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

A wage-price spiral occurs when

For most firms, wages are the smallest cost of production.

The term "crowding out" refers to increases in government spending which affect private investment spending.

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent. All else equal, if this unemployment rate is above the natural rate of unemployment, what will tend to happen over time?

Assuming an upward-sloping short-run aggregate supply curve, ________ in aggregate demand will result in a new equilibrium at a greater level of output and ________ price level.

How do economists' beliefs about the speed of the adjustment process affect their recommendations about policy?

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, increases in health-care expenditures will have to crowd out some other component of GDP. The preferred outcome stated in the Application is that increased spending on health-care would come at the expense of

What is the difference in how GDP is determined in the short run and in the long run?

Long-run money neutrality means that an increase in the money supply has no effect on real interest rates, investment, or output in the long run.

The doctrine that states that "supply creates its own demand" is called ________ law.

As output exceeds potential output, wages and prices throughout an economy will rise above previous inflation rates.

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

The Keynesian view that demand could fall short of production is more likely to hold true if

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, economists Charles I. Jones and Robert E. Hall suggest that normal economic growth will cause health-care expenditures to be approximately what percent of GDP by the mid-century?

Politicians sometimes have the incentive to take advantage of the differences between the short-run and long-run effects of economic policies to improve their chances of being reelected.

In order for the classical economic model to work, prices and wages must be fully flexible.

What is meant when economists use the term "overheating of the economy"?

-Refer to Figure 15.2. A decrease in wages is represented by a movement from point ________ to point ________.

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

Recall the Application about Fed Chairman Ben Bernanke's views on how to fight a liquidity trap to answer the following question(s). -Suppose a politician stimulates the economy before an election to improve the chances she is reelected. This is known as