Question 1

Monetary policy authorities can affect real interest rates
A)in the short run,but not in the long run.
B)in the long run,but not in the short run.
C)permanently.
D)both in the long run and the short run.

Accepted Answer

Monetary policy authorities can influence real interest rates in the short run through adjustments in nominal interest rates and inflation expectations. However, in the long run, real interest rates are determined by real factors such as productivity and savings-investment balances, limiting the influence of monetary policy.

Question 2

An autonomous monetary policy easing temporarily ________ real interest rates and ________ aggregate output in the short run,but in the long run real interest rates and aggregate output return to the equilibrium levels.
A)reduces;raises
B)reduces;lowers
C)increases;lowers
D)increases;raises

Accepted Answer

An autonomous monetary policy easing typically involves actions like lowering interest rates or increasing the money supply, which in the short run reduces real interest rates and raises aggregate output as borrowing becomes cheaper and economic activity is stimulated. However, in the long run, the economy adjusts and returns to its natural levels of output and interest rates.

Question 3

A temporary supply shock that raises prices
A)will cause the real interest rate to rise in the long run.
B)has no long-run impact on inflation and output.
C)causes output to fall in the long run.
D)causes inflation to rise in the long run.

Accepted Answer

A temporary supply shock is a short-term disruption to the supply of goods or services. It can lead to an increase in prices in the short run, but in the long run, the market adjusts and prices go back to their equilibrium level. This means that there is no long-run impact on inflation and output. The real interest rate may fluctuate in the short run but it does not have a long-term effect. A temporary supply shock does not necessarily cause output to fall or inflation to rise in the long run.

Question 4

positive spending shocks lead to ________ real interest rates ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

Positive spending shocks lead to higher real interest rates in both the short and long runs because they increase the demand for loanable funds, which drives up the price of borrowing.

Question 5

If firms and households form their expectations about inflation by looking at past inflation,this form of expectations formation is known as ________ expectations.
A)adaptive
B)forward-looking
C)rational
D)perfect

Accepted Answer

Adaptive expectations are formed by looking at past data to predict future trends. In the case of inflation, if firms and households base their expectations on past inflation rates, this would fall under the category of adaptive expectations. Forward-looking expectations, on the other hand, involve analyzing current data and future trends to form expectations. Rational and perfect expectations involve more sophisticated methods of expectations formation, such as optimizing behavior based on economic models or perfect knowledge of future events.

Question 6

An autonomous monetary policy easing ________ real interest rates and ________ output in the short run,thereby ________ stock prices.
A)raises;lowers;lowering
B)raises;raises;raising
C)lowers;raises;raising
D)lowers;raises;lowering

Accepted Answer

An autonomous monetary policy easing reduces interest rates, which makes borrowing cheaper and boosts consumption and investment spending. This increased spending raises aggregate demand in the economy, which leads to a higher output level in the short run. Additionally, the lower interest rates make stocks more attractive to investors, leading to an increase in stock prices. Therefore, the correct answer is option C - "lowers real interest rates and raises output in the short run, thereby raising stock prices."

Question 7

The Phillips curve indicates that when the labor market is ________,production costs will ________ and aggregate supply decreases.
A)easy;rise
B)easy;fall
C)tight;fall
D)tight;rise

Accepted Answer

The Phillips curve suggests that when the labor market is tight (meaning low unemployment and high demand for labor), production costs will rise due to increased wages. This increase in production costs can lead to a decrease in aggregate supply.

Question 8

A permanent negative supply shock leads to ________ output ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

A permanent negative supply shock leads to a decrease in output in both the short and long runs because the decrease in the availability of productive resources or increase in production costs reduces the potential output level of an economy. This implies that the economy is only able to produce less than before, regardless of the change in demand for goods and services.

Question 9

A permanent negative supply shock causes stock prices to ________ than they would if the supply shock were temporary.
A)fall more
B)fall less
C)rise more
D)rise less

Accepted Answer

A permanent negative supply shock implies a long-term reduction in the supply of goods and services, leading to lower profits and revenue for companies. This would cause investors to expect lower future earnings and dividends, which in turn would lead to a bigger drop in stock prices compared to a temporary supply shock.

Question 10

A permanent negative supply shock leads to ________ inflation ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

A permanent negative supply shock, such as a decrease in the availability of a key resource, typically leads to higher production costs, which can cause prices to rise. This effect can persist in both the short and long runs as the economy adjusts to the new, lower level of supply.

Question 11

A positive spending shock ________ real interest rates and ________ output in the short run,thereby its effect on stock prices is ________.
A)raises;lowers;positive
B)raises;raises;ambiguous
C)lowers;raises;negative
D)lowers;raises;positive

Accepted Answer

A positive spending shock increases demand, which raises both real interest rates and output in the short run. The effect on stock prices is ambiguous because higher interest rates can negatively impact stock prices, while higher output can positively impact them.

