1. For a closed economy, the IS curve describes short-run movements in an economy via which of the following?
a. Interest rate Investment Output
b. Interest rate Investment Output
c. Tax rate Consumption Output
d. Interest rate Investment Output
e. Tax rate Government expenditure Output
2. A key difference between the long run and short run models is the assumption _____________ in the short run
a. of zero inflation
b. of perfect price flexibility
c. that unemployment always equals its natural rate
d. that the economy never deviates from its long-run equilibrium
e. of sticky inflation (inflexible prices)
3. If prices are sticky and the Fed raises the nominal interest rate (ceteris paribus), __________ and __________ in the short run.
a. the real interest rate remains constant; real output remains at potential
b. the real interest rate falls; short-run real output falls
c. the unemployment rate rises; short-run real output rises
d. the real interest rate rises; short-run real output falls
e. the real interest rate falls; current real output falls
4. According to the Phillips curve, if current output is above potential output (a boom),
a. inflation rises.
b. inflation falls.
c. unemployment rises.
d. inflation is constant.
e. prices fall.
5. According to the Phillips curve, in general during a recession
a. inflation rises.
b. prices fall.
c. unemployment falls.
d. inflation is constant.
e. inflation falls.