ECON 209 Lecture : CHAPTER 24.docx

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tanspider906

12 Dec 2013

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Chapter 24 from the short run to the long run: the. Why output gaps cause wages and other factor prices to change. How induced changes in factor prices affect firms" costs and shift the as curve. Why real gdp gradually returns to potential output following ad or as shock. Why lags and uncertainty place limitations on use of fiscal stabilization policy. Factor prices are assumed to be exogenous; they may change, but any change is not explained within the model. Technology and factor supplies are assumed to be constant (thus y* constant) Short run-macroeconomic equilibrium: determined by intersection of ad and as curves. Real gdp fluctuates around constant level of y*. Useful for short periods of time; and to look at fluctuations of real gdp relative to y* (business cycles) Adjustment process that takes economy from short run to long run: Factor prices are assumed to adjust in response to output gaps.

Related Questions

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.

bluewolf591

1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?

interest rate rises; investment falls

interest rate rises; investment rises

interest rate falls; investment rises

interest rate falls; investment falls

2. The main goal of monetary policy is to shift

3. Which of the following is true regarding the effects of an expansionary monetary policy?

Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run.

Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy.

Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run.

Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run.

4. In which of the following cases are you likely to be adversely affected by unexpected inflation?

You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb.

You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year.

You, the owner of an airline company, sign a two-year contract for airline fuel.

You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.

5. The Phillips curve depicts the relation between

real GDP and price level.

price level and inflation rate.

unemployment rate and inflation rate.

unemployment rate and real GDP.

6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?

The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping.

The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical.

Both the short-run and long-run Phillips curves are downward sloping.

Both the short-run and long-run Phillips curves are vertical.

7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?

Year	Actual Inflation rate
2010	0%
2011	0%
2012	3%
2013	3%
2014	6%
2015	6%

8. Which of the following can change relatively quickly in the short-run?

the price of a latte in a coffee shop

the salary of a finance professor

the rent paid for a store

copperherring529

Please help wtih these economics questions. I'll give the best answer to the person who justifies their answer.. or someone who does well in economics and knows the subject area well.

Which of the following statements is not true about Say's Law?

A. People produce more goods than they want for their own use only if they seek to trade them for other goods.

B. Markets would be regularly hit by severe shortages and surpluses.

C. Desired expenditures will equal actual expenditures.

D. Surpluses will be eliminated by falling prices and shortages will be eliminated by increasing prices.

Which of the following is not an assumption of the classical model?

A. Buyers and sellers react to changes in relative prices.

B. Households want to maximize economic well being.

C. Wages and prices will move freely in the upward direction but not the downward direction.

D. No single buyer or seller of a commodity can affect its price.

Money illusion is

A. when people think they are better off when their income increases even though prices have increased by the same amount.

B. when people are motivated by self-interest.

C. could not exist if the economy did not have competitive markets.

D. a basic condition that all classical economists assume people have.

Saving is not a problem in the classical model because

A. interest rates were flexible and savings were channeled into investment.

B. savers and investors were the same people.

C. the classical economists assumed that saving was beneficial to people for retirement.

D. saving would be spent by consumers eventually.

Which of the following statements is true?

A. There is an inverse relationship between investment and the interest rate.

B. There is no relationship between investment and the interest rate.

C. There is a direct relationship between investment and the interest rate.

D. Investment is always less than savings.

In the classical model, high unemployment due to either a demand or a supply shock

A. will return to its normal level quickly as wages adjust.

B. will persist if due to a supply shock but not if due to a demand shock.

C. can persist for an indefinite period of time.

D. never exists because unemployment can never deviate from its normal level.

The classical model makes little distinction between the long-run and short-run because

A. the model has not been fully developed yet.

B. prices adjust so fast that the economy is quickly moving towards the long-run.

C. the classical economists knew that we are always operating in the short run.

D. current changes influence the long run, so it is not possible to plan for the future.

In the classical model

A. the level of real GDP per year does not depend on the level of aggregate demand.

B. the level of GDP is demand determined.

C. the level of GDP determines prices independent of demand.

D. changes in aggregate supply affect the price level, not real GDP.

Which of the following is a true statement?

A. Classical economists believed output adjusted more than prices when aggregate demand fell while Keynes believed prices adjusted more than output.

B. Classical economists believed price adjusted more than output when aggregate demand fell while Keynes believed output adjusted more than prices.

C. A decrease in aggregate demand has no short-run effects according to the classical economists, but had significant effects according to Keynes.

D. A decrease in aggregate demand was not possible according to the classical economists, but was possible according to Keynes.

Which of the following is not a reason why GDP can be expanded beyond a level consistent with its long-run growth path in modern Keynesian analysis?

A. Prices and wages are flexible allowing for needed adjustments.

B. In the short-run existing workers can work more hours.

C. The existing capital stock can be used more intensively.

D. Higher prices induce firms to hire more workers.

A recessionary gap can be caused by

A. a decrease in aggregate supply holding aggregate demand constant.

B. an increase in aggregate demand holding aggregate supply constant.

C. an increase in the long run aggregate supply curve holding the aggregate demand constant.

D. a decrease in both aggregate demand and aggregate supply.

lemonpug153

ECON 209 Lecture : CHAPTER 24.docx

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