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

Increases in the quantity of money can create demand-pull inflation.

According to the real business cycle theory, an increase in the price of a resource, such as oil, that decreases the demand for loanable funds will _________employment and_________ real GDP.

-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, Atlantiaʹs oil producers form a price-fixing organization and increase the price of oil. Suppose that potential GDP does not change and that Atlantiaʹs Central Bank responds by increasing the quantity of money. Draw necessary curves in the figure to show the effects of this on Atlantiaʹs 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 Atlantiaʹs continue to hike the price of oil and the Central Bank continues to increase the quantity of money, what happens to aggregate supply and aggregate demand? d) If Atlantiaʹs oil producers continue to hike the price of oil and Atlantiaʹs Central Bank responds by increasing the quantity of money, what process unfolds?

Which of the following is held constant when moving along a short-run Phillipʹs curve?

Stagflation is characterized by

Real business cycle theory explains the business cycle as the result of

What is the factor that leads to business cycles in the Keynesian cycle theory?

Which of the following is TRUE regarding the monetarist theory of the business cycle? I. Monetarists assume that the quantity of money increases at a constant rate. II. Fluctuations in interest rates cause business cycles. III. Changes in the growth rate of the quantity of money affect aggregate demand.

Increases in the prices of raw materials can create cost-push inflation.

-In the above figure, the economy is at point A. An increase in oil prices that sets off a cost-push inflation will initially move the economy from point A to point

An increase in the expected inflation rate shifts the

An initial increase in aggregate demand that is NOT followed by an increase in the quantity of money results in a long-run equilibrium with

Suppose that last year the economy of Suffera was experiencing an expected inflation rate of 8 percent and unemployment rate of 12 percent. An unexpected increase in the inflation rate would

According to the real business cycle theory, the immediate effects from a change in productivity include which of the following? I. Investment demand changes. II. Demand for labor changes. III. Government expenditures change.

-In the above figure, what factor might have lead to the shift in the short-run Phillips curve from SRPC₁ to SRPC₂?

Inflation rate (percent per year) Unemployment rate (percent) 8 3 6 4 4 5 2 6 -An economy?s natural unemployment rate is 4 percent. The table above gives some points on the economy?s short-run Phillips curve. When the unemployment rate is 4 percent___________ .

Describe how a demand-pull inflation can occur.

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

Stagflation occurs when the price level ___________and real GDP___________ .

-Suppose the natural unemployment rate is 4 percent and the expected inflation rate is 6 percent. In the above figure, illustrate the long-run Phillips curve. What does the long-run Phillips curve reveal abut the long-run tradeoff between inflation and unemployment?