ECO-4 Lecture Notes - Lecture 20: Aggregate Supply, Price Level, The Foundations

Passive policy making utilizes the rational expectations hypothesis.

Passive policy making allows for making immediate changes in response to an anticipated change in economic performance.

When using passive policy making there is no tradeoff between price stability and unemployment.

Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.

discretionary policy making.

passive policy making.

Keynesianism.

active policy making.

frictional and cyclical unemployment only

frictional, structural, and cyclical unemployment

frictional and structural unemployment only

structural and cyclical unemployment only

the unemployment rate that exists in long-run equilibrium, after adjustments to all changes have occurred.

the unemployment rate when there is no structural unemployment.

the unemployment rate when there is no structural or cyclical unemployment.

zero.

employment possibilities.

structural unemployment.

poverty.

productivity.

exceeds the natural rate of unemployment.

falls below the natural rate of unemployment.

falls rapidly.

equals the inflation rate.

the unemployment due to the unemployment benefits and welfare programs of the government.

the unemployment due to union activities and government-imposed restrictions to entry into specific occupations.

the difference between the actual unemployment rate and the natural rate of unemployment.

the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion.

the natural unemployment rate

the seasonal unemployment rate

the official unemployment rate reported by the Bureau of Labor Statistics

the cyclical unemployment rate

the price level to increase but has no effect on the unemployment rate.

frictional unemployment to increase but structural unemployment to decrease.

the price level to increase and the unemployment rate to fall.

the price level to increase and the unemployment rate to increase.

non-accelerating-inflation rate of unemployment (NAIRU).

contrary rate of unemployment.

Phillips rate of unemployment.

menu cost rate of unemployment.

high inflation rates are associated with low unemployment rates.

higher rates of inflation are associated with higher rates of unemployment.

there is no trade-off between inflation and unemployment.

unemployment can be effectively combated by raising wages.

The curve shifts to the right

The curve shifts to the left

The Phillips curve is unaffected

The curve becomes horizontal

Passive policy making is more effective than active policy making.

Active policy making does not yield any predictable results.

Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making.

Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix.

aggregate supply has increased.

aggregate demand has increased.

summer has arrived.

the government has initiated expansionary fiscal policy but the policies haven't taken effect yet.

will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate.

will be unsuccessful if monetary policy is used since monetary policy leads to higher prices.

will be successful if monetary policy is used.

will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate.

strengthening restrictions on who can be licensed to enter certain professions

increasing the minimum wage to encourage more people to work

increasing the level of union bargaining power

limiting unemployment insurance benefits

will decrease real GDP, but will not affect the rate and duration of unemployment.

will decrease the price level.

will decrease long-run aggregate supply.

will decrease the average duration of unemployment.

rational expectations.

irrational expectations.

the policy irrelevance proposition.

the new classical theory.

when the Federal Reserve's open market committee operates as expected in either buying or selling bonds.

regardless of whether the policy is anticipated or unanticipated.

only when the policy is unsystematic and unanticipated.

only when the policy is anticipated.

should not be attempted.

is best achieved with fiscal policy.

is best achieved with monetary policy.

is equally easy to achieve with monetary or fiscal policy.

go down whenever the Fed announces an anticipated fiscal policy change.

equal the natural rate of unemployment in the long run, regardless of any monetary policy actions.

always be higher in the long run than the natural rate of employment.

go up whenever the Fed announces an anticipated monetary policy change.

not persistently make the same mistakes in forecasting the future.

know exactly what the Fed is planning to do.

know the future perfectly.

never make mistakes in their forecasts, even when they do not know the future perfectly.

increase the price level in the long run.

increase the real Gross Domestic Product (GDP) in the long run.

decrease the natural rate of unemployment.

decrease the price level and the unemployment rate.

prices are "sticky" upward.

wages are "sticky" downward.

markets are not purely competitive.

the rational expectations hypothesis is correct.

increase both real Gross Domestic Product (GDP) and the price level.

increase real Gross Domestic Product (GDP) but not change the price level.

decrease both real Gross Domestic Product (GDP) and the price level.

decrease real Gross Domestic Product (GDP) but increase the price level.

the economy experiences higher inflation rates and higher unemployment rates at the same time.

the economy experiences lower inflation rates and higher unemployment rates at the same time.

the economy experiences higher inflation rates and lower unemployment rates at the same time.

the economy experiences lower inflation rates and lower unemployment rates at the same time.

only the short-run aggregate supply curve shifts leftward.

only the long-run aggregate supply curve shifts leftward.

there are no shifts in either the long-run or short-run aggregate supply curve.

both the long-run and short-run aggregate supply curves shift leftward.

only monetary policy is an effective stabilization policy.

only fiscal policy is an effective stabilization policy.

both fiscal and monetary policy can be effective stabilization policies.

neither fiscal nor monetary policy is an effective stabilization policy.

menu cost theory.

Phillips theory.

