Question 1

In the basic AD and Solow growth curve model, shocks to aggregate demand always cause I. changes in real GDP. II. changes in inflation. III. changes in spending growth.

Accepted Answer

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Question 2

In the basic AD and Solow growth curve model, aggregate demand shocks caused by changes in the growth of money supply I. are neutral in the short run. II. are neutral in the long run. III. raise real GDP growth rates in the short run.

Accepted Answer

In the basic AD and Solow growth curve model, aggregate demand shocks caused by changes in the growth of money supply are neutral in the short run and in the long run.

Question 3

When the economy grows slowly

Accepted Answer

When the economy grows slowly, wages are likely to grow slowly as well. This is because when there is less economic growth, there is less demand for labor, which puts downward pressure on wages. Prices and demand may be impacted as well, but there is no guarantee that they will remain the same or grow slowly.

Question 4

Accepted Answer

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Question 5

Suppose that the real GDP growth rate is 4 percent and that the economy undergoes a major economic shock, shifting the Solow growth curve to 2 percent. If wages are sticky, what will the growth rate of GDP be as a result?

Accepted Answer

The answer of Suppose that the real GDP growth rate...

Question 6

Beginning at an equilibrium in an AD and Solow growth curve model, an increase in money supply growth will cause

Accepted Answer

In the AD and Solow growth curve model, an increase in money supply growth typically leads to higher inflation, while real growth remains unchanged in the long run, as it is determined by factors like technology and resources, not monetary policy.

Question 7

In the AD and Solow growth curve model, increased spending growth causes

Accepted Answer

In the AD and Solow growth curve model, increased spending growth causes higher inflation rate but no change in the real growth rate. This is because increased spending leads to higher demand for goods and services, which pushes up prices. However, the model assumes that the economy has a fixed potential output level in the long run, and increased spending cannot permanently increase the real growth rate beyond this level.

Question 8

For any given expected inflation rate, short-run aggregate supply curves show the relationship between

Accepted Answer

The short-run aggregate supply curve illustrates the relationship between inflation and the growth rate of output, assuming a given expected inflation rate.

Question 9

Wages that do not respond quickly to changes in the inflation rate are

Accepted Answer

Wages that do not respond quickly to changes in the inflation rate are called sticky wages. This means that even when the inflation rate goes up, wages do not increase immediately to match it. This can lead to a decrease in real wages (wages adjusted for inflation) and can have an impact on the overall economy. Flexible wages, on the other hand, do respond quickly to changes in the inflation rate.

Question 10

Sticky wages and prices

Accepted Answer

The answer of Sticky wages and prices
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Question 11

The effect of an economic shock on the economy is higher when

Accepted Answer

When wages and prices are sticky, they do not adjust quickly to changes in demand and supply, leading to lower output and employment levels following an economic shock. This is because firms find it difficult to lower wages and prices since it may cause resentment among workers and customers. As a result, the economic shock has a larger impact on the economy.

Question 12

If wages are not as flexible as prices, an increase in money growth will lead to

Accepted Answer

If wages are sticky and do not adjust quickly, an increase in money growth can lead to higher inflation and temporarily increase firms' profits as their costs (wages) remain relatively lower compared to rising prices.

Question 13

Accepted Answer

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Question 14

Which of the following is an example of a negative shock to an economy?

Accepted Answer

Terrorist attacks can have a significant negative impact on an economy due to factors such as destruction of property, loss of human capital, and reduced consumer and investor confidence. The other choices could potentially have positive effects on an economy.

Question 15

In recent years, negative oil price shocks have typically been accompanied by

Accepted Answer

The answer of In recent years, negative oil price shocks...

Question 16

Figure: Two SRAS Curves  Reference: Ref 13-5 (Figure: Two SRAS Curves) Referring to these two SRAS curves, which of the following is TRUE of Point A?

Accepted Answer

The answer of Figure: Two SRAS Curves  Reference: Ref...

Question 17

In the AD and Solow growth curve model, an increase in aggregate demand

Accepted Answer

In the AD and Solow growth curve model, an increase in aggregate demand leads to an increase in prices and inflation in the short run. However, it does not affect the long-run growth rate, which is determined by factors such as productivity, capital accumulation, and technology. Therefore, option B, which states that an increase in aggregate demand increases the inflation rate but not the growth rate, is the correct choice.

Question 18

Sticky wages amplify negative shocks if

Accepted Answer

Sticky wages refer to the phenomenon where wages do not adjust downward quickly when there is a decline in economic activity. This can amplify negative shocks because firms may respond to declining demand by reducing employment and output, which can further reduce demand and create a vicious cycle of declining economic activity. If wages were more flexible, firms could reduce wages in response to declining demand, which could help to stabilize output and employment.

Question 19

Wages are sticky when

Accepted Answer

Wages are considered sticky when they do not adjust quickly to changes in economic conditions. All the options provided describe scenarios where wages may not adjust promptly, making each of them correct.

Question 20

In the AD and Solow growth curve model, a shock that reduces the velocity of money by 2 percentage points causes

Accepted Answer

A reduction in the velocity of money decreases aggregate demand, leading to a decrease in the inflation rate by the same percentage, assuming other factors remain constant.

Quiz 30: Supply and Demand