Macro 3 - HW 3 REVIEW Questions that many students got...

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HW 3 REVIEW – Questions that many students got wrong – and Answers in capitals ____ 1. Large or persistent inflation is almost always caused by a. excessive government spending. b. excessive growth in the quantity of money. c. foreign competition. d. higher-than-normal levels of productivity. B- THIS IS A LONG-RUN QUESTION THAT SNUCK IN; IGNORE FOR NOW (BUT IT MYA POP UP ON A QUIZ OR MIDTERM. MORE LATER ____ 2. In the short run Recessions in South Korea and Indonesia will cause a. the U.S. price level and real GDP to rise. b. the U.S. price level and real GDP to fall. c. the U.S. price level to rise and real GDP to fall. d. the U.S. price level to fall and real GDP to rise. B - A SLOW ECONOMY IN S KOREA WILL CAUSE THEM TO IMPORT LESS U.S. GOODS AND SERVICES - I.E., OUT EXPORTS WIL LFALL, SINCE EXPORTS ARE PART OF U.S. AGG DEMAND, AGG DEMAND WILL IF ORIGINALLY AD2 AND SRAS 1 WI EQUILIB AT B, NOW AGG D SHIFTS/FALLS TO AD1 WITH NEW ___ 3. Which of the following would cause prices to fall and output to rise in the short run? a. Short-run aggregate supply shifts right. b. Short-run aggregate supply shifts left. c. Aggregate demand shifts right. d. Aggregate demand shifts left. A – LOOK AT ABOVE DIAGRAM AND ASSUME START AT SRAS2 AND AD1 WITH EQUILIB AT D, THEN A SHIFT TO SRAS1 WILL BRING NEW EQUILIB AT A WITH LOWER P AND HIGHER Q. PLAY WITH DIFFERENT POSSIBLE SHIFTS AND ONLY A RIGHTWARD SHIFTING AGG S WILL DO JUST THIS ____ 4. Which of the following would cause prices to rise and real GDP to fall in the short run? a. an increase in the expected price level b. an increase in the capital stock c. an increase in the quantity of labor available d. All of the above are correct. A – SINCE RISING PRICES AND FALLING GDP REQUIRE A SHIFT TO THE LEFT OR UP IN AGG S (IN ABOVE DIAGRAM, WE’RE AT AD1, SRAS1, EQUILIB AT A. NOW SRAS SHIFTS UP TO SRAS2, NEW EQUILIB AT D WITH HIGHER PRICES LOWER OUTPUT). B AND C WOULD LOWER COSTS OF PRODUCTION AND SHIFT AGG S TO THE RIGHT. A WOULD CAUSE PRODUCERS TO RAISE PRICES TODAY IF THEY EXPECT IT TO GO UP TOMORROW, AND THUS SHIFT AGG S UP.
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____ 5. Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting a. aggregate supply right. b. aggregate supply left. c. aggregate demand right. d. aggregate demand left. C – SHIFT AGG D RIGHT, WHICH IS JUST WHAT THE FED IS TRYING TO DO NOW. MONETARY AND FISCAL POLICY BOTH ACT ON AGG D. ____ 6. An increase in the price level and a reduction in real GDP could be created by a. a fall in stock prices. b. natural disasters such as hurricanes and famines.
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Macro 3 - HW 3 REVIEW Questions that many students got...

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