Freidman theory.

sticky wage theory.

wages and prices move freely and quickly.

there will be no unemployment.

firms find frequent price changes to be costly.

the economy is characterized only by perfect competition.

initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.

initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.

initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

swings in the labor force participation rate.

sticky product prices.

aggregate supply shocks.

low levels of consumer confidence in response to aggregate supply shocks.

the relationship between inflation and unemployment is exploitable in the short run.

fluctuations in output are largely caused by supply shocks.

the relationship between inflation and unemployment is exploitable in the long run.

there is no relationship between inflation and unemployment.

unemployment levels and the inflation rate have a negative (inverse) relationship.

unemployment levels and the inflation rate have a clear, positive relationship.

economic participants routinely incorporate changes in the inflation rate into their expectations.

economic participants are not rational, and therefore act unpredictably to any policy change.

it is unlikely that active policy making will have any long term effects on the economy.

it will lead to long term shocks in the system.

it is likely that active policy making will have long term effects on the economy.

active policy making should be used over passive policy making.

economic growth will be robust because any population gain is a plus.

per capita GDP is likely to increase sharply.

there may be little or no increase in a nation's labor resources.

a nation's labor resources will still continue to increase in both quality and quantity.

indirectly reduces per capita real GDP.

directly reduces per capita real GDP.

directly increases per capita real GDP.

has no effect on real per capita real GDP.

2 percent

1 percent

5 percent

3 percent

is equally as important as economic freedom.

appears to be less important than economic freedom.

contributes little to job growth.

is more important than economic freedom.

special interest groups may gain at the expense of the overall economy.

campaign contributions rob the economy of investment.

most jobs are in unions that are politically connected.

none of the above.

the right to own private property and to exchange goods with minimal government interference.

present as long as private individuals own businesses.

the amount of control that the government has in a market.

the right to vote in an election for a political leader.

population freedom.

political freedom.

economic freedom.

capital freedom.

the annual percentage change in nominal GDP.

the annual percentage change in per capita real GDP.

the annual percentage change in per capita nominal GDP.

the annual percentage change in the unemployment rate.

laissez-faire.

low rate of economic growth.

high rate of economic growth.

more political freedom.

any capital resource that lacks clear title of ownership.

machinery that requires constant maintenance.

machinery that fails to operate properly.

a capital resource that depreciates rapidly.

it is being removed from its most efficient use.

it is difficult to allocate to its most efficient use.

its fixed cost is too high.

it replaces too many workers.

it replaces too many workers, creating unemployment.

resulting inefficiencies greatly reduce the rate of return on investment.

it must be sold as scrap.

none of the above.

growth neither increases nor is impaired by dead capital.

growth increases because the dead capital is replaced with more technologically efficient capital.

growth increases since the firms using the dead capital are using it for free.

growth is impaired since the capital cannot be allocated to its most efficient use.

a country tends to grow at a faster rate.

economic growth is not influenced.

dead capital is usually not a problem.

a country tends to grow at a slower rate.

gross private international investment.

majority investment.

foreign direct investment.

portfolio investment.

portfolio and foreign direct investment.

the sale of antiques.

government financing.

tax collections.

livestock.

less than 10 percent ownership in a foreign company.

a life insurance policy when traveling abroad.

more than 50 percent ownership in a foreign company.

to eradicate poverty.

to improve the standard of living for workers.

the potential for high rates of return.

to do research in countries with fewer social regulations.

a nation's central bank lowering domestic interest rates.

a drop in the value of the U.S. dollar.

foreign investments and loans being withdrawn from a nation.

a government refusing to pay its dues to the United Nations.

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

firms sometimes have trouble determining whether they need funds or not.

if investors have trouble identifying high-risk firms they may be unwilling to lend funds to creditworthy firms.

of the differences between financing using loans, portfolio investment and foreign direct investment.

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.

firms sometimes have trouble determining whether they need funds or not.

of the differences between financing using loans, portfolio investment and foreign direct investment.

adverse hazard and moral selection.

adverse hazard and moral hazard.

adverse selection and moral selection.

adverse selection and moral hazard.

International Monetary Fund.

United Nations Development Program.

World Trade Organization.

World Bank.

World Bank.

United Nations.

International Monetary Fund.

World Trade Organization.

deposit surplus.

capital account.

current account.

quota subscription.

the Eurodollar.

the IMF dollar.

the quota subscription.

special drawing rights.

to supervise exchange-rate practices of member countries.

to help finance economic development in poor countries.

to encourage convertibility of member countries' currencies.

to lend funds to countries having difficulties meeting their international payment obligations.

short-term assistance when a nation experiences a financial crisis.

financial stability.

so-called stand-by arrangements and credits.

long-term development and growth.

is the bank that causes international financial crisis when the reserves are too high.

is a central bank like the Federal Reserve System.

is a multinational organization that aims to promote world economic growth through more financial stability.

is a multinational agency that specializes in making loans to promote long-term development and growth in developing countries.