Exam 12: U.S. Inflation, Unemployment, and Business Cycle

-The figure above shows the aggregate demand, short- run aggregate supply, and long- run aggregate supply curves for the economy of Tomorrowland. The economy is currently at point A. A demand- pull rise in the price level will initially move the economy to point _ and to point )

According to the real business cycle (RBC) theory, recessions are the result of

What is the intertemporal substitution effect and what role does it play in the real business cycle model?

If the unemployment rate initially equals its natural rate, then if the inflation rate rises above its expected rate, the unemployment rate _ .

Cost- push inflation can start with

According to the new Keynesian theory,

A stagflation can turn into a cost- push inflation process when .

Suppose the data show that an unexpected change in tax rates caused a recent recession. These data support which model of the business cycle?

-In the figure above, draw a short- run Phillips curve and a long- run Phillips curve if the expected inflation rate i percent and the natural unemployment rate is 6 percent. Explain how the two change in the short run if: a) slower growth in aggregate demand causes a recession. b) the inflation rate increases. c) the natural unemployment rate increases.

The short- run Phillips curve shows the tradeoff between , holding the expected inflation rate and the natural unemployment rate constant.

A rise in the price level because of an increase in the money wage rate

Keynesian theory explains business cycles as being the result of changes in

The position of the long- run Phillips curve is determined by

Cost- push inflation can be started by

The figure above shows the initial aggregate demand curve, AD₀, the initial short- run aggregate supply curve, SAS₀, and the long- run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy is initially at point A. Then, Atlantia's oil producers form a price- fixing organization and increase the price of oil Suppose that potential GDP does not change and that Atlantia's Central Bank responds by increasing the quantit money. Draw necessary curves in the figure to show the effects of this on Atlantia's real GDP and price level. a) In the short run, what happens to aggregate supply and aggregate demand? b) What are the new short- run equilibrium real GDP and price level? c) In the long run, if Atlantia's continue to hike the price of oil and the Central Bank continues to increase the q of money, what happens to aggregate supply and aggregate demand? d) If Atlantia's oil producers continue to hike the price of oil and Atlantia's Central Bank responds by increasin quantity of money, what process unfolds?

In the short run, unexpected inflation typically leads to

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

In the short run, if there is an increase in the money wage rate, then

An increase in the expected inflation rate leads to

If the prices of crucial raw materials increase,