Homework 4   1. In class we described how consumption (C) is influenced by "transfer payments." If these payments increase, then so  do taxes, so as a result consumption is unchanged.    true    false  2. In general, capital is NOT a final good.    true    false  3. In this part of the course, we're using AD and SRAS to explain what happens to the economy, which means to real GDP  (symbol: Y) and the GDP deflator (symbol: P). Let's say that last you found out that real GDP grew by 2%, prices rose by  1%, and that the budget deficit is 4% of GDP. With this information, can you calculate what happened to the  unemployment rate last year?    yes    no  4. Which of the following would change the natural rate of unemployment? There might be more than one correct  answer.  Apps are developed and widely used to more quickly and efficiently connect job seekers and firms wishing to  hire.    Software is quickly introduced that replaces about half of all teachers.    A recession hits and suddenly many lose their jobs.  5. Please recall how the following terms are closely related: inflation, deflation, and disinflation. Which of the following  is the best example of disinflation?    real GDP goes from $17 trillion to $17.8 trillion to $18 trillion    the CPI goes from 260 to 266 to 278    nominal GDP goes from $18 trillion to $17 trillion to $17.5 trillion    GDP deflator goes from 133 to 143 to 146    the labor force grows from 160 million to 170 million to 190 million    the GDP deflator goes from 110 to 105 to 107  6. Which of the following is most accurate if real GDP is less than potential GDP?    The economy would be sure to be in a recession.    The economy might be in a recession.  7. Equilibrium in our graph of AD and SRAS occurs where AD = SRAS. Unless otherwise specified, we assume that the  economy rapidly moves to equilibrium. What ensures that the economy is in equilibrium?    fiscal policy is used by the government (i.e. Congress and the President)    AD shifts but SRAS does not until AD = SRAS    monetary policy is used by the Fed (i.e. the Federal Reserve ‐‐ our country's "central bank")    SRAS shifts but AD does not until AD = SRAS    There is inflation or deflation until SRAS = AD. As this happens, you move along the AD and SRAS curves.  8. Recall how the SRAS curve slopes upward ‐‐ as P (the prices of all final goods and services) grows, there is then more  production (i.e., Y grows). When we are describing this relationship, are we concerned with are there sufficient buyers  to buy what is produced?    yes    no  9. Which of the following would increase potential GDP? There might be more than one answer.    Suddenly all college student quit school and start looking for a job.    The government starts to build more infrastructures (roads, bridges, ports, and airports).    Workers decide to retire later than they planned.    Interest rates fall and there is more demand for c ...

1. Homework 4
1. In class we described how consumption (C) is influenced by
"transfer payments." If these payments increase, then so
do taxes, so as a result consumption is unchanged.
true
false
2. In general, capital is NOT a final good.
true
false
3. In this part of the course, we're using AD and SRAS to explai
n what happens to the economy, which means to real GDP
(symbol: Y) and the GDP deflator (symbol: P). Let's say that las
t you found out that real GDP grew by 2%, prices rose by
1%, and that the budget deficit is 4% of GDP. With this informa
tion, can you calculate what happened to the
unemployment rate last year?
yes

2. no
4. Which of the following would change the natural rate of une
mployment? There might be more than one correct
answer.
Apps are developed and widely used to more quickly and efficie
ntly connect job seekers and firms wishing to
hire.
Software is quickly introduced that replaces about half of all tea
chers.
A recession hits and suddenly many lose their jobs.
5. Please recall how the following terms are closely related: infl
ation, deflation, and disinflation. Which of the following
is the best example of disinflation?
real GDP goes from $17 trillion to $17.8 trillion to $18 trillion
the CPI goes from 260 to 266 to 278
nominal GDP goes from $18 trillion to $17 trillion to $17.5 trill
ion
GDP deflator goes from 133 to 143 to 146

3. the labor force grows from 160 million to 170 million to 190 mi
llion
the GDP deflator goes from 110 to 105 to 107
6. Which of the following is most accurate if real GDP is less th
an potential GDP?
The economy would be sure to be in a recession.
The economy might be in a recession.
7. Equilibrium in our graph of AD and SRAS occurs where AD
= SRAS. Unless otherwise specified, we assume that the
economy rapidly moves to equilibrium. What ensures that the ec
onomy is in equilibrium?
fiscal policy is used by the government (i.e. Congress and the Pr
esident)
AD shifts but SRAS does not until AD = SRAS
monetary policy is used by the Fed (i.e. the Federal Reserve ‐‐ o
ur country's "central bank")
SRAS shifts but AD does not until AD = SRAS

