Test Bank Chapter 13 Using The Economic Fluctuations Model - Principles of Macroeconomics -Complete Test Bank by Taylor. DOCX document preview.
Chapter 13
Using the Economic Fluctuations Model
Multiple Choice
1. The short run is usually
a. | less than half a year. |
b. | one to three years. |
c. | two to three years. |
d. | one year. |
e. | four to five years. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Knowledge
2. The medium run is usually
a. | two to three years. |
b. | four to five years. |
c. | more than five years. |
d. | one-half to one year. |
e. | one year. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Knowledge
3. The long run is usually
a. | ten years or more. |
b. | two to three years. |
c. | one to two years. |
d. | four to five years or more. |
e. | one year. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Knowledge
4. If a shock to aggregate demand occurs, the period of the initial change in real GDP is called
a. | the short run. |
b. | the medium run. |
c. | the long run. |
d. | a recovery. |
e. | the steady state. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Knowledge
5. The initial response of real GDP to a change in aggregate spending is referred to as
a. | a depression. |
b. | a boom. |
c. | a recession. |
d. | the short run. |
e. | a recovery. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Knowledge
6. Which of the following is another term for the recovery period?
a. | Medium run |
b. | Recession |
c. | Short run |
d. | Boom |
e. | Long run |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Knowledge | AACSB: Analytic
7. In the economic fluctuations model, the so-called short run normally refers to
a. | the first couple of days after a shock to aggregate demand. |
b. | the first month after a shock to aggregate demand. |
c. | the initial departure of real GDP from potential GDP after a shock to aggregate demand. |
d. | the time it takes for a full recovery to take place after a shock to aggregate demand. |
e. | None of these |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Economic Fluctuations Model; Short Run
MSC: Bloom's: Knowledge | AACSB: Analytic
8. The long-run effect of a change in expenditures occurs when
a. | a spending balance is achieved. |
b. | the recovery period begins. |
c. | interest rates begin to adjust. |
d. | real GDP is nearly back to equaling potential GDP. |
e. | the AD line intersects the IA line. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Knowledge
9. When government purchases decrease, the short-run effect can be described as the period of time when
a. | there is no spending balance. |
b. | inflation is constant. |
c. | real GDP and inflation are adjusting to their new long-run levels. |
d. | real GDP is below potential GDP. |
e. | the inflation adjustment line has not reached the new intersection of aggregate demand at the level of potential GDP. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Knowledge | AACSB: Analytic
10. The short-run effect of an increase in government purchases is
a. | a rightward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. |
b. | a leftward shift of the aggregate demand curve and an upward shift of the inflation adjustment line. |
c. | a rightward shift of the aggregate demand curve and a downward shift of the inflation adjustment line. |
d. | a rightward shift of the aggregate demand curve and movement along the inflation adjustment line. |
e. | a leftward shift of the aggregate demand curve and movement along the inflation adjustment line. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
11. The long-run effect of a decrease in government purchases can be described as the period of time when
a. | the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP. |
b. | firms are adjusting their prices and inflation is increasing to its new level. |
c. | real GDP is below potential GDP. |
d. | there is no spending balance. |
e. | firms are adjusting their prices and inflation is decreasing to its new level. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
12. If real GDP is below potential GDP,
a. | long-run equilibrium will be achieved once the aggregate demand curve shifts to the right. |
b. | the economy is in a short-run equilibrium. |
c. | long-run equilibrium will be achieved once inflation has stopped declining. |
d. | the economy is in a medium-run equilibrium. |
e. | long-run equilibrium will be achieved once prices have stopped declining. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Knowledge | AACSB: Analytic
13. The long-run effects of an increase in government purchases are that interest rates will ____, inflation will ____, and real GDP will ____.
a. | decrease; decrease; remain unchanged |
b. | increase; increase; remain unchanged |
c. | remain unchanged; increase; remain unchanged |
d. | increase; increase; increase |
e. | decrease; increase; remain unchanged |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
14. The short-run effects of an increase in government purchases are that inflation will ____, and real GDP will ____.
a. | decrease; increase |
b. | increase; remain unchanged |
c. | remain unchanged; decrease |
d. | remain unchanged; increase |
e. | increase; increase |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 25-1
15. Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the medium run as a result of the change in spending?
a. | F |
b. | D |
c. | B |
d. | E |
e. | C |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Analysis | AACSB: Analytic
16. Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the long run as a result of the change in spending?
a. | F |
b. | D |
c. | B |
d. | E |
e. | C |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
17. Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the short run as a result of the change in spending?
a. | F |
b. | D |
c. | B |
d. | E |
e. | C |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Analysis | AACSB: Analytic
18. If real GDP stays below potential GDP,
a. | the AD curve will begin to shift to the left. |
b. | the IA line will shift down. |
c. | potential GDP will decline. |
d. | the IA line will shift up. |
e. | the AD curve will begin to shift to the right. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Knowledge
19. In a diagram that includes both the IA line and the AD curve, the price adjustment resulting from an increase in spending is shown by
a. | the AD curve shifting to the left. |
b. | the AD curve shifting to the right. |
c. | the IA line shifting down. |
d. | the IA line shifting up. |
e. | the movement along the IA line. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Application | AACSB: Analytic
/
20. The economic fluctuations model is used by economists to determine the path the economy takes after a shift in aggregate demand.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Economic Fluctuations Model
MSC: Bloom's: Knowledge
21. In economics, the short run is an expression used to describe events that take at least two to three weeks to unfold.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Knowledge
22. In the economic fluctuations model, the so-called long run normally refers to the time it takes for the economy to return to full employment or, in other words, for real GDP to be back to potential GDP.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Economic Fluctuations Model; Long Run
MSC: Bloom's: Knowledge
23. The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
24. The difference between the medium run and the long run is that inflation is constant in the long run.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Equilibrium and Inflation
MSC: Bloom's: Analysis | AACSB: Analytic
25. The short-run effect of a change in autonomous expenditures is shown by the AD curve moving along the IA line.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Knowledge
26. The tendency of prices to adjust over time is shown by an upward movement along the IA line.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Knowledge
27. An economic recovery occurs only if the Fed shifts its policy.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Economic Recovery
MSC: Bloom's: Knowledge | AACSB: Analytic
Multiple Choice
28. Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?
