SOLVED

11) A likely result of the September 11, 2001 terrorist attacks was ________. A) weaker consumer confidence B) lower business confidence C) a leftward shift of the AD curve D) all of the above E) none of the above 12) What was(were) the effect(s) of the Enron Bankruptcy in late 2001 and other corporate scandals in 2002? A) An ensuing lack of confidence in financial accounting B) The value of corporate bonds declined C) It became more expensive for firms to finance their investments D) all of the above E) none of the above 13) The “tech bubble” burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued? A) Household and business spending would have been eroded shifting the AD curve to the left B) Unemployment would have risen and inflation would have fallen C) Output would have declined below potential but through shifts in the AS curve, the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004 D) all of the above E) none of the above 14) What is the main difference between a demand shock stemming from monetary policy and a demand shock that comes from a change in spending? A) In the short-run, an autonomous monetary policy easing lowers real interest rates and raises aggregate output whereas a positive spending shock has the opposite effect on both variables B) An autonomous monetary policy easing raises inflation permanently whereas a positive spending shock only raises inflation temporarily C) An autonomous monetary policy easing has a temporary effect on the real interest rate whereas a positive spending shock has a permanent effect on the real interest rate D) all of the above E) none of the above 15) On the graph above, an example of a positive demand shock is the movement from point ________ to point ________. A) F; G B) H; I C) F; H D) H; F E) none of the above 16) On the graph above, an example of a negative demand shock is the movement from point ________ to point ________. A) F; G B) H; I C) F; H D) H; F E) none of the above 17) On the graph above, movement from point ________ to point ________ might occur if there is a negative demand shock, followed by updating of expected inflation. A) F; G B) H; I C) H; F D) F; H E) none of the above 18) On the graph above, suppose point G is on the short-run aggregate supply curve Ï€ = 2.5 + 2∗(Y – 22) and aggregate demand curve Y = 29.25 – 0.5Ï€. If output at point G is 25, and inflation expectations are adaptive, then the inflation rate next period will be ________. A) 11.5 B) 14.5 C) 8.5 D) 2.5 E) none of the above 19) Consider an economy in a long-run equilibrium with Y = 40 and Ï€ = 3. A demand shock in period one causes output to rise to 45 and inflation rises to 4. Then, the updating of expected inflation to equal 4 causes output in period two to decline to 43.85, and inflation to rise to 4.77. Assuming no further shocks, calculate the values of output and inflation for period three.