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Which of the following would cause the aggregate demand curve to keep shifting rightward year after year?

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A persistent increase in the quantity of money.

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At full employment an increase in the quantity of money (ceteris paribus) can create a

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demand-pull inflation, as can an increase in government expenditure.

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Demand

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pull inflation occurs when-aggregate demand increases.

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Inflation resulting from an increase in aggregate demand is called

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demand-pull inflation.

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Which one of the following can create a demand

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pull inflation?-A cut in the interest rate.

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Stagflation occurs when the economy experiences both

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rising inflation and decreasing real GDP.

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Suppose the economy is in long

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run equilibrium when the price of oil rises. Which one of the following is not a short-run effect of this situation?-an increase in real GDP above long-run real GDP

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Suppose OPEC unexpectedly collapses, which leads to a fall in the price of oil. As a result, the price level

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falls, and real GDP increases.

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An increase in the price level due to an increase in the price of oil

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creates stagflation in the short-run and may trigger off a cost-push inflation.

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Cost

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push inflation can result from an initial-increase in the money wage rate.

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Stagflation can result from

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a leftward shift of the short-run aggregate supply curve.

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A cost

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price inflation spiral results if the policy response to stagflation is to keep-increasing aggregate demand.

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A forecast based on all the relevant information is

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a rational expectation.

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A correctly anticipated increase in the quantity of money, in an economy with an unchanging long

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run aggregate supply, will result in-a proportional rise in the price level and no change in real GDP.

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Suppose the quantity of money is expected to remain unchanged but it actually increases. The price level

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rises and real GDP increases.

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An economy is in long

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run equilibrium when aggregate supply unexpectedly decreases. Then real GDP (ceteris paribus) will be-below potential GDP.

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A correctly anticipated increase in the quantity of money

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increases the price level with no change in real GDP.

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A forecast that is based on all the relevant information available is

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called a rational expectation.

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The economy starts out at a full

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employment equilibrium. Some events then occur that generate a demand-pull inflation. All of the following events except an increase in ________ might cause a demand-pull inflation.-the money wage rate

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The economy starts out at a full

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employment equilibrium. Some events then occur that generate a cost-push inflation.Which of the following events might cause a cost-push inflation?-An increase in the money wage rate or an increase in the money prices of raw materials.

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Along the short

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run Phillips curve, everything remaining the same, the higher the-unemployment rate, the lower the inflation rate.

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The short

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run Phillips curve shows the relationship between ________ holding constant the expected inflation rate and the natural unemployment rate.-the inflation rate and the unemployment rate

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If the unemployment rate rises and the inflation rate falls, while the natural unemployment rate and the expected inflation rate remain constant, then we are studying a movement along the

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short-run Phillips curve.

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For a given expected inflation rate, the higher the unemployment rate, the lower is the actual inflation rate. This relationship is the ________ Phillips curve. When the expected inflation rate changes, this is shown as a movement along the ________ Phillips curve.

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short-run; long-run

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If the natural unemployment rate rises

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the short-run and long-run Phillips curves both shift rightward.

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If the natural unemployment rate falls

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the short-run and long-run Phillips curves both shift leftward.

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The short

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run Phillips curve shows the relationship between-inflation and unemployment, when the expected inflation rate and the natural unemployment rate remain constant.

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Along the short

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run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the-actual inflation rate will be greater than the expected inflation rate.

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A movement down along the short

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run Phillips curve results from an unanticipated-decrease in aggregate demand.

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An increase in the expected rate of inflation shifts the

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short-run Phillips curve upward.

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If the inflation rate is lower than the expected inflation rate,

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unemployment is above the natural rate.

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If there is a fully anticipated increase in the inflation rate

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the economy is operating on the LRPC curve.

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If the natural unemployment rate increases, the long

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run Phillips curve ________, the short-run Phillips curve ________, and the expected inflation rate ________.-shifts rightward; shifts rightward; does not change

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The Canadian short

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run Phillips curve ________ when the expected inflation rate rises and ________ when the expected inflation rate falls. The Canadian short-run Phillips curve ________ when the natural unemployment rate increases and ________ when the natural unemployment rate decreases.-shifts upward; shifts downward; shifts rightward; shifts leftward

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The Canadian long

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run Phillips curve ________ when the expected inflation rate rises and ________ when the expected inflation rate falls. The Canadian long-run Phillips curve ________ when the natural unemployment rate increases and ________ when the natural unemployment rate decreases.-does not shift; does not shift; shifts rightward; shifts leftward

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According to ________, the business cycle is the result of aggregate demand growing at a fluctuating rate.

answer

the Keynesian, monetarist, and new classical cycle theories

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Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor that creates business cycles? I. Keynesian cycle theory II. real business cycle theory III. monetarist cycle theory

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I and III

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Which of the following is not a mainstream theory of the business cycle?

