1. Draw a correctly labeled graph of aggregate demand and supply showing an economy in
long-run macroeconomic equilibrium.
a. On your graph, show what happens in the short run if the central bank increases the
money supply to pay off a government deficit.
1. A change in which of the following will shift the money demand curve?
I. the aggregate price level
II. real GDP
III. the interest rate
a. I only
b. II only
c. III only
d. I and II only
e. I, II and III
2. Which of the following will decrease the demand
1. Suppose the economy is currently suffering from a recessionary gap and the Federal Reserve
uses an expansionary monetary policy to close that gap. Describe the short-run effect of this
policy on the following.
a. the money supply curve
b. the equilibri
1. Explain the effect of each of the following on the growth rate of productivity.
a. The amounts of physical and human capital per worker are unchanged,
but there is significant technological progress.
b. The amount of physical capital per worker grows,
1. Use a correctly labeled aggregate supply and demand graph to illustrate cost-push inflation.
Give an example of what might cause cost-push inflation in the economy.
2. Draw a correctly labeled aggregate demand and supply graph showing an economy in lon
1. Suppose the economy begins in long-run macroeconomic equilibrium. What is
the long-run effect on the aggregate price level of a 5% increase in the money
2. Again supposing the economy begins in long-run macroeconomic equilibrium,
1. Although China and India currently have growth rates much higher than the U.S. growth rate, the typical Chinese or
Indian household is far poorer than the typical American household. Explain why.
Tackle the Test: Multiple-Choice Questions
1. Which of t
3. Debt deflation is
a. the effect of deflation in decreasing aggregate demand.
b. an idea proposed by Irving Fisher.
c. a contributing factor in causing the Great Depression.
d. due to differences in how borrowers/lenders respond to inflation losses/gain
1. During a recession in the United States, what happens automatically to tax revenues and