Exam 12: The Business Cycle, Inflation, and Deflation

In 2008, when a recession started, the growth of government expenditures on goods and services doubled compared to its growth in 2007. According to the aggregate demand theories of the business cycle

Which of the following is TRUE regarding the monetarist theory of the business cycle? I.Monetarists assume that the quantity of money increases at a constant rate. II.Fluctuations in interest rates cause business cycles. III.Changes in the growth rate of the quantity of money affect aggregate demand.

Cost-push inflation is an inflation that results from an initial ________.

What factors can start a cost-push inflation? What must the Fed's response be for the inflation to continue?

If oil prices increase, then in the short run, real GDP will ________ and the price level will ________.

-In the above figure, if the economy moves from point A to point E

-The figure above shows the initial aggregate demand curve, AD?, the initial short-run aggregate supply curve, SAS?, 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. Atlantia's Central Bank then increases the quantity of money year after year. Draw the necessary curves in the figure to show the effects of this on Atlantia's real GDP and price level. a)What happens to Atlantia's potential GDP? b)In the short run, what happens to aggregate supply and aggregate demand? c)What are the new short-run equilibrium real GDP and price level? d)In the long run, what happens to aggregate supply and aggregate demand? e)In the long run, what process is unfolding?

-In the above figure, the economy is at point A. The inflation rate falls by two percentage points and people correctly expected the fall. As a result, the economy moves to point

As far as cost-push inflation goes, the United States

What does the short-run Phillips curve indicate about the relationship between inflation and unemployment?

A one-time rise in the price level can turn into a demand-pull inflation when ________.

By itself, a supply shock such as a hike in the price of oil, can

The short-run Phillips curve and the long-run Phillips curve intersect at the ________ and ________.

The long-run Phillips curve slopes downward.

Demand-pull inflation results from continually increasing the quantity of money, which leads to a continually

According to which theory of the business cycle do changes in the quantity of money never play a role in helping to explain fluctuations in real variables?

The new classical cycle theory views anticipated fluctuations in aggregate demand as the main source of business cycle economic fluctuations.

-The figure above shows an economy's Phillips curves. Currently, the inflation rate is 6 percent a year. The natural unemployment rate is ________ percent and the expected inflation rate is ________ percent a year.

A change in the natural unemployment rate ________.

Which of the following are business cycle theories that regard fluctuations in aggregate demand as the factor that is creating business cycles? I.Keynesian cycle theory II.real business cycle theory III.monetarist cycle theory