Question 1

Describe the immediate short-run effect to the economy from an increase in government purchases, as well as the self-correcting mechanism that will restore long-run equilibrium.

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Question 2

Why would most economists default usually first to monetary policy for stabilization before using fiscal policy?

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Question 3

Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential output, all other factors constant.

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Question 4

What is opportunistic disinflation and what provides the opportunity? Explain how the process works.

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Question 5

Explain the view called real business cycle theory.

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Question 6

What explanations have been offered to account for the Great Moderation?

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Question 7

If monetary policymakers do not want the current inflation rate to increase, yet they observe increasing aggregate demand from higher government purchases, will they have to accept a higher inflation target? Explain.

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Question 8

Why can monetary policymakers neutralize demand shocks but not supply shocks?

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Question 9

Fiscal policy can act just like monetary policy to offset shifts in the dynamic aggregate demand curve and stabilize inflation and output. Explain how the two policies could have the same effect.

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Question 10

Explain why real business cycle theory renders the short-run aggregate supply curve irrelevant.

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Question 11

Why do increases in potential output allow monetary policymakers to think
"opportunistically" about disinflation?

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Question 12

Explain how globalization impacts inflation in both the short run and the long run.

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Question 13

Neutralizing demand shocks is easier in theory than in practice. Why?

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Question 14

Use the long-run model to describe the adjustment process the economy would go through from an increase in potential output.

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Question 15

In 2001 a combination of tax cuts and increased defense spending did not have the same inflationary effect as the similar policy in the 1960s. Explain the difference.

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Question 16

What is meant by saying that automatic fiscal policy is countercyclical?

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Question 17

Does an increase in the rate of inflation always imply that aggregate demand is increasing? Explain.

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Question 18

Why could it be effectively argued that the temporary increase in inflation from the spending for the Vietnam War was made permanent by the Fed?

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Question 19

Use the long-run model presented in Chapter 22 to answer this question. If there is a decrease in aggregate demand, and monetary policymakers counter the decrease in aggregate demand, what will be the impact on output and inflation? Explain.

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Question 20

Why does it take so long for the declaration of the beginning and end of recessions in the
U.S. and why is there a lack of clarity as to what is and is not a recession?

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Quiz 22:Understanding Business Cycle Fluctuations