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Exam 13: Saving, Investment, and the Financial System

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Question 31

Multiple Choice

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The model of aggregate demand and aggregate supply is consistent with short-run monetary and long-run monetary .

A) neutrality; neutrality
B) nonneutrality; nonneutrality
C) neutrality; nonneutrality
D) nonneutrality; neutrality

E) C) and D)
F) A) and B)

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Question 32

Multiple Choice

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The short-run aggregate supply curve is drawn for a given:

A) output level.
B) price level.
C) expected price level.
D) level of aggregate demand.

E) C) and D)
F) A) and D)

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Question 33

Multiple Choice

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According to the imperfect-information model, when the price level falls but the producer did not expect it to fall, the producer:

The assumption of adaptive expectations for inflation means that people will form their expectations of inflation by:

Use the aggregate demand-aggregate supply model to graphically illustrate the difference between demand-pull and cost-push inflation. Explain your graph in words.

The imperfect-information model assumes that producers find it difficult to distinguish between changes in:

According to the sticky-price model:

After examining international data, the economist Robert Lucas found that aggregate demand has the biggest effect on output in countries where aggregate demand:

The Phillips curve shows a relationship between inflation and unemployment, and the short-run aggregate supply curve shows a relationship between the price level and output.

According to the imperfect-information model, when the price level rises and the producer expects the price level to rise, the producer:

Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to In the short run, and in the long run the expected price level will , causing the level of output to return to the natural level.

Assume that an economy is initially at the natural rate of unemployment. a. Use a Phillips curve diagram to illustrate graphically how the inflation rate and unemployment rate change both in the short run and in the long run to an unexpected expansionary monetary policy. b. Use a Phillips curve diagram to illustrate graphically how the inflation rate and unemployment rate change both in the short run and in the long run to the announcement of a credible plan of expansionary monetary policy when people have rational expectations.

Based on the sticky-price model, the short-run aggregate supply curve will be steeper, the greater the: