflation in the long run?
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In the long run, aggregate supply is vertical.
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The Phillips curve was developed by A.W Phillips in 1957 and showa the relationship between unemployment and inflation. The curve, shown at the right, indicates what type of relationship between the two variables?
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Inverse realtionship
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Economists who believed that the Phillips curve represented a structural relationship believed that the curve represented
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A permanent trade-off between unemployment and inflation.
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In the figure to the right, at what point is the inflation rate stable? This is, at what point can we refer to the inflation rate as the non accelerating inflation rate of unemployment
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Point C
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In the figure to the right, expected inflation is initially at 1.5%. When expected inflation increases to 4.5% which of the following will occur?
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1. To have 3.5% unemployment rate, inflation would be 7.5%. 2. Unemployment reaches the natural rate of 5%. 3. At the natural rate of unemployment, inflation is 4.5% ANSWER: All of the above
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What effect does expansionary monetary policy have on equilibrium if consumers have rational expectations?
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A movement from point A to point C
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Models that use factors, such as technology shocks, to explain fluctuations in real GDP instead of changes in the money supply are called
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real business cycle models
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Indicate the two main objectives to the idea that the short-run Phillips curve is vertical.
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Contracts with workers keep wages sticky and workers and firms and firms might not have rational expectations.
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Alan Greenspan
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Agreed with Paul Volcker about the importance of keeping inflation low.
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What is the Fed doing to increase the credibility of its polices?
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Announcing the federal funds target rate and whenever a change in policy in announced, the change actually take place. ANSWER: A and B only
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According to many economists and policymakers, what other options does the Fed have to improve its credibility with workers, firms, and investors?
answer
1. Following a discretion strategy. 2. Following a rules strategy. 3. Following the Taylor rule ANSWER: All of the above
question
As of 1993, the Fed sets targets for which of the following in order to achieve price stability and high employment?
answer
Federal funds rate
question
Paul Volcker is credited largely with which of the following?
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The "Volcker disinflation" and fighting inflation by reducing the growth of the money supply. ANSWER: A & B only
question
When SRAS1 shifts to SRAS2, the price level increases and the level of real GDP falls. What happens to the short-run Phillips curve when the short-run aggregate supply curve shifts?
answer
If shifts up such that a given of unemployment occurs at a higher price level.
question
When SRAS1 shifts to SRAS2, the price level increases and the level of real GDP falls. What happens to the short-run Phillips curve when the short-run aggregate supply curve shifts?
answer
If shifts up such that a given of unemployment occurs at a higher price level.
