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 rapidly, the government of Economia is likely to pursue a policy of

-Refer to Figure 15.2. Output is likely to fall and prices are likely to rise if the economy is at point

Consider an aggregate demand / aggregate supply diagram. The intersection of the vertical aggregate supply curve and the aggregate demand curve determines the

In the short run, ________ in the supply of money ________ the level of output.

Figure 15.4 -Refer to Figure 15.4. Suppose that the economy is originally in equilibrium at point a. In the short run, as the supply of money increases, the economy moves to point

The long run in macroeconomics is the period of time in which prices do not change or do not change very much.

Figure 15.4 -Refer to Figure 15.4. Suppose that the economy is originally in equilibrium at point a. In the short run, as the supply of money decreases, the economy moves to point

Suppose an economy that has been operating at full employment has been experiencing 4 percent annual inflation. If output later falls to a level that is less than potential output, prices generally will begin to rise at

Recall the Application about Fed Chairman Ben Bernanke's views on how to fight a liquidity trap to answer the following question(s). -According to the Application, future Fed Chairman Ben Bernanke criticized the Bank of Japan for not taking strong enough action when their interest rates fell close to zero. Bernanke argued that the Bank of Japan should have made substantial purchases of ________ and also publicly commit to ________ inflation.

In macroeconomics, the period of time in which prices have fully adjusted to any economic changes is called the short run.

Classical economics refers to a body of work initially developed by John Maynard Keynes.

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

Consider an aggregate demand / aggregate supply diagram. The intersection of the relatively flat, upward-sloping aggregate supply curve and the aggregate demand curve determines the

How might economic policy be used to fight a recession? What would happen to prices in this case?

When an economy is experiencing a "liquidity trap," monetary policy to bring the economy back to full employment

A necessary condition for the classical model to work is that

Suppose that the economy is above the full employment level of output. Describe the adjustment process of returning this economy to full employment.

The Keynesian aggregate supply curve moves up if output is below its potential.

Figure 15.3 -Refer to Figure 15.3 If this economy is initially in a recession, the price level will start to change to bring the economy back to full employment, which is reflected by the movement from

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. -This Application addresses the idea that politicians use monetary or fiscal policy to stimulate the economy before an election to improve their reelection prospects. This concept is known as a(n)