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

When the economy is producing below full employment, the wage-price spiral cannot occur.

In the long run, increases in the money supply have no effect on the level of output because prices and wages will

Figure 15.5 -Refer to Figure 15.5. If GDP is below potential output, the effect on the money market is represented by movement from point ________ to point ________.

A decrease in the money supply causes

If GDP is ________ potential output, adjustment to the long-run equilibrium requires that output falls and prices ________.

If the economy was operating above full employment, it could return to full employment

Crowding out refers to

In the short run, the level of GDP is determined primarily by the aggregate supply.

Suppose that GDP is ________ potential output. We would expect prices to fall, money demand to fall, interest rates to fall, and total demand to ________.

If the unemployment rate is below the natural rate, then we expect to see

In the long run, an increase in the money supply

If potential output is ________ than the current level of GDP, the unemployment rate is ________ the natural rate.

-Refer to Figure 15.2. The unemployment rate is above the natural rate at point

Describe the adjustment process of returning an economy to full employment when output is below full employment levels.

Say's Law is a doctrine which states

Figure 15.3 -Refer to Figure 15.3 If this economy is initially in a recession, its movement back to full employment would be complete when it reaches point ________ in graph (A), point ________ in graph (B), and point ________ in graph (C).

Recall the Application about the possibility of increases in health-care expenditures crowding out consumption or investment spending to answer the following question(s). In 1950, health-care expenditures in the United States were 5.2 percent of GDP; by 2000, this share had risen to 15.4 percent. Driving these increases were several factors: increasing relative prices of health care compared to other goods, a larger population of the elderly, and increased longevity. Since 1950, the average life span has increased by 1.7 years per decade. -According to the Application, if increases in health-care expenditures crowd out investment, living standards would

In the long run, any decreases in aggregate demand

Crowding in leads to

-Refer to Figure 15.1. The short-run equilibrium occurs at point