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ECON 203 – Quiz 6
1. If an AS-AD model is initially in equilibrium and the money supply growth rate drops, which
of the following is a possible outcome?
d. inflation decreases with no change in economic productivity
2. The real business cycle model claims that the primary cause of changes in real GDP in the
short run and the long run is
c. technology shocks
3. The current function of gold in the US money supply is
d. non-existent.
4. The most important factor that leads to an effective monetary body is
b. relative independence from the central government.
5. An secondary effect of an increase in the Long Run Aggregate Supply is a(n)
d. all of the above
6. Fiscal policy refers to
c. changes in government expenditures and taxation to achieve particular economic goals.
7. Using the AS-AD model, if a country is currently in a recession, which of the following
suggestions will lead to an economic recovery and NOT lead to an increase in the price level,
other things constant?
d. doing nothing
8. Which of the following is accurate?
a. Though monetary policy is neutral in the long run, it may have effects on real variables
in the short run
9. If citizens do not believe their government is serious about cutting the rate of growth of the
money supply, and the government does cut the rate of growth,
a. a recession will occur due to the decrease in AD.
10. Use statements I and II to choose the correct answer
I. The Federal Reserve sets the discount rates
II. The business cycle refers to the economic fluctuations in real GDP.
a. Both I and II are true.
11. The short run aggregate supply is positively sloped because of
b. a lack of complete information
12. Long run economic growth is likely caused by
a. new integrated technologies
or
d. all of the above
13. Suppose investors get discouraged about the future returns from capital. One could expect
which of the following:
b. short run recession and long run lower inflation
Short answer essay:
Initially, assume an aggregate demand curve AD and a long run aggregate supply curve, ASLR, and a short
run aggregate supply curve, ASSR. Be sure to draw and properly labeled the graph. Explain the short run
and long run outcomes.
--
Suppose that workers expect an increase in labor demand that foreshadow wage increases in
the near future.
Rightward shift in AD – short run increase in prices and real GDP
-- long run price increase but Real GDP returns to its previous growth
Now using our basic four quadrant model, completely trace through both the short-run and long-run effects.
Be sure to draw and properly labeled the graph.
--
Suppose there is an increase in labor demand due to firms expecting better business
environment in the near future.
Increase in labor demand – increase in wages and labor
Increase in supply of loanable funds – decrease interest rates and increase in S=I
Increase in production function – increase Y
Decrease in the inflation rate