# 2. According to the dynamic AD Curve, if M + v = 7%, while real growth = 2%, what must inflation be equal to?

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1 Homework In economic terms, menu costs are A. the cost of services listed in a menu. B. the costs to producer of changing prices. C. the cost of goods listed on a business rate sheet. D. the price of food on restaurant menus. 2. According to the dynamic AD Curve, if M + v = 7%, while real growth = 2%, what must inflation be equal to? A. 8% B. 5% C. 11% D. 2.5% 3. In New Keynesian models, what form do prices follow? A. constant B. stable C. fixed D. sticky 4. According to the dynamic AD curve, if M is 3%, v is 5%, and the real growth rate is 4%, what must inflation be equal to? A. 2% B. 4% C. 5% D. 3% 5. Business fluctuations can best be described as fluctuations in the growth rate of A. nominal GNP around its trend growth rate. B. nominal GDP around its trend growth rate. C. real GDP around its trend growth rate. D. real GNP around its trend growth rate. 6. A recession is best defined as

2 Answer: A A. a significant, widespread decline in real income and employment. B. a significant, widespread increase in real income and employment. C. a significant, widespread increase in nominal income and inflation. D. a significant, widespread increase in real income and inflation. 7. The rate of economic growth given flexible prices and the existing real factors of capital, labor, and technology is best represented as the A. marginal cycle theory. B. business cycle theory. C. Solow growth rate. D. rapid growth theory. 8. A shock that increases or decreases the potential growth rate is describe as a(n) A. nominal shock. B. dynamic shock. C. real shock. D. aggregate shock. 9. Which of the following shows all the combinations of inflation and real growth that are consistent with a specified rate of spending growth? A. the marginal demand curve B. the aggregate supply curve C. the aggregate demand curve D. the incremental demand curve 10. Typically, the dynamic aggregate demand curve is A. perfectly horizontal. B. upward sloping. C. downward sloping. D. perfectly vertical. 11. What impact does an increase in spending growth have on the dynamic aggregate demand curve? A. The dynamic AD curve shifts up and to the left. B. The dynamic AD curve shifts up and to the right. C. The dynamic AD curve shifts down and to the left.

3 D. The dynamic AD curve shifts down and to the right. 12. What impact will increased wealth have on the dynamic AD Curve? A. There is not enough information to determine the impact on aggregate demand. B. There will be no change in aggregate demand. C. There will be an increase in aggregate demand. D. There will be a decrease in aggregate demand. 13. What impact will lower taxes have on the dynamic AD Curve? A. There will be a decrease in aggregate demand. B. There will be no change in aggregate demand. C. There is not enough information to determine the impact on aggregate demand. D. There will be an increase in aggregate demand. 14. What impact will greater growth of government spending have on the dynamic AD curve? A. There will be no change in aggregate demand. B. There will be an increase in aggregate demand. C. There is not enough information to determine the impact on aggregate demand. D. There will be a decrease in aggregate demand. 15. What impact will decreased export growth have on the dynamic AD curve? A. There will be a decrease in aggregate demand. B. There will be an increase in aggregate demand. C. There is not enough information to determine the impact on aggregate demand. D. There will be no change in aggregate demand. Answer: A 16. What impact will increased import growth have on the dynamic AD curve? A. There is not enough information to determine the impact on aggregate demand. B. There will be no change in aggregate demand. C. There will be an increase in aggregate demand. D. There will be a decrease in aggregate demand. 17. Of the following factors, which would not cause a decrease in AD?

4 Answer: A A. lower taxes B. a slower money growth rate C. decreased export growth D. increased import growth 18. What are the primary factors that caused the Great Depression? A. large increase in the velocity of money B. precipitous decline in the stock market C. concentrated and interrelated series of aggregate demand and real shocks D. large increase in the money stock 19. According to the dynamic AD Curve, if M + v = 8%, while real growth = 3%, what must inflation be equal to? A. 11% B. 2.5% C. 5% D. 8% 20. According to the dynamic AD Curve, if M is 4%, v is 2%, and the real growth rate is 3%, what must inflation be equal to? A. 4% B. 2% C. 6% D. 3% 21. The aggregate demand curve A. shows all the combinations of inflation and nominal growth that are consistent with a specified rate of spending growth. B. shows all the combinations of unemployment and real growth that are consistent with a specified rate of spending growth. C. shows all the combinations of inflation and unemployment that are consistent with a specified rate of spending growth. D. shows all the combinations of inflation and real growth that are consistent with a specified rate of spending growth. 22. What impact will increased consumer confidence have on the dynamic AD Curve?

5 A. There will be a decrease in aggregate demand. B. There will be no change in aggregate demand C. There will be an increase in aggregate demand. D. There is not enough information to determine the impact on aggregate demand. 23. Against which variables is the Solow growth curve plotted? A. the inflation rate and time B. the inflation rate and the unemployment rate C. the inflation rate and the real GDP growth rate D. the unemployment rate and the real GDP growth rate 24. What impact would an increase in M have on the AD Curve? A. An increase in M shifts the AD Curve in. B. An increase in M shifts the AD Curve out. C. A decrease in M shifts the AD Curve out. D. An increase in M would not impact the AD Curve. 25. What relationship does the short-run aggregate supply curve show between inflation and real growth during the period when prices are sticky? A. The SRAS shows an inverted relationship between inflation and real growth during the period when prices are sticky. B. The SRAS shows no relationship between inflation and real growth during the period when prices are sticky. C. The SRAS shows the negative relationship between inflation and real growth during the period when prices are sticky. D. The SRAS shows the positive relationship between inflation and real growth during the period when prices are sticky. 26. Models of the economy with sticky prices are often referred to as A. classical models. B. new Keynesian models. C. Ricardian models. D. Smithian models. 27. What impact does an increase in the expected inflation rate have on the SRAS Curve?

6 A. An increase in the expected inflation rate shifts the SRAS Curve down and to the left. B. An increase in the expected inflation rate shifts the SRAS Curve down and to the right. C. An increase in the expected inflation rate does not impact the SRAS Curve. D. An increase in the expected inflation rate shifts the SRAS Curve up and to the left. 28. When people attach special importance to their starting point and have an especially strong dislike for losing that position, economists refer to this as A. a null effect. B. a statutory effect. C. an endowment effect. D. an initiating effect. 29. In the New Keynesian Model, what impact would a temporary decrease in Aggregate Demand have on the inflation rate and the growth rate in the short run? A. A temporary decrease in AD has no impact on the inflation rate, but does impact the growth rate in the short run. B. A temporary decrease in AD increases the inflation rate and the growth rate in the short run. C. A temporary decrease in AD reduces the inflation rate and the growth rate in the short run. D. A temporary decrease in AD has no impact on the inflation rate or the growth rate in the short run. 30. At the Solow growth rate, what is the shape of the Solow growth curve? A. The Solow growth curve is horizontal. B. The Solow growth curve is upward sloping. C. The Solow growth curve is downward sloping. D. The Solow growth curve is vertical. 31. If the rate of real growth is fixed by real factors, what will changes in M and v impact? A. If the rate of real growth is fixed by real factors, changes in M and v can only change the velocity of money. B. If the rate of real growth is fixed by real factors, changes in M and v can only change the real growth rate. C. If the rate of real growth is fixed by real factors, changes in M and v can only change the inflation rate. D. If the rate of real growth is fixed by real factors, there will be no impact on any other variables.

7 32. According to the dynamic AD Curve, if M + v = 10%, while Real Growth = 4%, what must inflation be equal to? A. 14% B. 6% C. 10% D. 4% 33. According to the dynamic AD Curve, if M is 5%, v is 0%, and the real growth rate is 3%, what must inflation be equal to? A. 8% B. 5% C. 2% D. 3%

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