Macro Unit 5 Review

If an economy is in long-run equilibrium, which of the following combinations of policy actions will result in inflation?

• Increasing the money supply and increasing government spending

• Increasing the discount rate and decreasing income taxes

• Increasing the required reserve ratio and increasing the discount rate

• Selling government bonds on the open market and decreasing government spending

• Buying government bonds on the open market and decreasing government spending

Given the situation illustrated in the graph and holding all other influences constant, which of the following policies will restore the macroeconomic equilibrium to full employment?

• A contractionary fiscal policy and an expansionary monetary policy

• A contractionary fiscal policy and a contractionary monetary policy

• An expansionary fiscal policy and a contractionary monetary policy

• An expansionary fiscal policy and an expansionary monetary policy

• An expansionary fiscal policy without monetary policy

Country X’s economy is in recession. Which of the following combinations of fiscal and monetary policy actions would move the economy toward full employment in the short run?

• A decrease in government spending and an increase in the discount rate

• A decrease in income taxes and targeting a higher interest rate on overnight interbank loans

• A decrease in income taxes and a sale of government bonds on the open market by the country’s central bank

• An increase in government spending and a decrease in the required reserve ratio

• An increase in income taxes and a purchase of government bonds on the open market by the country’s central bank

Which of the following will cause a movement from point X to point Y along the short-run Phillips curve (SRPC)

that is shown in the graph above?

• An increase the expected inflation rate

• An increase in the required reserve ratio

• An increase in government spending

• An increase in input costs

• An increase in income taxes

Assume members of the Organization of the Petroleum Exporting Countries (OPEC) agree to a coordinated increase in oil production. (POSITIVE SUPPLY SHOCK) If the economy is at equilibrium at point B, what effect will this have on the Phillips curve model in the long run?

• The SRPC will shift to the left.

• The SRPC will shift to the right.

• The LRPC will shift to the right.

• There will be a movement from point B to point C.

• There will be a movement from point B to point A.