Question 1

A positive spending shock ________ real interest rates and ________ output in the short run,thereby its effect on stock prices is ________.
A)raises;lowers;positive
B)raises;raises;ambiguous
C)lowers;raises;negative
D)lowers;raises;positive

Accepted Answer

The answer of A positive spending shock ________ real interest...

Question 2

A permanent negative supply shock leads to ________ inflation ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

A permanent negative supply shock, such as a decrease in the availability of a key resource, typically leads to higher production costs, which can cause prices to rise. This effect can persist in both the short and long runs as the economy adjusts to the new, lower level of supply.

Question 3

A permanent negative supply shock leads to ________ output ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

A permanent negative supply shock, such as a natural disaster or a major oil price increase, reduces the potential output of an economy by permanently shifting the aggregate supply curve to the left. This leads to lower output levels in both the short and long runs, as the economy cannot produce as much as before the shock occurred. In the short run, the shock may also lead to higher prices and inflation due to supply shortages, but in the long run, even higher prices cannot sustain higher output levels beyond the reduced potential output level. Therefore, options A and B are incorrect, and option D is only partially correct.

Question 4

The Phillips curve indicates that when the labor market is ________,production costs will ________ and aggregate supply increases.
A)easy;rise
B)easy;fall
C)tight;fall
D)tight;rise

Accepted Answer

The answer of The Phillips curve indicates that when the...

Question 5

Positive spending shocks lead to ________ output ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

Positive spending shocks, such as an increase in government spending or consumption spending, lead to higher output in the short run due to increased demand for goods and services. However, in the long run, prices and wages adjust, erasing the short-run effects, and output returns to its natural level. Therefore, positive spending shocks do not have a long-term impact on output.

Question 6

If firms and households form their expectations about inflation by looking at past inflation,this form of expectations formation is known as ________ expectations.
A)adaptive
B)forward-looking
C)rational
D)perfect

Accepted Answer

In adaptive expectations, individuals form their expectations about future inflation based on past inflation. This is a backward-looking approach to expectations formation.

Question 7

positive spending shocks lead to ________ real interest rates ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

The answer of positive spending shocks lead to ________ real...

Question 8

A permanent negative supply shock causes stock prices to ________ than they would if the supply shock were temporary.
A)fall more
B)fall less
C)rise more
D)rise less

Accepted Answer

A permanent negative supply shock, such as a significant increase in oil prices, would lead to a long-term decrease in profitability for firms and an overall decrease in economic activity. As a result, stock prices would fall more compared to a temporary supply shock, where the negative effects are expected to be short-lived.

Question 9

An autonomous monetary policy easing ________ real interest rates and ________ output in the short run,thereby ________ stock prices.
A)raises;lowers;lowering
B)raises;raises;raising
C)lowers;raises;raising
D)lowers;raises;lowering

Accepted Answer

According to the classical theory, an autonomous monetary policy easing (lowering interest rates) should raise output in the short run and thereby raise stock prices. However, in the short run, prices may not adjust immediately to changes in monetary policy, leading to a temporary increase in output and lower real interest rates. This would result in an increase in stock prices. Therefore, the correct answer is C: lowering real interest rates and raising stock prices.

Question 10

Positive spending shocks lead to ________ inflation ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

The answer of Positive spending shocks lead to ________ inflation...

Question 11

An autonomous monetary policy easing reduces real interest rates and raises aggregate output ________ and the inflation rate rises ________.
A)temporarily;permanently
B)permanently;temporarily
C)permanently;permanently
D)temporarily;temporarily

Accepted Answer

The answer of An autonomous monetary policy easing reduces real...

Question 12

The expectations-augmented Phillips curve implies that as expected inflation increases,nominal wages ________ to prevent real wages from ________.
A)fall;rising
B)fall;falling
C)rise;falling
D)rise;rising

Accepted Answer

According to the expectations-augmented Phillips curve, as expected inflation increases, nominal wages will rise to prevent real wages from falling. This is because workers will expect higher inflation and therefore demand higher wages to maintain their purchasing power. Therefore, the correct answer is C.

Question 13

A temporary supply shock that raises prices
A)will cause the real interest rate to rise in the long run.
B)has no long-run impact on inflation and output.
C)causes output to fall in the long run.
D)causes inflation to rise in the long run.

Accepted Answer

A temporary supply shock that raises prices will not have a long-term impact on inflation and output, as it is a temporary shock that will eventually dissipate. In the long run, prices will return to their original level and output will return to its natural level, unaffected by the temporary shock. The real interest rate will also not be impacted in the long run as there will be no sustained change in inflation.

