Advanced Macroeconomics with 100% correct answers

Advanced Macroeconomics
"as long as we do not mind having high inflation, we can achieve as low. a level of
unemployment as we want. All we have to do is increase the demands for goods and
services by using, for example expansionary fiscal policy" - correct answer-FALSE
STATEMENT;
the expectations augmented Phillips. curve implies that maintaining a rate of unemployment
below the natural rate requires not merely high inflation, but also
INCREASING INFLATION. This is because inflation expectations continue to adjust. to
actual inflation.

"NOMINAL" means - correct answer-dollar terms

2 factors BARGAINING POWER depends on: - correct answer-1. how COSTLY it would be
for the firm to find REPLACEMENTS

2. how hard it would be for them to find ANOTHER JOB if they were to leave

2 macroeconomic problems facing the US (short term, long term) - correct answer-1. how
equipped is the US when it comes to dealing with another recession

2. how to increase PRODUCTIVITY growth

2 problems the Euro area faces? - correct answer-1. how to reduce UNEMPLOYMENT
2. how to function EFFICIENTLY with a common currency

3 ways to think of GDP - correct answer-1. value of the FINAL goods and services produced
in the economy during a GIVEN PERIOD OF TIME

2. sum of the VALUE ADDED in the economy during a GIVEN PERIOD of time

3. sum of INCOMES in the economy during a given period

A = labor productivity - correct answer-Y = AN. (total output equals labor productivity times
employment)

a DECREASE in the INTEREST RATE results in an INCREASE in INVESTMENT, which
leads to an increase in output, which further increases consumption, through the.. - correct
answer-MULTIPLIER EFFECT

According to this​relation, equilibrium in the financial market requires that the real demand
for money be equal to the money​stock, measured in terms of - correct answer-goods

an INCREASE in expected inflation (pi^e) leads to an INCREASE in inflation (pi) - correct
answer-if wage setters expect a higher price level, they set a higher NOMINAL WAGE,
which in turn leads to a higher price level

,*now note that given last period's price level, a HIGHER PRICE LEVEL this period implies a
higher rate of increase in the price level from last period to this period, that is INFLATION.

Similarly, given last period's price level, a higher expected price level this period implied a
higher expected rate of increase in the price level from last period to this period- that is a
higher EXPECTED price level, which implies a higher EXPECTED INFLATION

Basically, an increase in expected inflation leads to an increase in inflation.

an increase in INCOME (GDP) will always be accompanied by an increase in INTEREST
RATES, when the money supply is not increased... - correct answer-True;
there is movement along the demand for money, when income increases. so upwards
movement along curve relates to a higher y axis/ interest rate

an increase in the actual inflation can be caused by... - correct answer-1. an increase in
EXPECTED inflation
2. increase in the MARKUP
3. increase in the factors that affect wage determination(z)

4. decrease in UNEMPLOYMENT
5. higher NOMINAL WAGES

an INCREASE in the catch-all variable (z), will lead to - correct answer-an INCREASE in
NOMINAL WAGE(w)

an INCREASE in the EXPECTED PRICE LEVEL (P^e), leads to an... - correct
answer-INCREASE in the NOMINAL WAGE (w)

*in the same proportion

an increase in the EXPECTED PRICE LEVEL leads to an increase in the NOMINAL WAGE
since both workers and firms care about.. - correct answer-REAL WAGES

an INCREASE in unemployment benefits would be expected to...

(increase in z > increase in W-rightwards movement along the WS curve) - correct
answer-increase the NATURAL RATE OF UNEMPLOYMENT because it allows unemployed
workers to hold out better wages

an INCREASE in UNEMPLOYMENT RATE (u), will lead to a... - correct answer-DECREASE
in NOMINAL WAGE(w)

as interest rate increases, money demand... - correct answer-decreases
&
bonds become more attractive than the money balance

, As REAL INCOME and PRICES RISE... the fed must - correct answer-increase the MONEY
SUPPLY

banks were becoming INSOLVENT because of the DECREASE in housing PRICES - correct
answer-(insolvent means you have LOW liquidity in assets, so you are unable to pay off or
offset your liabilities, you haven't made enough loans... so in the housing market case
people didn't need to take out loans because house prices were becoming
"affordable"/dropping)

(another way to become INSOLVENT is if your you have HIGH LIQUIDITY of liabilities)
-aka you have so many checking deposits, and so its become a situation where the majority
of your money is being taken in and out)

insolvency occurs when your ASSETS - LIABILITIES is negative...

either you have

bargaining power - correct answer-the power of labor and management to achieve their
goals through economic, social, or political influence

bascially the US recession led to a - correct answer-GLOBAL CRISIS
1.ADVANCED economies had output growth rates of. -3.4%

(surpassed the Great Depression)

Bd =
(Demand for bonds) - correct answer-Wealth - Md

Wealth - $Y(.4-i)

an INC in WEALTH affects the demand for BONDS, but no effect on Money Demand

because of the effect of taxes on the economy, it responds - correct answer-LESS to
changes in autonomous spending than when taxes are independent

because of the zero lower bound, sometimes when the IS curve shifts left (due to an
increase in x-risk premium)... we cannot achieve equilibrium output... - correct answer-NOT
POSSIBLE;
financial shock

CANNOT decrease the REAL POLICY RATE
aka CANNOT shift the LM curve (r) down further than 0

Chapter 8 relaxes the assumption. that the PRICE LEVEL (P) is equal to the EXPECTED
PRICE LEVEL

and - correct answer-derives. the the relation between
Pe= P. =>