Macroeconomics Unit 5

Which of the following best describes what will happen to this economy in the long run?

• The LRAS curve will shift out and full employment output will increase from Yf to Y1.

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• Wages and prices will decrease and the full employment level of output will increase

• Wages and prices will decrease and output will decrease from

  Y1 to Yf.

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• Wages and prices will decrease and output will increase from

  Y1 to Yf.

• Wages and prices will increase and output will remain at

  Y1.

The natural rate of unemployment in Mithrim is 5%, and the current rate of unemployment is 2%. Also, the consumer price index (CPI) has been increasing rapidly.Which of the following combinations of monetary and fiscal policy would be appropriate to return this economy to full employment?

• Increasing taxes; lower the discount rate

• Decreasing taxes; buy bonds

• Increase government spending; sell bonds

• Increasing taxes; increasing government spending

• Increasing taxes; open market sales

The current state of the economy of Te Rehunga is represented in the graph shown above.

Let point B in the options below represent the current combination of inflation and the unemployment rate.

Which of the following graphs best depicts the Phillips curve model of Te Rehunga based on this AD-AS model?

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In the graph of the Phillips curve above, an economy moved from point 1 to point 2 to point 3. Which of the following would be the most likely reason for the movement from point 2 to point 3 shown in this graph?

• A change in the natural rate of unemployment

• An increase in aggregate demand

• A decrease in aggregate demand (AD)

• A decrease in short-run aggregate supply (SRAS)

• An increase in short-run aggregate supply (SRAS)

The formula C+I+G+X represents ​ (a)   .

• Gross Domestic Product

• Nominal Imports

• Nominal Exports

• Gross International Product

The economy of Burginville has experienced high rates of inflation over the past 10 years.

According to the quantity theory of money, which of the following is the most likely explanation for the sustained inflation during this period?

• Better banking technology that has decreased the velocity of money

• Contractionary monetary policy

• Expansionary monetary policy

• Strong economic growth

• A money supply that has increased at the same pace as real output

The economy of Rivendell experienced the AD shock shown in this graph. Which of the following combinations of monetary and fiscal policy would be appropriate to combat the effect on the price level shown in this graph?

• Increase taxes; open market sales

• Sell bonds; increase the reserve requirement

• Decrease taxes; increase government spending

• Decrease taxes; decrease the reserve requirement

• Increase taxes; decrease the reserve requirement

The economy of Mithrim is experiencing a severe recession. As a result, the government is conducting expansionary fiscal policy. The central bank of Mithrim is considering expansionary monetary policy to aid in the recovery efforts. Which of the following is an example of a monetary policy action that would work with the expansionary fiscal policy to close the output gap?

• Increasing government spending

• Increasing the discount rate

• Increase taxes

• Selling bonds

• Open market purchases

The economy of Isengard is experiencing high inflation and a rate of unemployment below the natural rate.

Which of the following combination of fiscal and monetary policy actions would be the most appropriate response to this output gap?

• Decrease government spending; decrease the money supply

• Buy bonds; decrease the reserve ratio

• Increase government spending; decrease taxes

• Decrease taxes; increase the money supply

• Increase taxes; buy bonds

Which of the following actions would most likely lead to a shift to the left of the short-run Phillips curve, or SRPC?

• A strong central bank commitment to reducing inflation

• A strong central bank commitment to decreasing cyclical unemployment

• A strong government commitment to engage in expansionary fiscal policy

• A strong central bank commitment to increasing the money supply

• A strong government commitment to reducing structural unemployment