a. | Potential GDP will change by the same amount as aggregate expenditure. |
b. | The AD curve will shift. |
c. | Both the AD curve and the IA line will shift. |
d. | The IA line will shift. |
e. | There will be movement along the AD curve. |
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Analysis | AACSB: Analytic
29. If government purchases decrease, in the short run
a. | consumption will increase as income increases. |
b. | consumption, investment, and net exports will increase as income increases. |
c. | consumption and investment will increase as income increases. |
d. | consumption will fall and net exports will increase as income falls. |
e. | consumption will increase, and real GDP will remain at potential GDP. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
30. If government purchases change, which variable is fixed in the short run as a result of the change?
a. | Saving |
b. | All of these |
c. | Consumption |
d. | Net exports |
e. | Inflation |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
31. In the short run, when government purchases fall, income and hence consumption fall, so
a. | real GDP falls by more than the fall in government purchases. |
b. | both real GDP and potential GDP fall by the same amount as the fall in government purchases. |
c. | real GDP falls by the same amount as the fall in government purchases. |
d. | real GDP falls by less than the fall in government purchases. |
e. | both real GDP and potential GDP fall by more than the fall in government purchases. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
32. In the short run, when government purchases decrease, real GDP falls by more than the change in government purchases because
a. | prices increase. |
b. | taxes increase. |
c. | consumption decreases. |
d. | investment decreases. |
e. | taxes decrease. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
33. The IA line does not shift in the short run because
a. | real and potential GDP are not equal. |
b. | potential GDP does not change. |
c. | of expectations and staggered wage and price adjustment. |
d. | real GDP does not change. |
e. | there is no spending balance. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Knowledge | AACSB: Analytic
34. The long-run income effect (the effect of real GDP changes on spending) of decreased government purchases is that consumption
a. | is higher. |
b. | is the same, investment is higher, and net exports are lower. |
c. | and net exports are the same. |
d. | and net exports are lower. |
e. | is higher, and investment is higher. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
35. The long-run interest rate effect of decreased government purchases is that
a. | consumption is lower, and investment is higher. |
b. | consumption and net exports are the same, and investment is higher. |
c. | investment is higher. |
d. | consumption, investment, and net exports are all higher. |
e. | consumption and net exports are higher. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
36. The long-run overall effect of decreased government purchases is that
a. | investment is higher. |
b. | consumption and net exports are the same, and investment is higher. |
c. | consumption is lower, and investment is higher. |
d. | consumption and net exports are higher. |
e. | consumption, investment, and net exports are all higher. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
37. Suppose government purchases have decreased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?
a. | Nothing has changed because real GDP is again equal to potential GDP. |
b. | Consumers are better off because taxes are lower. |
c. | The economy is growing more rapidly because investment is higher. |
d. | The economy is better off because consumption is higher. |
e. | The economy is growing more slowly because consumption is higher. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
38. Suppose government purchases have decreased. Which of the following is ?
a. | If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift up. |
b. | If inflation is constant in the new equilibrium, the Fed has decreased the target rate of inflation. |
c. | If inflation is lower in the new equilibrium, the Fed has allowed the target rate of inflation to drift down. |
d. | If inflation is lower in the new equilibrium, there has been no change in the target rate of inflation. |
e. | If inflation is constant in the new equilibrium, the Fed has increased the target rate of inflation. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
39. If exports permanently decline, we would expect, in the medium run,
a. | interest rates to increase and the rate of inflation to fall. |
b. | interest rates to fall and the rate of inflation to increase. |
c. | a decline in both the rate of inflation and interest rates. |
d. | no change in interest rates or the rate of inflation. |
e. | a decline in both the price level and interest rates. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Analysis | AACSB: Analytic
40. The long-run effect of a decline in exports is
a. | an ambiguous change in net exports and a decline in both investment and consumption. |
b. | for there to be no change in any of the aggregate expenditure categories. |
c. | for net exports to decline, with no change in investment or consumption. |
d. | an ambiguous change in net exports and an increase in both consumption and investment. |
e. | an increase in net exports, consumption, and investment. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
/
41. When government purchases decline, the Fed can prevent a change in inflation or real GDP by increasing the target rate of inflation.
Challenging
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
42. A decrease in government purchases causes the interest-sensitive components of aggregate expenditure to increase in the short run.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short Run
MSC: Bloom's: Analysis | AACSB: Analytic
43. A decrease in government purchases causes the interest-sensitive components of GDP to increase in the long run.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of a Decrease in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
44. If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Analysis | AACSB: Analytic
45. If government spending decreases, the long-run income effect on net exports and consumption will be the same as in the baseline case.
Challenging
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
46. Assume that real and potential GDP are initially equal. If government purchases permanently increase, we would expect that in the short run
a. | consumption and investment will be higher than baseline, and net exports will be lower. |
b. | consumption will be higher than baseline, and net exports and investment will be the same. |
c. | consumption, investment, and net exports will be higher than baseline. |
d. | consumption and net exports will be higher than baseline, and investment will be the same. |
e. | consumption will be higher than baseline, net exports will be lower, and investment will be the same. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Short-Run Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
47. Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the medium run,
a. | a decrease in consumption and an increase in both net exports and investment. |
b. | a decrease in consumption, investment, and net exports. |
c. | an increase in consumption, a decrease in net exports, and no change in investment. |
d. | an increase in consumption and net exports and a decrease in investment. |
e. | an increase in consumption and a decrease in both net exports and investment. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Medium Run
MSC: Bloom's: Analysis | AACSB: Analytic
48. Suppose, for a certain economy, real and potential GDP are initially equal. Then government purchases permanently increase. Compared to the baseline, we would expect to see, in the long run,
a. | an increase in consumption, a decrease in net exports, and no change in investment. |
b. | no change in consumption, investment, or net exports. |
c. | no change in consumption and a decrease in both net exports and investment. |
d. | a decrease in the sum of consumption, investment, and net exports. |
e. | an increase in consumption, a decrease in investment, and a decrease in net exports. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
