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Questions and Answers

(338 solutions)

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The initial effect of an increase in the money supply is to _______.

d. decrease the interest rate...

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Posted by Cleveland on September 17, 2024
In the market for real output, the initial effect of an increase in the money supply is to _______.


c. shift aggregate demand to the right...

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Posted by Cleveland on September 17, 2024
For the United States, the most important source of the downward slope of the aggregate-demand curve is _______.

d. the interest-rate effect...

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Posted by Cleveland on September 17, 2024
When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level _______.

a. shifts money demand to the right and increases the interest rate...

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Posted by Cleveland on September 17, 2024
When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate _______.


c. decreases the quantity demanded of money...

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Posted by Cleveland on September 17, 2024
Keynes's liquidity preference theory of the interest rate suggests that the interest rate is determined by _______.

d. the supply and demand for money...

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Posted by Cleveland on September 17, 2024
The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibrium at a natural level of output of $110 billion.
Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services.
Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.)
Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.
The short-run economic outcome resulting from the increase in production costs is known as    .
Suppose now that the government decides not to take any action in response to the short-run impact of the severe weather.
In the long run, given that the government does nothing, the output level in the economy will equal
billion and the price level will equal
.

The short-run economic outcome resulting from the increase in production costs is known asstagflation   .Points:1 / 1Close ExplanationExplanation:Firms experience higher production costs due to the severe weather. The increase in costs makes the sale of goods and services less profitable, ...

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Posted by Cleveland on September 16, 2024
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose firms become pessimistic about future business conditions and cut back on investment spending.
Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism.
In the short run, the decrease in investment spending associated with business pessimism causes the price level to    the price level people expected and the quantity of output to    the natural level of output. The business pessimism will cause the unemployment rate to    the natural rate of unemployment in the short run.
Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the decrease in investment spending associated with business pessimism.
Along the transition from the short run to the long run, price-level expectations will    and the    curve will shift to the    .
Using the graph, illustrate the long-run impact of the business pessimism by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions.
In the long run, due to the business pessimism, the price level    , the quantity of output    the natural level of output, and the unemployment rate    the natural rate.

Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism.Your AnswerADAS02004006008001000120024020016012080400PRICE LEVELOUTPUT (Billions of dollars)AD   AS   Cor...

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Posted by Cleveland on September 16, 2024
The following graph shows an increase in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the right from AS1 to AS2, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion.
The following table lists several determinants of short-run aggregate supply.
Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply.
Change Necessary to Increase AS
Regulations on the firm    
Human capital    
Input prices    

The following table lists several determinants of short-run aggregate supply.Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply.Change Necessary to Increase ASRegulations on the firmDecrease   Human capitalImproves   Inpu...

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Posted by Cleveland on September 16, 2024

6. Why the aggregate supply curve slopes upward in the short run

In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen.
For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 110. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will    , and firms that rely on catalogs will respond by    the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected increase in the price level causes the quantity of output supplied to    the natural level of output in the short run.
Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation:
Quantity of Output Supplied = Natural Level of Output+α×Price LevelActual−Price LevelExpected
The Greek letter α represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that α=$2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion.
Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 110.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105, 110, 115, and 120.
The short-run quantity of output supplied by firms will fall short of the natural level of output when the actual price level    the price level that people expected.

In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen.For example, the sticky-price theory asserts t...

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Posted by Cleveland on September 16, 2024