Question 1

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

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 2

A temporary supply shock that raises prices

Accepted Answer

A temporary supply shock may cause prices to rise in the short run, but in the long run, prices will adjust and return to their original level. This means that the supply shock has no long-term impact on inflation and output. The real interest rate is not directly affected by a temporary supply shock. Output may fall in the short run due to disruptions in the supply chain, but it will eventually recover once the shock has passed. Therefore, the correct answer is B.

Question 3

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

Accepted Answer

The answer of An autonomous monetary policy easing reduces real...

Question 4

A permanent negative supply shock leads to ________ output ________.

Accepted Answer

A permanent negative supply shock, such as an increase in oil prices or a decrease in labor productivity, reduces the potential output of an economy by reducing the availability or efficiency of productive resources. This results in a decrease in output in both the short and long runs, as the economy cannot produce as much as it could before the shock, even with adjustments and adaptations over time. Therefore, option C, lower output in both the short and long runs, is the correct answer. Options A and B, which suggest higher output, are incorrect because a negative supply shock by definition reduces potential output. Option D, which suggests lower output only in the short run, is also incorrect because the shock has permanent effects on the economy's capacity to produce goods and services.

Question 5

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

Accepted Answer

A permanent negative supply shock implies a decrease in long-term potential output, leading to lower profits and valuation of companies. Therefore, the stock prices will fall more than they would in the case of a temporary supply shock.

Question 6

positive spending shocks lead to ________ real interest rates ________.

Accepted Answer

The answer of positive spending shocks lead to ________ real...

Question 7

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

Accepted Answer

A positive spending shock would increase demand which would raise real interest rates as demand for credit increases. It would also increase output in the short run as firms increase production to meet the increased demand. The effect on stock prices is ambiguous as it depends on several factors such as the industry, size of the firms, impact on future profits, etc.

Question 8

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

Accepted Answer

An autonomous monetary policy easing reduces the interest rates, which leads to an increase in investment, consumption, and aggregate demand. This, in turn, raises output and increases stock prices. Therefore, the correct options are to lower real interest rates and raise stock prices, which are only fulfilled by option C.

Question 9

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.

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 10

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 11

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

Accepted Answer

The Phillips curve shows an inverse relationship between unemployment (tight labor market indicates lower unemployment) and inflation. So, when the labor market is tight (low unemployment), production costs increase (due to higher wages and demand for resources) and aggregate supply decreases. Therefore, option D (tight; rise) is the correct answer.

Question 12

A permanent negative supply shock leads to ________ real interest rates ________.

Accepted Answer

A permanent negative supply shock, such as a decrease in productivity or an increase in production costs, leads to a decrease in aggregate supply in the long run. This leads to higher real interest rates in both the short and long runs as the economy adjusts to the new equilibrium with lower output and higher prices.

Question 13

Positive spending shocks lead to ________ output ________.

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 14

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

Accepted Answer

According to the expectations-augmented Phillips curve, if expected inflation increases, workers will demand higher nominal wages to maintain their real wages. This will result in a rise in nominal wages and prevent real wages from falling. Therefore, the correct answer is C, rise; falling.

Question 15

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

Accepted Answer

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

Question 16

Positive spending shocks lead to ________ inflation ________.

Accepted Answer

The answer of Positive spending shocks lead to ________ inflation...

Question 17

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

Accepted Answer

In the short run, the temporary supply shock that raises prices will increase inflation expectations, causing lenders to demand a higher nominal interest rate to compensate for the higher rate of inflation. However, in the long run, prices adjust to the new level, and inflation expectations return to their previous level. Therefore, the real interest rate will not change in the long run, but it will increase in the short run due to higher inflation expectations.

Question 18

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

Accepted Answer

Adaptive expectations are based on past experiences and behaviors. Firms and households using this form of expectations formation will assume that inflation in the future will be similar to what it has been in the past.

Question 19

A permanent negative supply shock leads to ________ inflation ________.

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 20

Monetary policy authorities can affect real interest rates

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.

Quiz 23: Aggregate Demand and Supply Analysis

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

A temporary supply shock that raises prices

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 output .

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

positive spending shocks lead to real interest rates .

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

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

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.

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.

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

A permanent negative supply shock leads to real interest rates .

Positive spending shocks lead to output .

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

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

Positive spending shocks lead to inflation .

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

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

A permanent negative supply shock leads to inflation .

Monetary policy authorities can affect real interest rates