49. Which of the following would be a direct result of real GDP being above potential GDP?
a. | Firms would raise their prices and there would be a subsequent rise in inflation. |
b. | Firms would lower their prices and there would be a subsequent decrease in inflation. |
c. | Government spending would decline. |
d. | None of the above would be a result. |
e. | Real GDP can never be above potential GDP. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Inflation; Potential GDP
MSC: Bloom's: Knowledge | AACSB: Analytic
50. An increase in government purchases
a. | has a positive effect on real GDP in the long run. |
b. | has a negative effect on real GDP in the long run. |
c. | results in a lower rate of inflation in the long run. |
d. | results in lower interest rates in the long run. |
e. | results in a higher rate of inflation in the long run. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
51. If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must
a. | remain the same, as this represents a movement along the IA line. |
b. | shift upward. |
c. | shift downward. |
d. | That could never happen. |
e. | None of these |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: IA Line; Potential GDP
MSC: Bloom's: Analysis | AACSB: Analytic
52. Which of the following would lead to higher inflation in the long run?
a. | A decrease in consumer confidence |
b. | An increase in imports |
c. | An increase in taxes |
d. | An increase in government spending |
e. | An increase in the savings rate |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Inflation in the Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
53. Which of the following would lead to lower inflation in the long run?
a. | An increase in business confidence |
b. | An increase in government spending |
c. | An increase in oil prices |
d. | A decrease in imports |
e. | A decrease in consumer confidence |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Inflation in the Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
54. Suppose government purchases have increased and the economy has reached a new long-run equilibrium. Which of the following best describes the new equilibrium?
a. | Consumers are worse off because taxes are higher. |
b. | Nothing has changed because real GDP is again equal to potential GDP. |
c. | The economy is growing more slowly because consumption is higher. |
d. | The economy is better off because consumption is higher. |
e. | The economy is growing more slowly because investment is lower. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
/
55. The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
56. By definition, real GDP can never be above potential GDP.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Potential GDP
MSC: Bloom's: Knowledge
57. If ever real GDP is above potential real GDP, the inflation adjustment line (IA) must shift downward.
Basic
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: IA Line; Potential GDP
MSC: Bloom's: Analysis | AACSB: Analytic
58. The long-run effect of increased government purchases is crowding out.
Moderate
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of an Increase in Government Purchases
MSC: Bloom's: Knowledge | AACSB: Analytic
59. If exports increase, investment and consumption will be lower in the long run.
Moderate
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long-Run Effect of an Increase in Exports
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
60. What is meant by a baseline?
OBJ: factual
SEC: 1. Changes in Government Purchases
TOP: Baseline
MSC: Bloom's: Knowledge
61. The long-run effect of a change in government spending will not cause real GDP to differ from its baseline value. However, in the long run, the values of the individual components of aggregate expenditure will differ from their baseline values. Why is this the case?
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Long Run
MSC: Bloom's: Analysis | AACSB: Analytic
62. Why do net exports increase when government purchases decline?
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Net Exports
MSC: Bloom's: Analysis | AACSB: Analytic
63. Suppose the relationship between real GDP and inflation is depicted as shown in the table below. Assume that real and potential GDP are equal to each other at $5,400 billion. Suppose government purchases decline by $100 billion and the slope of the aggregate expenditure line is 0.5.
(A) | Explain how the AD curve is affected by this change. In the short run, what will real GDP and the rate of inflation be? |
(B) | Using the AD and IA curves, show what will happen in the medium run. Be sure to give an economic explanation for what is happening. |
(C) | Using the AD and IA curves, show what will happen in the long run. |
(A) | The AD curve will shift to the left. For any rate of inflation in the table above, the corresponding real GDP will be $200 billion less. At 5 percent inflation, real GDP will be $5,200 billion. |
(B) | Since real GDP will be less than potential GDP, the rate of inflation will decline, causing the IA line to shift down. This will result in a rightward movement along the AD curve, since the interest rate will also decline (because of the Fed's policy rule) as the rate of inflation falls, causing real GDP to begin increasing and the recovery to start. |
(C) | When the IA line has shifted down to a 1 percent rate of inflation, real and potential GDP will be equal. This will be the new long-run equilibrium. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Decline in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
64. The figure below shows the effect of a 2011 increase in government purchases on the hypothetical path of real GDP compared to the path of potential GDP (the baseline) between 2011 and 2016.
(A) | Using the AD curve and IA line analysis, explain what is occurring between 2011 and 2012. |
(B) | Using the AD curve and IA line analysis, explain what is occurring between 2012 and 2014. |
(C) | Using the AD curve and IA line analysis, explain what is occurring between 2014 and 2016. |
(A) | As a result of the increase in government purchases, the AD curve shifts to the right. Since the IA line does not move in the short run, there is a boom. This short-run effect is what occurs between 2011 and 2012. |
(B) | Since real GDP has been above potential for a year, the IA line begins to shift up. Interest rates also rise due to the Fed's policy rule. The result is a leftward movement along the AD curve as the gap between real and potential GDP declines. This is the medium run. |
(C) | The IA line continues shifting up, resulting in higher interest rates as a result of the Fed's monetary policy rule. As a consequence, the interest-sensitive components of aggregate expenditure continue to decline until 2016, when real and potential GDP become equal. This is the long run. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
65. Suppose the economy is initially at potential GDP.
(A) | Draw an aggregate demand curve and price adjustment line, and label the initial equilibrium with an A. |
(B) | Suppose government purchases increase. Illustrate the short-run effect on your diagram. Label the new equilibrium with a B. |
(C) | Explain the short-run effect on C, I, G, X, R, and inflation, as compared to baseline. |
(D) | Illustrate the long-run effect on your diagram, and label the long-run equilibrium with a C. |
(E) | Explain the long-run effect on C, I, G, X, R, and inflation, as compared to baseline. |
(A) | See graph below. |
| |
(B) | See graph above. |
(C) | Real GDP will be higher. As a result, C will be higher and X will be lower. I, R, and inflation will not change. |
(D) | Since real GDP will be above potential, inflation will increase. See graph above. |
(E) | C, I, and X will be lower. R and inflation will be higher. |
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
66. According to the economic fluctuations model, what would happen if real GDP went above potential GDP?
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Economic Fluctuations Model; Potential GDP
MSC: Bloom's: Analysis | AACSB: Analytic
67. According to the spending allocation model, what happens if there is an increase in the share of GDP allocated to government purchases? What happens to the other spending shares?
