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Questions and Answers
If an economy is in long-run equilibrium, which of the following combinations of policy actions will necessarily result in inflation in the short run?
If an economy is in long-run equilibrium, which of the following combinations of policy actions will necessarily result in inflation in the short run?
Given the situation illustrated in the graph and holding all other influences constant, which of the following policies will restore the macroeconomic equilibrium to full employment?
Given the situation illustrated in the graph and holding all other influences constant, which of the following policies will restore the macroeconomic equilibrium to full employment?
If the actual inflation rate is less than the expected inflation rate, which of the following must be true? Potential real output exceeds equilibrium real output.
If the actual inflation rate is less than the expected inflation rate, which of the following must be true? Potential real output exceeds equilibrium real output.
True
Assume members of the Organization of the Petroleum Exporting Countries (OPEC) agree to a coordinated increase in oil production. If the economy is at equilibrium at point B, what effect will this have on the Phillips curve model in the long run?
Assume members of the Organization of the Petroleum Exporting Countries (OPEC) agree to a coordinated increase in oil production. If the economy is at equilibrium at point B, what effect will this have on the Phillips curve model in the long run?
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According to the quantity theory of money, if the money supply is $40 billion, real output is $100 billion, and the price level is 1.2, what is the velocity of money?
According to the quantity theory of money, if the money supply is $40 billion, real output is $100 billion, and the price level is 1.2, what is the velocity of money?
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Country X's economy is currently at full employment. Assume Country X's central bank increases the money supply by 2 percent over a prolonged period. According to the quantity theory of money, which of the following will happen in the long run for a given velocity of money?
Country X's economy is currently at full employment. Assume Country X's central bank increases the money supply by 2 percent over a prolonged period. According to the quantity theory of money, which of the following will happen in the long run for a given velocity of money?
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Which of the following is true about the national debt of the United States? It is the accumulation of past and current budget deficits and surpluses.
Which of the following is true about the national debt of the United States? It is the accumulation of past and current budget deficits and surpluses.
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Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?
Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?
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If the total of government spending plus government transfer payments is less than tax revenues, which of the following must be true? The government budget is in surplus.
If the total of government spending plus government transfer payments is less than tax revenues, which of the following must be true? The government budget is in surplus.
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The United States national debt is the amount of money owed to holders of United States government securities.
The United States national debt is the amount of money owed to holders of United States government securities.
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Assume a country's government has a balanced budget. If the economy goes into a recession, what will happen to the government's budget in the short run?
Assume a country's government has a balanced budget. If the economy goes into a recession, what will happen to the government's budget in the short run?
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Assume a country's banking system has limited reserves. If the government has increased the budget deficit and interest rates have remained constant, which of the following is true? Government spending is greater than tax revenue, and the central bank increases the money supply.
Assume a country's banking system has limited reserves. If the government has increased the budget deficit and interest rates have remained constant, which of the following is true? Government spending is greater than tax revenue, and the central bank increases the money supply.
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Crowding out occurs when government borrowing to finance its spending decreases private sector investment
Crowding out occurs when government borrowing to finance its spending decreases private sector investment
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An increase in government spending financed by increased borrowing will most likely change the real interest rate and the gross private domestic investment in which of the following ways?
An increase in government spending financed by increased borrowing will most likely change the real interest rate and the gross private domestic investment in which of the following ways?
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If investment demand becomes less responsive to changes in interest rates, which of the following is true? An expansionary fiscal policy results in less crowding out.
If investment demand becomes less responsive to changes in interest rates, which of the following is true? An expansionary fiscal policy results in less crowding out.
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Which of the following describes the effect of an increase in a government's budget deficit on the real interest rate and private investment?
Which of the following describes the effect of an increase in a government's budget deficit on the real interest rate and private investment?
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Increases in human capital can be achieved by improving the quality of job-training programs.
Increases in human capital can be achieved by improving the quality of job-training programs.
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Economic growth is best defined as
Economic growth is best defined as
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Country A's growth rate in per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP growth rates?
