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Unformatted text preview: ANSWERS TO END-OF-CHAPTER PROBLEMS CHAPTER 7 Quick Check 1. a. True. b. True. In the AS relation, if P = P e , Y = Y n . Note that P e must be known to graph the AS curve. c. False. The AD curve slopes down because an increase in P leads to a fall in M / P , so the nominal interest rate increases, and I and Y fall. d. False. There are changes in autonomous expenditure and supply shocks, both of which cause output to deviate from the natural level in the short run. e. True. f. False. Fiscal policy affects the interest rate in the medium run and therefore affects investment. g. False. The natural level of output changes in response to a permanent supply shock (other than a change in P e ). The price level changes in the medium run in response to either a demand or a supply shock. 2. a. IS shifts right, and LM shifts up. AD shifts right, and AS shifts up. b. Y returns to its unchanged natural level. The interest rate and the price level increase....
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This note was uploaded on 12/22/2011 for the course MACROECON 301 taught by Professor Christinanagy during the Fall '09 term at University of Washington.
- Fall '09