Question 12

A temporary supply shock that raises prices will cause the real interest rate to
A)rise in both the short and long runs.
B)rise in the short run but not in the long run.
C)fall in both the short and long runs.
D)fall in the short run but not in the long run.

Accepted Answer

In the short run, the temporary supply shock will raise prices, but the nominal interest rate might not fully adjust, leading to an increase in the real interest rate. However, in the long run, the nominal interest rate will adjust to the higher inflation rate, causing the real interest rate to return to its original level.

Question 13

As of 2009,China's economy had recovered from the global recession that began in 2008. Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.

Accepted Answer

The answer of As of 2009,China's economy had recovered from...

Question 14

An autonomous monetary policy easing reduces real interest rates and raises aggregate output ________ and the inflation rate rises ________.
A)temporarily;permanently
B)permanently;temporarily
C)permanently;permanently
D)temporarily;temporarily

Accepted Answer

An autonomous monetary policy easing reduces real interest rates and raises aggregate output temporarily, and the inflation rate rises permanently.

Question 15

A permanent negative supply shock leads to ________ real interest rates ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

A permanent negative supply shock reduces potential output and increases prices. This causes inflationary pressure and reduces the demand for credit. In the short run, the central bank may respond by raising interest rates to combat inflation, leading to higher real interest rates. In the long run, the higher inflation expectations would be built into interest rates, leading to permanently higher real interest rates.

Question 16

The Phillips curve indicates that when the labor market is ________,production costs will ________ and aggregate supply increases.
A)easy;rise
B)easy;fall
C)tight;fall
D)tight;rise

Accepted Answer

The answer of The Phillips curve indicates that when the...

Question 17

The expectations-augmented Phillips curve implies that as expected inflation increases,nominal wages ________ to prevent real wages from ________.
A)fall;rising
B)fall;falling
C)rise;falling
D)rise;rising

Accepted Answer

According to the expectations-augmented Phillips curve, when expected inflation increases, workers will expect higher wages to compensate for the increase in prices. As a result, nominal wages will rise. This increase in wages will cause firms to increase prices to maintain their profit margins, and as a result, inflation will also rise, preventing real wages from falling. Therefore, as expected inflation increases, nominal wages rise to prevent real wages from falling.

Question 18

Positive spending shocks lead to ________ output ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

Positive spending shocks typically lead to higher output in the short run due to increased demand. However, in the long run, the economy tends to return to its potential output level, meaning the effects of spending shocks do not persist.

Question 19

A temporary negative supply shock ________ real interest rates and ________ output in the short run,thereby its effect on stock prices is ________.
A)raises;lowers;negative
B)raises;raises;ambiguous
C)lowers;raises;negative
D)lowers;raises;positive

Accepted Answer

A temporary negative supply shock raises real interest rates due to increased prices and reduced supply of goods, lowers output as production decreases, and generally has a negative effect on stock prices due to decreased corporate profits and higher discount rates.

Question 20

Positive spending shocks lead to ________ inflation ________.
A)higher;in both the short and long runs
B)higher;in the short run but not in the long run
C)lower;in both the short and long runs
D)lower;in the short run but not in the long run

Accepted Answer

Positive spending shocks lead to higher inflation in both the short and long runs because they increase aggregate demand, which puts upward pressure on prices.

Quiz 22: Aggregate Demand and Supply Analysis

Monetary policy authorities can affect real interest rates

An autonomous monetary policy easing temporarily real interest rates and aggregate output in the short run,but in the long run real interest rates and aggregate output return to the equilibrium levels.

A temporary supply shock that raises prices

positive spending shocks lead to real interest rates .

If firms and households form their expectations about inflation by looking at past inflation,this form of expectations formation is known as ________ expectations.

An autonomous monetary policy easing real interest rates and output in the short run,thereby stock prices.

The Phillips curve indicates that when the labor market is ,production costs will and aggregate supply decreases.

A permanent negative supply shock leads to output .

A permanent negative supply shock causes stock prices to ________ than they would if the supply shock were temporary.

A permanent negative supply shock leads to inflation .

A positive spending shock real interest rates and output in the short run,thereby its effect on stock prices is .

A temporary supply shock that raises prices will cause the real interest rate to

As of 2009,China's economy had recovered from the global recession that began in 2008. Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.

An autonomous monetary policy easing reduces real interest rates and raises aggregate output and the inflation rate rises .

A permanent negative supply shock leads to real interest rates .

The Phillips curve indicates that when the labor market is ,production costs will and aggregate supply increases.

The expectations-augmented Phillips curve implies that as expected inflation increases,nominal wages to prevent real wages from .

Positive spending shocks lead to output .

A temporary negative supply shock real interest rates and output in the short run,thereby its effect on stock prices is .

Positive spending shocks lead to inflation .