Suppose the economy is currently in long-run equilibrium and then a wave of busi

Question

Suppose the economy is currently in long-run equilibrium and then a wave of business pessimism reduces aggregate demand.

Which of the following diagrams correctly shows the short-run effect of the business pessimism?

If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and unemployment rate?

Now suppose the economy is back in long-run equilibrium, and then the price of imported oil rises.

Which of the following diagrams correctly shows the short-run effect of the rise in oil prices?

Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.

1. What is the price level?

2. What is the velocity of money?

Suppose that velocity is constant and the economy's output of goods and services rises by 5 percent each year. Assume that the Fed keeps the money supply constant.

3. By how much will nominal GDP change next year?
%

4. By how much will the price level change next year? If the percentage is negative, enter your answer as a negative number.
%

5. If the Fed wants to keep the price level constant, what should the money supply be next year?
$ billion

6. If the Fed wants an inflation rate of 10 percent next year, what should the money supply be next year?
$ billion

1. If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and unemployment rate?
--select--YesNo, expansionary policy returns the inflation rate but not the unemployment rate to its original level.No, expansionary policy returns the unemployment rate but not the inflation rate to its original level.Correct 1 of Item 1

2. If the Fed undertakes contractionary monetary policy, can it return the economy to its original inflation rate and unemployment rate?
--select--YesNo, contractionary policy returns the inflation rate but not the unemployment rate to its original level.No, contractionary policy returns the unemployment rate but not the inflation rate to its original level.Correct 2 of Item 1

a. b. c. d.Suppose the economy is currently in long-run equilibrium and then a wave of business pessimism reduces aggregate demand.

If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and unemployment rate?

a. yes b. no

Now suppose the economy is back in long-run equilibrium, and then the price of imported oil rises.

Which of the following diagrams correctly shows the short-run effect of the rise in oil prices?

a. b. c.

Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion.

1. What is the price level?

2. What is the velocity of money?

Suppose that velocity is constant and the economy's output of goods and services rises by 5 percent each year. Assume that the Fed keeps the money supply constant.

3. By how much will nominal GDP change next year?
%

4. By how much will the price level change next year? If the percentage is negative, enter your answer as a negative number.
%

5. If the Fed wants to keep the price level constant, what should the money supply be next year?
$ billion

6. If the Fed wants an inflation rate of 10 percent next year, what should the money supply be next year?
$ billion

d.

1. If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and unemployment rate?
--select--YesNo, expansionary policy returns the inflation rate but not the unemployment rate to its original level.No, expansionary policy returns the unemployment rate but not the inflation rate to its original level.Correct 1 of Item 1

2. If the Fed undertakes contractionary monetary policy, can it return the economy to its original inflation rate and unemployment rate?
--select--YesNo, contractionary policy returns the inflation rate but not the unemployment rate to its original level.No, contractionary policy returns the unemployment rate but not the inflation rate to its original level.Correct 2 of Item 1

Suppose the economy is currently in long-run equilibrium and then a wave of business pessimism reduces aggregate demand. Which of the following diagrams correctly shows the short-run effect of the business pessimism? Suppose the economy is currently in long-run equilibrium and then a wave of business pessimism reduces aggregate demand. If the Fed undertakes expansionary monetary policy, can it return the economy to its original inflation rate and unemployment rate? Now suppose the economy is back in long-run equilibrium, and then the price of imported oil rises. Which of the following diagrams correctly shows the short-run effect of the rise in oil prices?

Explanation / Answer

answer is 1st diag as demand decrease inflation decreases and unemployment rate increases

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yes as fed expansion policy will increase inflation and inflation will come at its normal rate

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oil price will increase inflation and unemployment both hence 1st diag is the correct answer

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