According to the economic fluctuations model, what happens if there is an increase in government purchases as a share of GDP? What happens to the other spending shares?
Are the two models the same? What additional insight does the economic fluctuations model introduce?
OBJ: conceptual
SEC: 1. Changes in Government Purchases
TOP: Effect of an Increase in Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
68. A fall in the overall price level is called
a. | a price shock. |
b. | reinflation. |
c. | a recession. |
d. | deflation. |
e. | disinflation. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: Deflation
MSC: Bloom's: Knowledge
69. A reduction in the inflation rate is called
a. | disinflation. |
b. | a recession. |
c. | reinflation. |
d. | deflation. |
e. | a price shock. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: Disinflation
MSC: Bloom's: Knowledge
70. If the Fed thinks inflation is too high, it will
a. | lower the target inflation rate and lower interest rates. |
b. | lower the target inflation rate and raise interest rates. |
c. | lower the target inflation rate and leave interest rates unchanged. |
d. | raise the target inflation rate and raise interest rates. |
e. | raise the target inflation rate and lower interest rates. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Target Inflation
MSC: Bloom's: Knowledge | AACSB: Analytic
71. If the Fed raises interest rates because inflation is too high, this will cause
a. | a long-term recession. |
b. | a temporary slowdown in growth but not a recession. |
c. | a permanent slowdown in growth. |
d. | either a temporary slowdown in growth or a recession. |
e. | a temporary recession. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: Effect of Fed Raising the Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
72. If the Fed is worried about inflation and raises interest rates, then in the short run
a. | the aggregate demand curve will shift to the left. |
b. | the aggregate demand curve will shift to the left, and the inflation adjustment line will shift down because the target inflation rate has decreased. |
c. | the inflation adjustment line will shift down because the target inflation rate has decreased. |
d. | the inflation adjustment line will shift up because the target inflation rate has increased. |
e. | the aggregate demand curve will shift to the right. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Effect of Fed Raising the Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
73. Which of the following is the best definition of disinflation?
a. | A reduction in the inflation rate |
b. | A reduction in the overall price level of the economy |
c. | A surprisingly high rate of inflation |
d. | None of these |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Disinflation
MSC: Bloom's: Knowledge
74. What is the difference between deflation and disinflation?
a. | Deflation is used in microeconomics, whereas disinflation is used in macroeconomics. |
b. | Deflation refers to changes in expected inflation, while disinflation refers to changes in the actual rate of inflation. |
c. | Deflation refers to a decrease in the overall price level, or negative inflation, while disinflation simply refers to a decrease in the inflation rate. |
d. | There is no difference between these two concepts; they are synonyms. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Inflation
MSC: Bloom's: Knowledge
75. Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)
a. | downward movement along the monetary policy line. |
b. | leftward shift of the monetary policy line. |
c. | upward movement along the monetary policy line. |
d. | rightward shift of the monetary policy line. |
e. | rightward shift of the AD curve. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Changes in Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
76. Which of the following descriptions best depicts the short-run effect of a leftward shift of the monetary policy line?
a. | An increase in the rate of interest and a decline in both the rate of inflation and real GDP |
b. | A decline in both the rate of inflation and the rate of interest, along with an increase in real GDP |
c. | An increase in the rate of interest, no change in the rate of inflation, and a decline in real GDP |
d. | A decline in real GDP and no change in either the rate of inflation or the rate of interest |
e. | A decline in the rate of inflation, the rate of interest, and real GDP |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Change in Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
77. A temporary growth slowdown results in
a. | disinflation. |
b. | deflation. |
c. | boom. |
d. | fall in the price level. |
e. | recession. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Temporary Growth Slowdown
MSC: Bloom's: Knowledge
78. Disinflation most likely occurs when
a. | output grows at an increasing rate over time.. |
b. | output grows at a decreasing rate over time. |
c. | output growth becomes negative. |
d. | the overall price level declines over time. |
e. | the overall price level is negative. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Temporary Growth Slowdown
MSC: Bloom's: Knowledge | AACSB: Analytic
79. The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by
a. | the AD curve shifting to the right. |
b. | an upward movement of the IA line. |
c. | an upward movement along the AD curve. |
d. | a downward movement along the AD curve. |
e. | the AD curve shifting to the left. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Medium-Run Effect of a Change in Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
80. Compared to the baseline, the short-run effect of a monetary policy change to lower inflation is for
a. | consumption and net exports to decline, while investment stays constant. |
b. | consumption, investment, net exports, and government purchases to decline. |
c. | consumption, investment, and net exports to decline. |
d. | consumption and investment to decline while net exports increase. |
e. | consumption and net exports to increase while investment falls. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Short-Run Effect of a Change in Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
81. When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?
a. | The AD curve should shift to the right. |
b. | The IA line should shift down. |
c. | The AD curve should shift to the left. |
d. | The IA line should shift up. |
e. | The aggregate expenditure line should shift down. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Medium-Run Effect of a Change in Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
82. Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be
a. | an increase in investment and net exports along with a decrease in consumption. |
b. | an increase in consumption, a decrease in investment, and no change in net exports. |
c. | an increase in consumption and net exports and a decrease in investment. |
d. | no change in consumption, investment, and net exports. |
e. | no change in consumption and investment, but a decrease in net exports. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Long-Run Effect of a Change in Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