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Real business cycle theory.

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In the Keynesian business cycle theory, business cycles begin with a change in

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business confidence.

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________ states that the main source of economic fluctuations is fluctuations in business confidence.

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Keynesian cycle theory

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Both new Keynesian and new classical cycle theories claim that

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unexpected changes in aggregate demand trigger a business cycle.

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The key difference between new classical cycle theory and new Keynesian cycle theory is that the new classical cycle theory believes that ________ while the new Keynesian cycle theory believes that ________.

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only unexpected changes in aggregate demand change real GDP; both expected and unexpected changes in aggregate demand change real GDP

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The ________ cycle theory states that only unexpected fluctuations in aggregate demand bring fluctuations in real GDP around potential GDP.

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new classical

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In new classical cycle theory, ________ bring fluctuations in real GDP around potential GDP.

answer

unexpected changes in aggregate demand

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The new classical theory argues that the primary factor leading to business cycles is

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expected fluctuations in aggregate demand.-unexpected fluctuations in aggregate demand.

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New Keynesian economists believe that ________ is influenced by ________.

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today's money wage rate; yesterday's rational expectations of the price level

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Which business cycle theory emphasizes that, because of previously negotiated wage agreements, both expected and unexpected fluctuations in aggregate demand can change real GDP?

answer

The new Keynesian cycle theory.

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The factor leading to business cycles in the ________ cycle theory is unexpected fluctuations in aggregate demand while in the ________ cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

answer

new classical; new Keynesian

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According to ________ theory, a decrease in productivity growth shifts the ________.

answer

real business cycle; demand for loanable funds curve leftward

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The key ripple effect in real business cycle theory is the ________ decision and it depends on the ________.

answer

when-to-work; real interest rate

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According to the real business cycle theory, what effects follow from a change in productivity? I. Investment demand changes. II. The demand for labour changes. III. Government expenditure changes

answer

I and II

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"Intertemporal substitution" in real business cycle theory refers to the change in the ________ as a result of the change in the real interest rate.

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supply of labour

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In real business cycle theory, a decrease in productivity leads to all of the following events EXCEPT

answer

a rise in the real wage rate.

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In real business cycle theory, the supply of labour

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decreases if the real interest rate falls.

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Suppose that a severe shock that decreases the demand for loanable funds hits Canada. Which of the following can we expect to occur according to real business cycle theory?

answer

The real interest rate will fall, people will work fewer hours, the real wage rate will fall, the demand for loanable funds will decrease, all of the above are true.

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According to real business cycle theory, an increase in productivity ________ the demand for loanable funds, ________ the demand for labour, and ________ the supply of labour. The real interest rate will ________.

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increases; increases; increases; rise

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According to the real business cycle theory, during a recession the demand for labour ________ and the supply of labour ________.

answer

decreases; decreases

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According to real business cycle theory, workers' decisions to work now versus later depend on

answer

the real interest rate.

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Suppose that in response to a decrease in real interest rates, a person decides to reduce his supply of labour today and increase it in the future. This behaviour is most consistent with the

answer

real business cycle theory.

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According to real business cycle theory, if the Bank of Canada increases the quantity of money when real GDP decreases, real GDP

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will be unaffected, but the price level will rise.

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Suppose that the business cycle in Canada is best described by RBC theory. An advance in technology increases productivity. The when

answer

to-work decision depends on the real interest rate. The ________ the real interest rate, other things remaining the same, the ________ is the supply of labour today. RBC theorists believe the when-to-work effect is ________.-higher; larger; large

question

According to mainstream business cycle theory, ________ grows at a steady rate and ________ grows at a fluctuating rate

answer

potential GDP; aggregate demand

question

In real business cycle theory, ________ are the main source of economic fluctuations.

answer

random fluctuations in productivity

Macroeconomics: Chapter 28 – Business Cycle – Flashcards

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