Exam 15: Modern Macroeconomics: From the Short Run to the Long Run

The GDP for the nation of Economia is currently above potential output. If the adjustment to the long-run equilibrium occurs slowly, the government of Economia is most likely to pursue a policy of

Wages and prices throughout an economy are less than previous inflation rates when what occurs?

The short-run aggregate supply curve is relatively flat because

Recall the Application about the links between presidential elections and macroeconomic performance to answer the following question(s). Early theories on the links between presidential elections and macroeconomic performance focused on incumbent presidents trying to manipulate the economy in their favor to gain reelection. Subsequent research began to incorporate other factors. The first innovation was recognizing that political parties can have different goals or preferences on how to manipulate the economy. In the United States, Republicans historically have been more concerned about fighting inflation, whereas Democrats have concentrated on reducing unemployment. The second major innovation was recognizing that the public would anticipate that politicians will try to manipulate the economy before an election. -Republicans have historically been primarily concerned with fighting inflation. Assuming this is true, then after a Republican electoral victory, the public could anticipate which of the following economic actions to fight inflation?

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent, and economists have estimated that the natural rate of unemployment in Venezuela is also approximately 15 percent. All else equal, if this is the case, what will tend to happen in the Venezuelan economy over time?

In the short run, increases in the money supply increase the level of output because

If the unemployment rate is ________ the natural rate, then we expect to see ________ wages, causing the short-run aggregate supply curve to shift up.

Keynes expressed doubts that that the economy would

If the economy is operating above full employment, falling wages and prices will stimulate investment and increase output.

Recall the Application about Fed Chairman Ben Bernanke's views on how to fight a liquidity trap to answer the following question(s). -Recall the Application. After becoming Fed Chairman, Ben Bernanke ________ a policy of purchasing long-term government bonds and ________ a policy of creating expectations of inflation in an effort to fight a liquidity trap.

Suppose an economy that has been operating at full employment has been experiencing 4 percent annual inflation. If output later exceeds potential output, prices generally will begin to rise at

Assuming an upward-sloping short-run aggregate supply curve, a decrease in government spending results in ________ in output and ________ in prices in the short run.

Recall the Application about Fed Chairman Ben Bernanke's views on how to fight a liquidity trap to answer the following question(s). -Recall the Application. Before becoming Fed Chairman, Ben Bernanke argued that the Bank of Japan should have committed to increasing inflation as a response to the Japanese liquidity trap. Doing this would allow for

Figure 15.5 -Refer to Figure 15.5. If the unemployment rate is below the natural rate, the effect on the money market is represented by movement from point ________ to point ________.

What kind of policies can be used to reduce aggregate demand?

In the short run

If GDP is higher than potential output, wages and prices will rise.

-Refer to Figure 15.2. A movement from point a to point b would be the result of the

The long-run aggregate supply curve is vertical because

-Refer to Figure 15.1. At point a