/
83. Changes in monetary policy can immediately affect the inflation rate in the economy.
Moderate
OBJ: factual
SEC: 2. Monetary Policy
TOP: Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
84. A change in monetary policy will not cause the AD curve to shift.
Moderate
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Short-Run Effect of a Change in Monetary Policy
MSC: Bloom's: Knowledge | AACSB: Analytic
85. If there is a temporary growth slowdown, real GDP will not go below potential GDP.
Challenging
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Temporary Growth Slowdown
MSC: Bloom's: Analysis | AACSB: Analytic
86. If the Fed raises interest rates because it believes inflation is too high, this may cause a recession.
Moderate
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Effect of Fed Raising the Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
87. The period from 1979 to 1987 is an example of
a. | the large effect monetary policy can have on potential GDP. |
b. | how monetary policy can be managed so it causes only a temporary growth slowdown. |
c. | why monetary policy doesn't always work. |
d. | how monetary policy brings about disinflation. |
e. | how monetary policy results in reinflation. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
88. The head of the Federal Reserve from 1979 through 1987 was
a. | Alan Greenspan. |
b. | Ben Bernanke. |
c. | Paul Volcker. |
d. | Robert Lucas. |
e. | Milton Friedman. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
89. A reduction in the target rate of inflation
a. | occurred during the 1970s. |
b. | has never occurred in the United States. |
c. | is what caused the Great Depression. |
d. | occurred in the United States during the early 1980s. |
e. | occurred in the United States during the late 1960s. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
90. When Paul Volcker first started to head the Fed, the Federal Reserve began a policy of
a. | reinflation. |
b. | disinflation. |
c. | accommodation. |
d. | deflation. |
e. | stagflation. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
91. When the Volcker disinflation began,
a. | the rate of inflation rose to over 20 percent. |
b. | the rate of inflation fell to 1 percent. |
c. | the federal funds rate had risen above 20 percent. |
d. | the federal funds rate fell to 2 percent. |
e. | the rate of inflation became negative. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
92. Between 1979 and 1985 the rate of inflation
a. | fell from over 20 percent to around 2 percent. |
b. | rose from around 2 percent to over 20 percent. |
c. | remained constant. |
d. | fell from over 10 percent to around 4 percent. |
e. | rose from around 4 percent to over 10 percent. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
93. During the period known as the Volcker disinflation
a. | the unemployment rate rose to 10.8 percent. |
b. | real GDP fell below potential GDP. |
c. | investment and net exports declined. |
d. | the real interest rate rose. |
e. | All of these |
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
94. Disinflation can be defined as
a. | a decrease in the overall price level. |
b. | a higher rate of inflation that is accompanied by economic growth. |
c. | a rate of inflation that is spiraling out of control. |
d. | an inflation hike that is not accompanied by a higher nominal interest rate, thereby creating negative real rates of return. |
e. | None of these. |
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Disinflation
MSC: Bloom's: Analysis | AACSB: Analytic
/
95. Disinflation refers to a situation in which the overall price level falls.
Basic
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Disinflation
MSC: Bloom's: Knowledge
96. Monetary policy designed to reduce the rate of inflation in the early 1980s resulted in a recession.
Basic
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
97. The United States economy never recovered from the recession brought about by the Volcker disinflation.
Basic
OBJ: factual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
98. During the early 1980s the Federal Reserve increased the target rate of inflation.
Moderate
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: The Volcker Disinflation
MSC: Bloom's: Knowledge
Multiple Choice
99. Monetary policy that attempts to increase the rate of inflation is called
a. | reinflation. |
b. | supply shock. |
c. | recession. |
d. | temporary growth slowdown. |
e. | disinflation. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Knowledge
100. Reinflation causes
a. | a temporary boom. |
b. | a price shock. |
c. | an increase in potential GDP. |
d. | a growth slowdown. |
e. | a temporary recession. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Knowledge | AACSB: Analytic
101. An increase in the target inflation rate by the central bank is referred to as
a. | disinflation. |
b. | deflation. |
c. | reinflation. |
d. | accommodation. |
e. | stagflation. |
OBJ: factual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Analysis | AACSB: Analytic
/
102. All of the inflation that occurred in the 1970s can be explained by reinflation policies.
Moderate
OBJ: factual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Knowledge
103. In the late 1960s and 1970s inflation decreased around the world.
Basic
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Knowledge
104. The inflationary experience of the United States during the 1970s can be interpreted as a time when the Fed increased the target rate of inflation.
Moderate
OBJ: factual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Knowledge | AACSB: Analytic
Short Answer
105. What is the difference between a temporary growth slowdown and a recession?
OBJ: factual
SEC: 2. Monetary Policy
TOP: Temporary Growth Slowdown
MSC: Bloom's: Knowledge
106. Discuss why the Fed may in some cases need to cause a small recession to reduce inflation in the economy. Hint: Think about how firms set their prices.
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Disinflation and Pricing Behavior of Firms
MSC: Bloom's: Analysis | AACSB: Analytic
107. Explain why the Fed would ever pursue a policy to cause reinflation.
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Reinflation
MSC: Bloom's: Analysis | AACSB: Analytic
108. Discuss the difference in the short-run and long-run effects of a decrease in government purchases and a monetary policy change designed to lower inflation. Comment specifically on the four components of aggregate demand, interest rates, and inflation.
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Change in Monetary Policy vs. Government Purchases
MSC: Bloom's: Analysis | AACSB: Analytic
109. Graphically show the difference between what is meant by a growth slowdown as opposed to a recession.
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Growth Slowdown
MSC: Bloom's: Analysis | AACSB: Analytic
110. Explain what effect a monetary policy designed to bring about disinflation would have on the economy. Be sure to discuss what happens in the short run, the medium run, and the long run.
