1) Suppose that the economy is currently in long-run equilibrium. Which of the f
ID: 1112861 • Letter: 1
Question
1) Suppose that the economy is currently in long-run equilibrium. Which of the following would be likely to cause a short-run decrease in the unemployment rate relative to the natural rate?
A. Upper A contractionary fiscal policy that was not fully anticipated
B. A permanent decrease in the minimum wage
C. An increase in union membership
D. An expansionary monetary policy that was not fully anticipated
2) Suppose a constitutional amendment is passed that mandates a balanced federal budget every year and the President and Congress consistently carry this mandate out. This would be an example of
A. cooperative policymaking.
B. decisive policymaking.
C. active policymaking.
D. nondiscretionary policymaking
6) Unemployment that deviates from the natural rate of unemployment is referred to as
A. cyclical unemployment.
B. structural unemployment.
C. seasonal unemployment.
D. frictional unemployment.
7) If expectations are rational, an unanticipated increase in aggregate demand will cause ____________. A fully anticipated increase in aggregate demand will cause ______________.
A. a decrease in the price level but no change in real GDP; a decrease in both the price level and real GDP.
B. an increase in both the price level and real GDP; no change in either the price level or real GDP.
C. an increase in the price level but no change in real GDP; an increase in both the price level and real GDP.
D. an increase in both the price level and real GDP; an increase in the price level but no change in real GDP.
E. a decrease in both the price level and real GDP; a decrease in the price level but no change in real GDP.
According to the quantity theory of money, the growth of the money supply is positively related to NGDP The quantity theory of money is given by the equation: M PY where M is a measure of money supply, (1/V) is the inverse of the income velocity and is considered constant by the monetarist economist, and PY is the price level (P) times real output (Y), equal to NGDP Directions: click on the graph in the window on the right and select Multiple Time Series to graph the annual growth rate of the money supply and nominal gross domestic product (NGDP) for the years 1960-2004 For Y1 select M2 Rate of Growth and for Y2 select NGDP Rate of Growth. Roll your cursor over the plotted lines to identify the data Use the graph to help determine which of the following statements are true: 0 A. The growth of M2 and inflation, according to the graph, seem to have no relation to one another, and thus provide evidence for the rejection of the quantity theory of money. 0 B. There exists a positive relationship between the growth rate of M2 and inflation, although not a very strong one This relationship starts breaking down in the early 1990's ° C. There exists a perfect relationship between the growth of M2 and inflation. O D. The quantity theory of money cannot be tested empirically by examining the relation between M2 and NGDP since there are other measures of money supply that may perform better than M2 Click to select your answerExplanation / Answer
1. D. An expansionary monetary policy that was not fully anticipated
Explanation: An unanticipated expansionary monetary policy will increase the money supply and create inflationary pressure in the economy. The output will be larger than the LRAS (long-run aggregate supply) and the unemployment rate will go below the natural rate of unemployment.
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