Question 14

As of 2009,China's economy had recovered from the global recession that began in 2008.Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.

Accepted Answer

The answer of As of 2009,China's economy had recovered from...

Question 15

An autonomous monetary policy easing temporarily ________ real interest rates and ________ aggregate output in the short run,but in the long run real interest rates and aggregate output return to the equilibrium levels.
A)reduces;raises
B)reduces;lowers
C)increases;lowers
D)increases;raises

Accepted Answer

An autonomous monetary policy easing typically involves actions like lowering interest rates or increasing the money supply, which in the short run reduces real interest rates and raises aggregate output as borrowing becomes cheaper and economic activity is stimulated. However, in the long run, the economy adjusts and returns to its natural levels of output and interest rates.

Question 16

Monetary policy authorities can affect real interest rates
A)in the short run,but not in the long run.
B)in the long run,but not in the short run.
C)permanently.
D)both in the long run and the short run.

Accepted Answer

Monetary policy authorities can influence real interest rates in the short run through adjustments in nominal interest rates and inflation expectations. However, in the long run, real interest rates are determined by real factors such as productivity and savings-investment balances, limiting the influence of monetary policy.

Question 17

A permanent negative supply shock leads to ________ real interest rates ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

A permanent negative supply shock reduces potential output and increases prices. This causes inflationary pressure and reduces the demand for credit. In the short run, the central bank may respond by raising interest rates to combat inflation, leading to higher real interest rates. In the long run, the higher inflation expectations would be built into interest rates, leading to permanently higher real interest rates.

Question 18

The Phillips curve indicates that when the labor market is ________,production costs will ________ and aggregate supply decreases.
A)easy;rise
B)easy;fall
C)tight;fall
D)tight;rise

Accepted Answer

According to the Phillips curve, there is an inverse relationship between unemployment and inflation. When the labor market is tight (low unemployment), production costs will rise due to increasing wages and competition for workers, causing aggregate supply to decrease. Therefore, option D is the best answer.

Question 19

A temporary supply shock that raises prices will cause the real interest rate to
A)rise in both the short and long runs.
B)rise in the short run but not in the long run.
C)fall in both the short and long runs.
D)fall in the short run but not in the long run.

Accepted Answer

In the short run, the temporary supply shock will cause prices to rise while output remains the same. This means that the real interest rate, which is calculated as the nominal interest rate minus the inflation rate, will increase as inflation rises. However, in the long run, the economy will adjust and output will increase, bringing the price level back down to its original level. As a result, the real interest rate will not be affected in the long run.

Question 20

A temporary negative supply shock ________ real interest rates and ________ output in the short run,thereby its effect on stock prices is ________.
A)raises;lowers;negative
B)raises;raises;ambiguous
C)lowers;raises;negative
D)lowers;raises;positive

Accepted Answer

A temporary negative supply shock raises real interest rates due to increased prices and reduced supply of goods, lowers output as production decreases, and generally has a negative effect on stock prices due to decreased corporate profits and higher discount rates.

Quiz 22: Aggregate Demand and Supply Analysis

A positive spending shock real interest rates and output in the short run,thereby its effect on stock prices is .

A permanent negative supply shock leads to inflation .

A permanent negative supply shock leads to output .

The Phillips curve indicates that when the labor market is ,production costs will and aggregate supply increases.

Positive spending shocks lead to output .

If firms and households form their expectations about inflation by looking at past inflation,this form of expectations formation is known as ________ expectations.

positive spending shocks lead to real interest rates .

A permanent negative supply shock causes stock prices to ________ than they would if the supply shock were temporary.

An autonomous monetary policy easing real interest rates and output in the short run,thereby stock prices.

Positive spending shocks lead to inflation .

An autonomous monetary policy easing reduces real interest rates and raises aggregate output and the inflation rate rises .

The expectations-augmented Phillips curve implies that as expected inflation increases,nominal wages to prevent real wages from .

A temporary supply shock that raises prices

As of 2009,China's economy had recovered from the global recession that began in 2008.Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.

An autonomous monetary policy easing temporarily real interest rates and aggregate output in the short run,but in the long run real interest rates and aggregate output return to the equilibrium levels.

Monetary policy authorities can affect real interest rates

A permanent negative supply shock leads to real interest rates .

The Phillips curve indicates that when the labor market is ,production costs will and aggregate supply decreases.

A temporary supply shock that raises prices will cause the real interest rate to

A temporary negative supply shock real interest rates and output in the short run,thereby its effect on stock prices is .