OBJ: conceptual
SEC: 2. Monetary Policy
TOP: Disinflation
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
111. A price shock occurs when
a. | the monetary policy rule changes. |
b. | the Fed acts to raise interest rates. |
c. | the spending balance changes. |
d. | key commodity prices change. |
e. | the AD curve shifts to the right. |
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
112. Over the past 25 years, price shocks have occurred due to sharp changes in
a. | coffee prices. |
b. | oil prices. |
c. | gold prices. |
d. | silver prices. |
e. | interest rates. |
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
113. A change in the price of a key commodity such as oil, usually because of a shortage, that causes a shift in the inflation adjustment line is known as
a. | commodity shock. |
b. | price shock. |
c. | price revamping. |
d. | disinflation. |
e. | None of these |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
a. | a shift in the aggregate demand curve. |
b. | the same as a demand shock. |
c. | a change in potential GDP. |
d. | the same as a supply shock. |
e. | a shift in the inflation adjustment line. |
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
115. A price shock is typically caused by a change in
a. | aggregate demand. |
b. | consumption. |
c. | tax policy. |
d. | government spending. |
e. | aggregate supply. |
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
116. Which of the following is the most appropriate explanation of a price shock?
a. | A large shift in the AD curve |
b. | A large shift in the aggregate expenditure line |
c. | A shift in potential GDP |
d. | A large change in a key commodity price |
e. | A shift in the monetary policy rule line |
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
117. Which of the following is the most appropriate explanation of a supply shock?
a. | A large shift in the AD curve |
b. | A shift in the monetary policy rule line |
c. | A shift in potential GDP |
d. | A large shift in the aggregate expenditure line |
e. | A large change in a key commodity price |
OBJ: factual
SEC: 3. Price Shocks
TOP: Supply Shock
MSC: Bloom's: Analysis | AACSB: Analytic
118. According to real business cycle theory, changes in real GDP are caused by
a. | increases in aggregate demand. |
b. | political changes. |
c. | changes in the consumption level. |
d. | changes in government spending. |
e. | changes in technology. |
OBJ: factual
SEC: 3. Price Shocks
TOP: Real Business Cycles
MSC: Bloom's: Knowledge
/
119. A price shock is the same as a demand shock.
Basic
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
120. A demand shock is a shift in the aggregate demand curve, whereas a price shock is typically a shift in the supply curve.
Moderate
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge
121. Real business cycle theories emphasize price shocks.
Moderate
OBJ: factual
SEC: 3. Price Shocks
MSC: Bloom's: Knowledge
122. Price shocks are always accompanied by a shift in potential GDP.
Moderate
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Knowledge | AACSB: Analytic
123. A supply shock is exactly the opposite of a price shock.
Basic
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shocks and Supply Shocks
MSC: Bloom's: Knowledge
Multiple Choice
124. The short-run effect of an oil price increase is
a. | an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed raises interest rates. |
b. | an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as the Fed lowers the target inflation rate. |
c. | an upward shift of the inflation adjustment line and a leftward shift of the aggregate demand curve as spending falls. |
d. | a downward shift of the inflation adjustment line. |
e. | an upward shift of the inflation adjustment line. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
125. The long-run effect of an increase in oil prices is
a. | fall in potential GDP. |
b. | lengthy recession until circumstances change and the aggregate demand curve shifts to the right. |
c. | permanent increase in inflation. |
d. | lengthy recession until the Fed changes monetary policy and the aggregate demand curve shifts to the right. |
e. | downward movement of the inflation adjustment line until the rate of inflation returns to the baseline rate. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
126. If there is a sharp increase in oil prices, in the short run
a. | consumption and investment will fall. |
b. | consumption will fall, investment will increase, and net exports will fall. |
c. | consumption, investment, and net exports will stay constant. |
d. | consumption will fall while investment and net exports will stay constant. |
e. | consumption will fall, net exports will increase, and investment will stay constant. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Short-Run Effect of a Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
127. Which of the following best depicts the short-run effect of a price shock due to a large increase in oil prices?
a. | The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the right. |
b. | The IA line shifts up, causing interest rates to rise, which causes a leftward movement along the AD curve. |
c. | The AD curve shifts to the left, causing interest rates to rise, which causes the IA line to shift down. |
d. | The IA line shifts down, causing interest rates to rise, which causes a leftward movement along the AD curve. |
e. | The IA line shifts up, causing interest rates to rise, which causes the AD curve to shift to the left. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Short-Run Effect of a Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
128. In the long run, a price shock results in
a. | an inflation rate greater than the baseline. |
b. | an inflation rate the same as the baseline. |
c. | an inflation rate lower than the baseline. |
d. | a permanent decline in potential GDP. |
e. | real GDP being less than potential GDP. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Long-Run Effect of a Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
129. If a price shock caused by a sharp increase in oil prices is believed to be temporary, then the Fed will
a. | raise interest rates based on its monetary policy rule. |
b. | lower interest rates based on its monetary policy rule. |
c. | do nothing. |
d. | lower interest rates, but not by as much as it would if the price shock were permanent. |
e. | raise interest rates, but not by as much as it would if the price shock were permanent. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Temporary Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
130. Suppose there is a sharp decline in oil prices. According to the theory of economic fluctuations,
a. | real GDP will fall. |
b. | real GDP will not change. |
c. | its effect on real GDP is uncertain. |
d. | real GDP will increase. |
e. | potential GDP will fall. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Temporary Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
131. Suppose the economy is initially at point A in the diagram below, and oil prices suddenly fall. Which point best depicts where the economy will end up in the short run?
a. | C |
b. | E |
c. | D |
d. | A |
e. | F |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Short-Run Effect of a Change in Oil Prices
MSC: Bloom's: Analysis | AACSB: Analytic
132. Suppose the economy is initially at point A in the diagram below, and there is a sudden increase in oil prices that the central bank believes is only temporary. Which point best depicts where the economy will end up in the short run?
