5) The AD Curve ________. A) indicates the level of aggregate output correspondi

Question

5) The AD Curve ________.

A) indicates the level of aggregate output corresponding to different goods-market-clearing

levels of the interest rate

B) is downward sloping, because with higher inflation comes higher interest rates and lower

spending, so equilibrium aggregate output declines

C) explains how inflation affects output in the short run

D) all of the above

E) none of the above

6) If expected inflation rises, monetary policy ________.

A) is rendered ineffective

B) must be tightened, to prevent further increases in inflation and expected inflation

C) will prevent any increase in the real interest rate

D) is designed to increase the nominal interest rate by more than the increase in expected

inflation

E) none of the above

7) The idea behind the Phillips curve is that ________.

A) tight labor markets lead to inflationary pressures

B) when the unemployment rate is low, wages will increase

C) when firms raise wages to attract new workers, prices will also increase

D) all of the above

E) none of the above

Explanation / Answer

5) The AD Curve ________.

A) indicates the level of aggregate output corresponding to different goods-market-clearing

levels of the interest rate

B) is downward sloping, because with higher inflation comes higher interest rates and lower

spending, so equilibrium aggregate output declines

C) explains how inflation affects output in the short run

D) all of the above

E) none of the above

6) If expected inflation rises, monetary policy ________.

A) is rendered ineffective

B) must be tightened, to prevent further increases in inflation and expected inflation

C) will prevent any increase in the real interest rate

D) is designed to increase the nominal interest rate by more than the increase in expected

inflation

E) none of the above

7) The idea behind the Phillips curve is that ________.

A) tight labor markets lead to inflationary pressures

B) when the unemployment rate is low, wages will increase

C) when firms raise wages to attract new workers, prices will also increase

D) all of the above

E) none of the above

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