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

How do defenders of the real business cycle theory, RBC theory) respond to critics of the theory?

In a real business cycle model, labor supply

-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 takes no action. Draw the new aggregate demand and short-run aggregate supply curves in the figure to show the effects of this event on Atlantiaʹs real GDP and price level. a) What happens to aggregate supply and aggregate demand? b) What are the new equilibrium real GDP and price level? c) Will the rise in the price of oil lead to inflation in Atlantia? Why or why not?

-An economy is in long-run equilibrium and the price level is 100 in the figure above. Aggregate demand increases and the aggregate demand curve shifts to AD₁. If the increase in aggregate demand is expected, then the inflation rate is___________ .

A decrease in the natural unemployment rate shifts the long-run Phillips curve __________ and __________ the short-run Phillips curve.

Suppose aggregate demand increases by less than expected. Which of the following describes what will occur?

-In the above figure, if people correctly anticipate the increases in aggregate demand and the resulting inflation, the path will be from

ʺInflation Gives Saudis Food for Thoughtʺ ʺMy boss sent me back to return the milk - itʹs too expensive,ʺ said the Pakistani driver for a middle-class Saudi family at the checkout counter of the Al-Othaim supermarket. Saudi Arabia Is enjoying an unprecedented economic boom as sectors [have] increased activity to meet the big Internal demand. The type of inflation described in the story

Demand-pull inflation starts as the

Which of the following is a change that would NOT start a demand-pull inflation?

-In the above figure, which of the following curves represents the long -run Phillips curve?

-The figure above shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the U.S. economy. 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___________

An increase in the expected inflation rate leads to a movement upward along the short-run Phillips curve.

Real business cycle RBC) theory predicts that the main source of economic fluctuations is

ʺShoe Industry under Pressure Amid Rising Costs ʺ Rising costs have forced about 15 per cent of shoe manufacturers in a major south China industrial centre to shut down or relocate in the past year. [the firms have] identified rising wages as a key Factor behind the closures and relocations from Dongguan. The problems in the footwear industry Reflect broader issues affecting manufacturers across Chinaʹs Pearl River Delta. ʺ As the same pressures affect other industries across China, we expect to see

In real business cycle models, in order to increase real GDP after a negative technology shock, the government can I. increase the quantity of money. II. decrease the quantity of money.

Increases in the quantity of money can start a ____________inflation and an increase in government expenditure can start a ____________inflation.

-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. If the quantity of money remains constant, the economy will adjust with

The__________ theory of the business cycle asserts that expected and unexpected changes in aggregate demand lead to fluctuations in real GDP.

Phillips curves show the relationship between the