a. | A |
b. | B |
c. | C |
d. | D |
e. | E |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Short-Run Effect of a Change in Oil Prices
MSC: Bloom's: Analysis | AACSB: Analytic
133. A permanent price shock results in
a. | a positive correlation between real GDP and inflation. |
b. | no correlation between real GDP and inflation. |
c. | an uncertain correlation between real GDP and inflation. |
d. | a negative correlation between real GDP and inflation. |
e. | a permanent decline in potential GDP. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Stagflation
MSC: Bloom's: Analysis | AACSB: Analytic
134. What is the name commonly given to the situation in which inflation is up and real GDP is down?
a. | Stagflation |
b. | Reinflation |
c. | Disinflation |
d. | Backward recession |
e. | None of these |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Stagflation
MSC: Bloom's: Knowledge
135. A sharp increase in oil prices will result in
a. | a deflation. |
b. | a decline in potential GDP. |
c. | stagflation. |
d. | disinflation. |
e. | hyperinflation. |
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Stagflation
MSC: Bloom's: Knowledge
/
136. If oil prices increase, inflation will be permanently higher in the long run.
Challenging
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Long-Run Effect of an Increase in Oil Prices
MSC: Bloom's: Analysis | AACSB: Analytic
137. A price shock causes the AD curve to shift.
Moderate
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Effect of a Price Shock
MSC: Bloom's: Knowledge | AACSB: Analytic
138. A price shock causes movement along the monetary policy rule line.
Moderate
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Effect of a Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
139. Stagflation refers to the situation in which inflation is up and real GDP is down.
Basic
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Stagflation
MSC: Bloom's: Knowledge
140. It is difficult to determine whether a price shock is permanent or temporary.
Basic
OBJ: factual
SEC: 3. Price Shocks
TOP: Temporary Price Shock
MSC: Bloom's: Knowledge
141. A price shock has the same effect as a demand shock.
Moderate
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Stagflation
MSC: Bloom's: Knowledge | AACSB: Analytic
Short Answer
142. If the price of salt quadruples, will this cause a price shock? Explain.
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
143. What is the difference between a price shock and a supply shock?
OBJ: factual
SEC: 3. Price Shocks
TOP: Price Shocks and Supply Shocks
MSC: Bloom's: Analysis | AACSB: Analytic
144. What is meant by the term stagflation?
OBJ: factual
SEC: 3. Price Shocks
TOP: Stagflation
MSC: Bloom's: Comprehension | AACSB: Analytic
145. Suppose oil prices increase sharply. Trace the short-run, medium-run, and long-run effects this will have on the economy.
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
146. Explain why the rate of inflation does not change in the long run as a result of a price shock.
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
147. Suppose, for some hypothetical economy, an electric storm causes 90 percent of the CPU chips in the economy to become useless. Trace out the macroeconomic consequence of this phenomenon. Does this event result in stagflation? Why?
OBJ: conceptual
SEC: 3. Price Shocks
TOP: Supply Shock
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
148. Which of the following was not a factor that led to the recession that began at the end of 2007?
a. | Commodity price inflation. |
b. | Increased government expenditure due to a war. |
c. | Financial crisis. |
d. | Collapse of the housing bubble. |
e. | Stock market collapse. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recession
MSC: Bloom's: Knowledge
149. Among the factors that might have led to the outbreak of the 2007-09 recession, which most likely caused a shift of the IA line instead of the AD curve?
a. | Sharp increases in commodity prices. |
b. | Credit crunch. |
c. | Financial crisis. |
d. | Collapse of the housing bubble. |
e. | Stock market collapse. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recession
MSC: Bloom's: Analysis | AACSB: Analytic
150. In 2008, stock markets in the United States and worldwide registered
a. | increases of 30-50%. |
b. | decreases of 30-50%. |
c. | decreases of 5-10%. |
d. | increases of 5-10%. |
e. | decreases of over 100%. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge
151. The most recent recession of the United States occurred
a. | between 2001 and 2006. |
b. | between the end of 2007 and the middle of 2009. |
c. | between 2005 and the present. |
d. | between 1929 and 1933. |
e. | in 2001. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge
152. The best explanation for the recent economic fluctuations observed in the U.S. economy is
a. | one leftward shift of the aggregate demand curve, followed by price adjustment, followed by one rightward shift of the aggregate demand curve, followed by price adjustment. |
b. | one leftward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. |
c. | one rightward shift of the aggregate demand curve, followed by price adjustment, followed by one leftward shift of the aggregate demand curve, followed by price adjustment. |
d. | one rightward shift of the aggregate demand curve followed by multiple shifts in the inflation adjustment line. |
e. | one leftward shift of the aggregate demand curve followed by one rightward shift. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recent Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
153. Recent economic fluctuations in the U.S. economy are best explained by
a. | shifts of the aggregate demand curve. |
b. | changes in potential GDP. |
c. | shifts of the inflation adjustment line. |
d. | price shocks. |
e. | changes in aggregate supply. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
154. All of the following are likely reasons for the 2007-09 recession in the United States except
a. | a rightward shift of the AD curve. |
b. | an upward shift of the IA line. |
c. | an increase in potential GDP. |
d. | a decrease in potential GDP. |
e. | an increase in aggregate supply. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recent Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 25-2
155. According to Exhibit 25-2, which of the following best describes the path followed by the U.S. economy during recent economic fluctuations?
