According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to A) decreases in both the price level and real GDP. B) an increase in real GDP and an increase in the price level. C) a decrease in the price level but does not change real GDP. D) an increase in the price level but does not change real GDP.
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- According to the model of aggregate demand and supply, in the long run an increase in the money supply would cause: a) Prices and outputs to fall b) Prices to fall and outputs to rise c) Prices to rise and outputs to fall d) Prices to rise and outputs to remain unchanged e) None of the aboveAssume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level. Assume there is an increase in business confidence as a result of the central bank’s action. What will happen to the demand for capital goods? Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest…Assume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level. Assume there is an increase in business confidence as a result of the central bank’s action. What will happen to the demand for capital goods? Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest…
- Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? Check all that apply. -The inflation rate -The size of the labor force -The quantity of physical capital -The price level Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $70 billion. Using the purple points (diamond symbol) plot the economy's long-run aggregate supply (LRAS) curve on the graph. Suppose now the government passes a law that reduces unemployment benefits in a way that causes unemployed workers to seek out new jobs more quickly. This change in policy will cause the natural rate of unemployment to (increase/fall/decrease) , which will: - Shift the long-run aggregate supply curve to the right - Not impact the long-run aggregate supply curve - Shift the long-run aggregate supply curve to the left…Assume that a country’s economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. Current price level, labeled PL1, and current output level, labeled Y1 The full-employment output level, labeled YF. What open-market operation can the country’s central bank use to move the economy toward its long-run equilibrium? Use a correctly labeled money-market graph to show how the country’s central bank action to move the economy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run. Based on the interest rate change from part (c), will each of the following increase, decrease, or remain the same in the short run? Real output. Explain. Natural rate of unemployment Assume instead that the central bank does not pursue…In the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that a. the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same b. aggregate demand and prices will increase but interest rates will not change c. aggregate demand and interest rates will decrease but prices will increase d. aggregate demand, prices, and the interest rate will all decrease e. the AD-curve will shift to the right and the AS-curve will shift to the left
- If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.Question 31 The interest-rate effect Answer depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. is responsible for the downward slope of the money-demand curve. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. Question 32 The wealth effect stems from the idea that a higher price level Answer increases the real value of households’ money holdings. decreases the real value of households’ money holdings. increases the real value of the domestic currency in foreign-exchange markets. decreases the real value of the domestic currency in foreign-exchange markets.What is the effect of a rise in the U.S. price level on the buying power of money? The buying power of money _______. A. increases and aggregate demand increases B. increases and the quantity of real GDP demanded increases C. decreases and the quantity of real GDP demanded decreases D. decreases and aggregate demand decreases
- Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must a. decrease the money supply, which will move output back towards its long-run level. b. decrease the money supply, which will move output farther from its long-run level. c. increase the money supply, which will move output back towards its long-run level. d. increase the money supply, which will move output farther from its long-run level.The interest-rate effect depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. is responsible for the downward slope of the money-demand curve. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.Check which is CORRECT 1. As prices rise, the AS curve shifts to the left. 2.A fall in the money wage rate reduces aggregate supply and shifts the AS curve to the left. 3. A fall in the money wage rate increases aggregate supply and shifts the AS curve rightward 4. A fall in the money wage rate reduces aggregate demand and shifts AD to the left
