Question

12. When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is and the aggregate demand curve shifts a. greater, inward b. greater, outward c. lower, inward d. lower, outward 13. Aggregate supply is the relationship between the quantity of goods and services supplied and the a. Money supply b. Unemployment rate c. Interest rate d. Price level If a short-run equilibrium occurs at a level of output above the natural level, then in the transition to the long run prices will and output will a. Increase; increase b. Decrease; decrease c. Increase; decrease d. Decrease; increase 14. 15. Assume that the economy beings in the long-run equilibrium. Then the Fed reduces the money supply. In the short run, whereas in the long run prices and output returns to its original level a. Output decreases and prices are unchanged, rise b. Output decreases and prices are unchanged, fall c. Output and prices both decrease; rise d. Output and prices both decrease, fall 16. In the solow growth model with population growth, but no technological change, a higher level of steady-stat output per worker can be obtained all of the following except a. increasing the saving rate b. decreasing the depreciation rate c. increasing the population growth rate d. increasing the capital per worker ratio 17. Suppose that two countries are exactly alike in every respect except that population grows at a faster rate in country A than in country B a. Which country will have the higher level of output per worker in the steady state? Illustrate graphically Which country will have the faster rate of growth of output per worker in the steady state? b.

Answer 1

12) When FED increases the money supply, the amount of output demand is increased and the aggregate demand curve shifts outward. Therefore option b is correct.

13) Aggregate supply is the relation between the quantity of goods and services and the price level. Option d is correct.

14) In short run, equilibrium occurs above the natural level, the price is less than long-run equilibrium and quantity is more than long-run equilibrium. So in the long run quantity will be decreased and the price will be increased. Option c is right.

15) When FED decreases the money supply, in the short run output will be decreased and interest rate will be increased. As interest rate and price are inversely related so the price will be decreased. In the long run, prices will be further decreased and output will be back to the natural level. Option d is correct.