BIG PICTURE IDEAS
#1. Policymakers often combine .. policy and .. policy to influence the economy.
#2. The short-run .. curve shows a trade-off between .. and unemployment.
#3. Expansionary monetary policy can stimulate the economy in the short run but, according to the .. theory
of mone, it will lead to higher .. in the long run.
#4. An increase in deficit spending increases the national .. and often results in an increase in the real interest
rate and less investment, or .. out.
#5. More physical or human capital causes economic growth and shifts the long-run aggregate supply curve to the .. .
Topic 5.1- Fiscal and Monetary Policy in the Short Run
1. Identify if each will ↑ , ↓ , or not change in the short run: True or False
2. Open market operations are an example of fiscal policy.
3. Expansionary monetary policy can cause inflation in the long run, but
expansionary fiscal policy cannot.
4. Elected politicians are more reluctant to implement contractionary
policies than policymakers at the central bank.
5. Expansionary monetary policy will cause a decrease in nominal interest
rates and a decrease in employment.
6. Fiscal policy is implemented by the central bank.
Topic 5.2- The Phillips Curve
7. On the graph to the right, draw the
short-run and long-run Phillips curve
and label points A, B, and C based on
the changes in aggregate demand and
supply.
8. On the graph to the right, draw the
short-run and long-run Phillips curve
and show the effects of a negative
supply shock on both graphs.
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Topic 5.2- The Phillips Curve (continued) Topic 5.3- Money Growth and Inflation
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9. Draw the short-run and long-run Phillips curve given the values. 10. What is the equation for the quantity theory of money?
11. Define the velocity of money.
12. If the money supply is $40 and it’s used to purchase 10 products
with a price of $20 each. Calculate the velocity of money.
13. When the economy is at full employment, how will an increase in
the money supply affect real output in the long run?
Actual inflation rate 7% Expected inflation rate 2% 14. The money supply times the velocity of money equals the
Unemployment rate 3% Natural Rate of Unemployment 5% .. GDP.
Topic 5.4- Deficits and the National Debt
15. A budget .. is when tax revenues are less than government purchases plus transfer payments in a year.
16. Explain the difference between the budget deficit and the national debt.
Topic 5.5- Crowding Out Topic 5.6- Economic Growth
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17. Crowding out causes the real interest rate to .. 19. Productivity increases from new technology or an increase in
which will .. economic growth. physical capital or .. capital.
18. Draw the loanable funds market and show what happens when 20. Use the AD-AS model to show what happens in the long-run
the government increases deficit spending. when lower interest rates lead to more investment
Topic 5.7- Public Policy and Economic Growth
21. Government spending can lead to economic growth if it focuses on .. , which increases human capital,
infrastructure spending, or subsidies that promote .. .
22. .. fiscal policies are laws designed to increase output by lowering taxes for businesses.
23. If wages and resource prices are flexible, a tax cut for consumers will not increase the real GDP in the .. .
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