4. There is inflation or deflation until SRAS = AD. As this happen
s, you move along the AD and SRAS curves.
8. Recall how the SRAS curve slopes upward ‐‐ as P (the prices
of all final goods and services) grows, there is then more
production (i.e., Y grows). When we are describing this relation
ship, are we concerned with are there sufficient buyers
to buy what is produced?
yes
no
9. Which of the following would increase potential GDP? There
might be more than one answer.
Suddenly all college student quit school and start looking for a j
ob.
The government starts to build more infrastructures (roads, brid
ges, ports, and airports).
Workers decide to retire later than they planned.
Interest rates fall and there is more demand for cars, houses, an
d capital goods.

5. Software is used that makes businesses more efficient.
10. Consider the SRAS curve (i.e., the Short Run Aggregate Sup
ply curve). You move down along the SRAS curve (to the
lower left of the graph). Thus, the SRAS curve is not shifting. T
his would be most likely be caused by which of the
following?
firms investing more due to lower interest rates
firms investing less due to higher interest rates
firms produce more due to higher prices for produced goods
firms produce less due to lower prices for produced goods
firms cut production due to a higher price of oil (which is turne
d into gasoline for cars, kerosene for airplanes,
and diesel for trucks)
firms increase production due to a lower price of oil (which is t
urned into gasoline for cars, kerosene for

6. airplanes, and diesel for trucks)
prices fall and total spending rises
prices rise and total spending falls
11. In this section of the course we use AD (Aggregate Demand)
and SRAS (Short Run Aggregate Supply) extensively.
Recall how jointly they determine the values of P and Y. Thus,
we need to fully understand these terms. With this in
mind, which of the following is true about P? More than one of
the following may be correct.
It measures costs that businesses face.
We measure it with the GDP deflator.
It is measured by real GDP.
It is measured by nominal GDP.
It is the price of oil.
It is the price of all final goods and services.
12. In this part of the course we deal a lot with aggregate deman
d (AD) and short run aggregate supply (SRAS). Knowing
how to use both of them is an essential skill. Thus, this question
: can a shift in the SRAS curve shift the AD curve?

7. yes
no
13. In this part of the course production by all firms in the short
run, or Short Run Aggregate Supply (SRAS) is really
important. Which of the following would be sure to shift it to th
e right? Note that there might be more than one correct
answer.
P rises
oil prices fall
G grows and T falls
G grows and T grows
interest rates fall and household wealth falls
businesses become more efficient
the dollar falls in value and foreign income rises

8. 14. Here we'll consider the impact of part of fiscal policy on the
economy. Recall that fiscal policy is made up of
purchases (G) and taxes (T). By "economy" we specifically mea
n the impact on prices, which we measure with the GDP
deflator (symbol: P) and real GDP (symbol: Y). If T rises, whic
h of the following is true? There is more than one answer.
Hint: Be sure to draw the relevant graph with the AD and SRAS
curves and remember that we assume that the economy
is in equilibrium (i.e. AD = SRAS) and this tells you the resulti
ng values of P and Y.
P rises
P falls
Y rises
Y falls
production rises
production falls
15. Total spending, or aggregate demand (AD) is an essential pa
rt of our model of the economy. Which of the following
would be sure to cause it to shift left? Note that there might be
more than one correct answer.
P falls

9. oil prices rise
G grows and T falls
G falls and T grows
interest rates fall and household wealth falls
businesses become more efficient
the dollar falls in value and foreign income rises
16. Here we want to take a look at what might shift the Aggrega
te Demand (AD) curve. Which of the following will cause
this curve to shift left? There is at least one correct answer, but
there could be more.
firms investing more due to lower interest rates
firms investing less due to higher interest rates
firms produce more due to a higher prices for produced goods
firms produce less due to a higher prices for produced goods
firms cut production due to a higher price of oil (which is turne
d into gasoline for cars, kerosene for airplanes,
and diesel for trucks)

10. firms increase production due to a lower price of oil (which is t
urned into gasoline for cars, kerosene for
airplanes, and diesel for trucks)
prices fall and total spending rises
prices rise and total spending falls