a. | FCBAD |
b. | FCGBA |
c. | CBADE |
d. | CGBED |
e. | CGBEF |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recent Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
156. According to Exhibit 25-2, which point best represents where the U.S. economy was in 2009?
a. | A |
b. | E |
c. | C |
d. | D |
e. | F |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Analysis | AACSB: Analytic
157. According to Exhibit 25-2, which point best represents where the U.S. economy was in mid-2007?
a. | F |
b. | C |
c. | E |
d. | G |
e. | B |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Analysis | AACSB: Analytic
158. A major that resulted in the leftward shift of the aggregate demand curve in late 2008 was
a. | a decrease in taxes. |
b. | an increase in government spending. |
c. | a price shock. |
d. | a change in net exports. |
e. | a decrease in consumer confidence. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge | AACSB: Analytic
159. The leftward shift of the aggregate demand curve in 2007 is explained in part by
a. | a change in net exports. |
b. | a sharp increase in oil prices. |
c. | a decrease in government spending. |
d. | a change in monetary policy. |
e. | an increase in taxes. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge | AACSB: Analytic
160. Which of the following did not contribute to the decline in aggregate demand during 2007?
a. | A commodity price shock |
b. | A drop in stock prices |
c. | A change in monetary policy |
d. | A drop in consumer confidence |
e. | A decrease in lending from banks |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recession
MSC: Bloom's: Knowledge | AACSB: Analytic
161. The leftward shift of the AD curve during 2007 occurred partly because of
a. | higher net exports. |
b. | a balanced federal government budget. |
c. | an increase in consumer confidence. |
d. | a stock market crash. |
e. | the Fed lowering interest rates. |
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recession
MSC: Bloom's: Knowledge
/
162. Data for the U.S. economy in the 2007-09 period show that real GDP and inflation moved in the direction predicted by the economic fluctuations model.
Basic
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge
163. Interest rates typically rise prior to a recession.
Basic
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge
164. Economic fluctuations in the United States during the 2007-09 period are best explained by shifts of the inflation adjustment line.
Basic
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge
165. The recession in the United States during the 2007-09 period are best explained by changes in fiscal policy.
Basic
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09
MSC: Bloom's: Knowledge
166. A single factor caused the 2008-09 recession.
Moderate
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recession
MSC: Bloom's: Knowledge
167. The housing bubble and bust was partly caused by the Fed's policy of keeping low interest rates.
Moderate
OBJ: factual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Economics in Action
MSC: Bloom's: Knowledge | AACSB: Analytic
Short Answer
168. Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Recent Economic Crisis and Shift in Aggregate-Demand Curve
MSC: Bloom's: Analysis | AACSB: Analytic
169. Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession, the aggregate demand inflation adjustment model is of no use. Please comment.
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09 and Shift in Aggregate-Demand Curve
MSC: Bloom's: Analysis | AACSB: Analytic
170. Draw an aggregate demand inflation adjustment diagram that illustrates the path of inflation and the percentage deviation of real GDP from potential for the U.S. economy from 2007 to 2009.
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: U.S. Economy 2007-09 and Shift in Aggregate-Demand Curve
MSC: Bloom's: Analysis | AACSB: Analytic
171. Suppose that, at any given level of income, people decide to import more.
(A) | Using the aggregate demand curve and the inflation adjustment line, describe how this affects real GDP, consumption, investment, net exports, interest rates, and inflation in the short run, the medium run, and the long run. Provide an economic explanation of your results. Assume the economy is initially at the point of long-run equilibrium. |
(B) | Now, suppose the central bank wants to revert to the inflation rate that prevailed prior to the increase in import spending. How can it achieve its objective? Describe the short-run, medium-run, and long-run effects of its policy on real GDP and inflation. |
(A) | Initially the economy is at point I in the diagram below. The autonomous rise in imports results in a fall in income as people purchase fewer domestic goods. Only spending is affected in the short run because of sticky prices and wages. Therefore, the short-run effect is for real GDP to decline. This is shown by point S in the diagram below. In the short run, consumption spending declines because of the multiplier effect. Net exports decrease because of the increase in import spending. Investment does not change; it is assumed that it does not depend on income. |
In the medium run, the rate of inflation will decline because real GDP will be below potential GDP. That is why the medium run is characterized by the IA line shifting down. As the rate of inflation declines, so does the real interest rate. Investment spending increases. Consumption, through the multiplier effect, will also increase relative to what it equaled in the short run. Net exports will increase as a result of the interest rate effect. | |
In the long run, real GDP will equal potential. This is shown by point L in the diagram below. At this new long-run equilibrium, consumption and investment will be greater, while net exports will be smaller. | |
| |
(B) | The central bank will increase the target rate of inflation. Therefore, for any given rate of inflation there will be a lower rate of interest. The lower rate of interest will cause net exports and investment spending to increase. This will cause real GDP to increase and, through the multiplier effect, consumption to increase. In the short run, assuming the rate of inflation remains constant, real GDP will exceed potential. In the medium run, as a result of the positive gap between real and potential GDP, the rate of inflation will increase. This will cause net exports and investment spending to decline. This decline, through the multiplier effect, will cause consumption to also decline. In the long run, real GDP will equal potential. Since the real rate of interest and real GDP will be at the same level they were at prior to the change in policy rules, consumption, investment, and net exports will be at the same levels they were at before the increase in imports. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: The Effect of Increase in Imports
MSC: Bloom's: Analysis | AACSB: Analytic
172. Suppose the income tax rate increases. What will happen to consumption, investment, and net exports in the short run and the long run? Explain your results, using a diagram with the aggregate demand curve and the inflation adjustment line.
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Change in Taxes
MSC: Bloom's: Analysis | AACSB: Analytic
173. Suppose the central bank lowers its target inflation rate from 3 percent to 1.5 percent. Use the aggregate demand/inflation curve and the price adjustment line to show the short-run, medium-run, and long-run effects of this policy change. Assume the economy is initially at the point of long-run equilibrium.
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Inflation Targeting
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 25-3
174. PART I
Use the data from Exhibit 25-3 to graph the aggregate demand curve:
(A) | Suppose the current inflation rate is 3.5 percent and potential GDP is $6,900 billion. Draw the inflation adjustment line. What is the current deviation of real GDP from potential? |
(B) | In the long run, what will the inflation rate be if there is no change in economic policy? Explain how this adjustment will take place. |
PART II
Suppose that after the long-run adjustment back to potential, the Fed changes its policy rule so the inflation target is 3.5 percent and potential GDP remains at $6,900 billion. