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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
2. If net exports are negative, what happens to the aggregate expenditures line, other things equal? What will happen to equilibrium income?
1. When all the nonconsumption components of aggregate expenditures are autonomous, why does the aggregate expenditures line have the same slope as the consumption function?
6. What would happen to equilibrium income if, other things equal, imports increased by $100 billion and the marginal propensity to consume was 0.9?
5. If autonomous consumption was $300 billion, investment was $200 billion, government purchases were$400 billion, and net exports were a negative $100 billion, what would autonomous consumption be? What would equilibrium income be?
4. Why does a larger marginal propensity to consume lead to a larger multiplier?
3. If the marginal propensity to consume was 0.75, what would happen to equilibrium income if government purchases increased by $500 billion and investment fell by $500 billion at the same time? What if government purchases increased by $500 billion and investment fell by $400 billion at the same
2. If autonomous expenditure rises and the marginal propensity to consume falls, what would happen to equilibrium income?
1. If autonomous expenditure rises and the marginal propensity to consume rises, what would happen to equilibrium income?
1. How do we move from aggregate expenditures to aggregate demand?
1. Why do aggregate expenditures depend on the price level?
1. How does the multiplier affect aggregate expenditures?
1. How do changes in the components of aggregate expenditure affect the aggregate expenditure curve?
1. How does the aggregate expenditure model help explain the process of the business cycle?
1. What is unplanned investment?
1. What is planned investment?
1. What is the impact of adding investment, government purchases, and net exports to aggregate expenditures?
1. What are the autonomous factors that influence consumption spending?
1. What economic variables influence aggregate demand?
1. Why do we assume a fixed price level?
1. What is the modern Keynesian short-run supply curve?
1. What is the Keynesian short-run supply curve?
1. What is the full-employment classical school model?
1. What was Keynes’s criticism of the classical school?
1. What is Say’s law?
1. What is the classical school?
1. What is wage and price inflexibility?
1. How does the economy self-correct?
1. What is cost-push inflation?
1. What is demand-pull inflation?
1. What are recessionary and inflationary gaps?
1. What is the long-run macroeconomic equilibrium?
1. What is short-run macroeconomic equilibrium?
1. Why do wage increases (and other input prices) affect the short-run aggregate supply but not the long-run aggregate supply?
5. If the federal government increases government purchases and lowers taxes at the same time, does the budget deficit increase or decrease?
4. If the federal government increases taxes or decreases transfer payments, does the budget deficit increase or decrease?
3. If the federal government increases taxes and/or decreases transfer payments, is that an expansionary or contractionary fiscal policy?
2. If the federal government decreases its purchases of goods and services, does the budget deficit increase or decrease?
1. If, as part of its fiscal policy, the federal government increases its purchases of goods and services, is that an expansionary or contractionary tactic?
1. How can government reduction of aggregate demand reduce inflation?
1. How can government stimulus of aggregate demand reduce unemployment?
1. How does contractionary fiscal policy affect the government’s budget?
1. How does expansionary fiscal policy affect the government’s budget?
1. What is fiscal policy?
1. What factors shift the short-run aggregate supply curve exclusively?
1. Which factors of production affect the short-run and long-run aggregate supply curves?
1. Why is the long-run aggregate supply curve vertical at the natural rate of output?
1. Why do producers supply more as the price level increases in the short run?
1. What does the aggregate supply curve represent?
4. Why would an increase in the money supply tend to increase expenditures on consumption and investment, ceteris paribus?
3. What happens to aggregate demand if the demand for investment goods falls, ceteris paribus?
2. What happens to aggregate demand if the demand for consumption goods increases, ceteris paribus?
1. How is the distinction between a change in demand and a change in quantity demanded the same for aggregate demand as for the demand for a particular good?
1. What variables shift the aggregate demand curve to the left?
1. What variables shift the aggregate demand curve to the right?
1. What is the difference between a movement along and a shift in the aggregate demand curve?
5. What is the open economy effect, and how does it imply a downward-sloping aggregate demand curve?
4. What is the interest rate effect, and how does it imply a downward-sloping aggregate demand curve?
3. What is the real wealth effect, and how does it imply a downward-sloping aggregate demand curve?
2. How does an increased price level reduce the quantities of investment goods and consumer durables demanded?
3. What would an increase in exports do to aggregate demand, other things being equal? An increase in imports? An increase in both imports and exports, where the change in exports was greater in magnitude?
2. How would an increase in personal taxes or a decrease in transfer payments affect consumption?
1. What are the major components of aggregate demand?
1. How is the aggregate demand curve different from the demand curve for a particular good?
What are net exports?
What are government purchases?
What is investment?
What is consumption?
15. Does stagflation contradict the theory of the Phillips curve?
14. Why do economists who believe people form rational expectations have little faith that announced changes in monetary policy will have substantial effects on real output?
13. How would each of the following likely affect long-run and/or short-run aggregate supply and employment in the macroeconomy?a. an increase in the productivity of the labor force due to increased educationb. the coldest year in a century leads to frequent ice and snow stormsc. major advances in
12. How are the long-run Phillips curve and the long-run aggregate supply curve related?
11. Suppose the following data represent points along a short-run Phillips curve. Are the data consistent with what you would expect? Why or why not?
10. Why is the credibility of the monetary authorities so crucial to quickly overcoming expected inflation?
9. Answer the following questions.a. Why does an upward shift in the Phillips curve correspond to an upward shift in the short-run aggregate supply curve?b. Why does a movement up and to the left along a Phillips curve correspond to a movement up and to the right along a short-run aggregate supply
8. Is there any way that, starting from a long-run stable price equilibrium, an increase in aggregate demand could result in an increase in unemployment and a decrease in RGDP?
