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Economics: Principles, Problems, and Policies

Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn

Chapter 37

Current Issues in Macro Theory and Policy - all with Video Answers

Educators

Chapter Questions

02:26

Problem 1

If prices are sticky and the number of dollars of gross investment unexpectedly increases, the _______ curve will shift _______.
a. AD; right.
b. AD; left.
c. AS; right.
d. AS; left.

Xiaomin Bian
Xiaomin Bian
Numerade Educator
11:22

Problem 2

First, imagine that both input and output prices are fixed in the economy. What does the aggregate supply curve look like? If AD decreases in this situation, what will happen to equilibrium output and the price level? Next, imagine that input prices are fixed, but output prices are flexible. What does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? Finally, if both input and output prices are fully flexible, what does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? (To check your answers, review Figures $30.3,30.4,$ and 30.5 in Chapter 30 ).

Pragya Ahuja
Pragya Ahuja
Numerade Educator
07:55

Problem 3

Suppose that the money supply is $\$ 1$ trillion and money velocity is $4 .$ Then the equation of exchange would predict nominal GDP to be:
a. $\$1$ trillion.
b. $\$4$ trillion.
c. $\$5$ trillion.
d. $\$8$ trillion.

Yi Chun Lin
Yi Chun Lin
Washington University in St Louis
02:58

Problem 4

If the money supply fell by 10 percent, a monetarist would expect nominal GDP to ________.
a. Rise.
b. Fall.
c. Stay the same.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
02:36

Problem 5

An economy is producing at full employment when AD unexpectedly shifts to the left. A new classical economist would assume that as the economy adjusted back to producing at full employment, the price level would ________.
a. Increase.
b. Decrease.
c. Stay the same.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
05:35

Problem 6

Use an AD-AS graph to demonstrate and explain the price-level and real-output outcome of an anticipated decline in aggregate demand, as viewed by RET economists. (Assume that the economy initially is operating at its full-employment level of output.) Then demonstrate and explain on the same graph the outcome as viewed by mainstream economists.

Pragya Ahuja
Pragya Ahuja
Numerade Educator
03:50

Problem 7

Place “MON,” “RET,” or “MAIN” beside the statements that most closely reflect monetarist, rational expectations, or mainstream views, respectively:
a. Anticipated changes in aggregate demand affect only the price level; they have no effect on real output.
b. Downward wage inflexibility means that declines in aggregate demand can cause long-lasting recession.
c. Changes in the money supply $M$ increase $P Q ;$ at first only $Q$ rises, because nominal wages are fixed, but once workers adapt their expectations to new realities, $P$ rises and $Q$ returns to its former level.
d. Fiscal and monetary policies smooth out the business cycle.
e. The Fed should increase the money supply at a fixed annual rate.

Pragya Ahuja
Pragya Ahuja
Numerade Educator