Country A's growth rate in per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP growth rates?
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Economic growth refers to an increase in which of the following?
Economic growth refers to an increase in which of the following?
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If an economy experiences an improvement in technology, what will happen to its production possibilities curve (PPC) and its long-run aggregate supply (LRAS) curve?
If an economy experiences an improvement in technology, what will happen to its production possibilities curve (PPC) and its long-run aggregate supply (LRAS) curve?
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If the government offers a tax credit to businesses, what will be the most likely effects of this action?
If the government offers a tax credit to businesses, what will be the most likely effects of this action?
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An increase in which of the following would be most likely to increase long-run growth?
An increase in which of the following would be most likely to increase long-run growth?
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Policymakers concerned about fostering long-run growth in an economy that is currently in a recession would most likely recommend which of the following combinations of monetary and fiscal policy actions?
Policymakers concerned about fostering long-run growth in an economy that is currently in a recession would most likely recommend which of the following combinations of monetary and fiscal policy actions?
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If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run?
If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run?
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Study Notes
Macro Unit 5 Flashcard Notes
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Short-Run Inflationary Policies: Decreasing administered interest rates and increasing government spending.
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Restoring Macroeconomic Equilibrium: Contractionary fiscal policy and contractionary monetary policy.
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Inflation vs. Expected Inflation (and Output): Potential real output exceeds equilibrium real output if actual inflation is less than expected inflation.
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OPEC Oil Production Increase (Phillips Curve): The short-run Phillips curve (SRPC) shifts to the left in the long run.
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Quantity Theory of Money (Velocity): Velocity of money = $40 billion (money supply) / ($100 billion * 1.2) = 3.0
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Long-Run Money Supply Increase: Nominal output increases by the same percentage as the money supply increase (2% in the example).
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National Debt Definition: The total of past and current budget deficits and surpluses (accumulated).
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Annually Balanced Budget Rule: Eliminates the automatic stabilizing effect of fiscal policy.
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Government Budget Surplus/Deficit: A surplus occurs when government spending + transfers are less than tax revenues. Conversely, a deficit occurs when spending is greater.
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National Debt Meaning: The total amount owed by the government to those who hold its securities.
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Recession and Balanced Budgets: A recession will automatically create a budget deficit because tax receipts decrease.
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Limited Reserves, Budget Deficit, & Interest Rates: Increased government spending exceeding tax revenue and a potential increase in the money supply by the central bank.
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Crowding Out: Government borrowing decreases private sector investment.
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Government Spending Increase and Investment Changes: An increase in government spending will likely increase the real interest rate and decrease private domestic investment.
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Investment Demand & Fiscal Policy: A less responsive investment demand to interest rate changes will mean less crowding out of private investment with fiscal policy that expands.
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Increase in Government Budget Deficit & Interest Rates: A higher government budget deficit will likely increase real interest rates and decrease private investment.
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Increasing Human Capital: Improving job-training programs.
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Economic Growth Definition: Sustained increase in real GDP per capita.
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Differences in Per Capita GDP Growth: Differences can occur due to differences in labor force skills and labor force participation.
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Economic Growth: An increase in potential real GDP.
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Technology Improvement and PPC/LRAS: Both the production possibilities curve (PPC) and the long-run aggregate supply (LRAS) curve shift outward with technological improvement.
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Business Tax Credits: Tax credits lead to increased investment, capital stock growth, and real output.
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Long-Run Growth Factors: Subsidies to businesses for capital goods purchases.
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Policymakers' Recessionary Response: Decreased administered interest rates with no change to fiscal policy.
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Marginal Business Tax Decrease: Decrease will lead to increased aggregate supply and employment.
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Description
Dive into the key concepts of short-run inflationary policies, macroeconomic equilibrium, and the Quantity Theory of Money with this Unit 5 flashcard quiz. Test your understanding of how fiscal and monetary policies interact and the implications of national debt. Perfect for students preparing for macroeconomics exams.
