Unit 5: Long-Run Consequences of Stabilization Policies

The short-run Phillips curve depicts

The long-run Phillips curve is vertical at the natural rate of unemployment because

Crowding out refers to the idea that

An increase in expected inflation will cause the short-run Phillips curve to

A decrease in aggregate supply due to an oil supply shock will cause which of the following changes on the short-run Phillips curve?

In the loanable funds market, an increase in the government budget deficit will

According to the theory of rational expectations,

Which of the following best describes the effect of an increase in the national debt?

If the economy is currently operating at the natural rate of unemployment and the central bank unexpectedly increases the money supply, what will happen in the short run?

Supply-side economists argue that tax cuts

If expansionary fiscal policy leads to higher interest rates that reduce private investment, the impact of the fiscal policy on real GDP is

Deficit spending by the government is most likely to be effective at increasing real GDP when the economy is

Assume the economy is in long-run equilibrium. If the government increases spending and the central bank simultaneously increases the money supply by the same proportion, the most likely result is

An increase in the supply of loanable funds would most likely result from

Which of the following combinations of monetary and fiscal policy would be most effective at increasing real GDP while keeping interest rates relatively stable?

An inflationary gap exists when

According to the Phillips curve framework, if the expected inflation rate is 3% and the economy is at the natural rate of unemployment, the actual inflation rate is

In the long run, an increase in the money supply will lead to

The concept of "crowding out" suggests that fiscal policy is most effective when

Which of the following describes the Laffer curve?

If policymakers pursue contractionary fiscal policy to reduce inflation, what is the expected short-run effect on the Phillips curve?

The natural rate of unemployment will decrease if

If the economy is in a recession and the Federal Reserve pursues expansionary monetary policy while Congress pursues expansionary fiscal policy simultaneously, what would happen to interest rates?

Economic growth is best represented by

If the government finances its deficit spending by borrowing from the central bank (monetizing the debt), the most likely long-run outcome is

According to the adaptive expectations theory, if the government repeatedly uses expansionary policy to reduce unemployment below the natural rate,

Based on the data, which segment of the Phillips curve is the economy currently on?

Policymakers face a time lag problem with fiscal policy. Which of the following correctly describes the recognition lag?

The primary goal of contractionary fiscal policy is to

In the short run, if the actual inflation rate is HIGHER than the expected inflation rate, then

The government runs a budget deficit when

Which of the following pairs of policies would create the most UNCERTAINTY about the effect on real GDP?

Which of the following is a criticism of using fiscal policy to stabilize the economy?

An economy at full employment that experiences an increase in aggregate demand will, in the LONG run,

If the government increases spending and finances it entirely by borrowing from the private sector (not the central bank), the likely long-run effect is

The short-run Phillips curve shows an inverse relationship between

An increase in aggregate demand in the short run will cause a movement

A supply shock (such as an increase in oil prices) would cause the short-run Phillips curve to

In the long run, an increase in the money supply will result in

The natural rate of unemployment is the rate that prevails when

If people expect higher inflation, the short-run Phillips curve shifts

Fiscal policy has a time lag because

If expected inflation rises from 2% to 5%, what happens to the short-run Phillips curve?

The concept of monetary neutrality states that

Expansionary fiscal policy can lead to crowding out, which means

The government debt-to-GDP ratio is important because it measures

Persistent budget deficits lead to

According to the misperceptions theory, unexpected inflation can temporarily reduce unemployment because

In the long run, the economy self-corrects to potential GDP because

What is the real interest rate?

Long-run economic growth is best achieved through

Demand-side policies (fiscal and monetary) can change real GDP in the short run but in the long run primarily affect

Supply-side fiscal policies focus on

If the economy is currently at 3% unemployment and 6% inflation, what should the Fed do?

Disinflation refers to

Deflation can be harmful to an economy because

The LRAS curve shifts to the right when

An economy is in long-run equilibrium when the government implements a permanent increase in spending. In the long run, if the economy self-corrects, which of the following will be true compared to the initial equilibrium?

According to the Phillips curve, a government pursues expansionary fiscal policy to reduce unemployment from 7% to 4%. If the long-run natural rate of unemployment is 5%, what is the expected long-run outcome?

A country has a national debt of $20 trillion and its central bank has been monetizing part of this debt. Which of the following is a likely long-run consequence?