7. If money wages are rising faster than output prices,a. what is happening to real wages?b. what would happen to unemployment as a result?c. what would happen to SRAS as a result?
6. Predict whether unemployment will increase or decrease as a result of each of the following monetary policies. If it is unanticipated? What if it is anticipated?a. a reduction in the discount rate from 6 percent to 5.5 percentb. an open market sale by the Federal Reserve Bankc. an increase in
5. Predict the impact an unexpected decrease in the money supply would have on the following variables in the short run and in the long run.a. the inflation rateb. the unemployment ratec. real outputd. real wages
4. Abraham Lincoln once said “You can fool all of the people some of the time, and some of the people all of the time, but you cannot fool all of the people all of the time.” How can a central bank that conducts monetary policy “fool people”and thereby affect the level of unemployment in
3. Use the diagram from problem 2 anda. indicate which movement would correspond to an unanticipated expansionary government policy in the short run.b. indicate which movement would correspond to an unanticipated contractionary government policy in the short run.c. indicate which movement would
2. Use the diagram to answer the following questions:a. At which point might expansionary government policy help stabilize the economy?b. At which point might contractionary government policy help stabilize the economy?
1. Use the following diagrams anda. show what would happen in both diagrams if government purchases increase in the short run.b. show what would happen in both diagrams if the growth rate of the money supply was reduced in the short run.c. show what would happen in both diagrams if people came to
49. Indexinga. is a process of adjusting payment contracts to automatically adjust for changes in the price level.b. can reduce the impact of inflation on the distribution of income.c. may intensify the inflationary effects of expansionary monetary policy by increasing inflationary pressures.d. is
48. An escalator clause generally allows wage increasesa. without annual negotiations.b. only when prices increase by more than 5 percent.c. when unemployment threatens a major industry.d. to protect workers from increases in the prices of a few selected products.
47. Indexing is a method of fighting inflation bya. tying monetary payments to changes in price indexes.b. lowering the level of the consumer price index.c. keeping prices from rising above government set ceilings.d. all of the above.
46. The primary purpose of indexing is toa. lower the inflation rate.b. reduce the social costs of inflation.c. help the government maintain wage and price controls.d. All of the above are primary purposes of indexing.
45. Under the Taylor rule, the federal funds rate would be increased by half a point whena. real GDP exceeds target real GDP by 1 percentage point.b. target GDP exceeds real GDP by 1 percentage point.c. inflation exceeds the inflation target by 1 percentage point.d. either a or c occurs.
44. Which of the following would move in a different direction from the others in the case of a positive productivity shock?a. investmentb. the average amount of vacation time taken by workersc. real wagesd. real outpute. the marginal productivity of labor
43. According to real business cycle theorists, as a result of a negative productivity shock,a. the marginal productivity of labor will fall.b. the real wage rate will fall.c. the average hours of work will fall.d. investment will fall.e. All of the above will occur.
42. Which of the following is not a factor emphasized by real business cycle theorists as a cause of business cycles?a. the growth rate of productivityb. technological advancesc. slow adjustments of markets to changes in inflationd. all of the above are emphasized by real business cycle theorists
41. Under rational expectations, a fully anticipated decrease in the inflation rate from 6 percent to 2 percent willa. lower unemployment at first, but then unemployment will return to its natural rate.b. lower unemployment permanently.c. not change unemployment in either the short run or the long
40. Which of the following is true?a. A correctly anticipated increase in AD from expansionary monetary or fiscal policy will not change real output, employment, or unemployment in the short run.b. In the rational expectations model, when people expect a larger increase in AD than actually results
39. Which of the following is false?a. If people can anticipate the plans of policymakers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP.b. The theory of rational expectations leads to optimistic conclusions regarding
38. Critics of rational expectations theory believea. that most people are truly not well informed about the effects of a policy change.b. that most people do not adjust their behavior rapidly to changes in government policies, in part because they are not informed about the effects of policy
37. A conclusion of the theory of rational expectations is that, in the short run, the impact of a correctly anticipated fiscal policy designed to increase AD willa. result in no net change in AD once people’s expectations of adjustments have been accounted for.b. shift AD in the opposite
36. If the rational expectations theory is accurate, equilibrium real GDP will change in the short runa. whenever the aggregate demand curve shifts.b. only if discretionary fiscal policy is used.c. only if there is a shift in aggregate demand that could not have been predicted from the information
35. With rational expectations, a policy that would increase AD would lead toa. higher inflation and lower unemployment in the short run if people underestimated the effect of the policy on inflation.b. higher inflation and higher unemployment in the short run if people underestimated the effect of
34. With rational expectations, a policy that would increase AD would lead toa. higher inflation and lower unemployment in the short run.b. higher inflation and higher unemployment in the short run.c. higher inflation and no change in unemployment in the short run.d. higher inflation and an
33. If an increase in the growth rate of AD leads to an increase in real GDP in the short run,a. the increase in AD could have been correctly anticipated.b. the increase in AD could have been greater than anticipated.c. the increase in AD could have been less than anticipated.d. the increase in AD
32. Whether people quickly anticipate the effects of government policy changes or not, an increase in the growth rate of aggregate demand will tend to increase nominal GDPa. in both the short run and the long run.b. in the short run but not the long run.c. in the long run but not the short run.d.
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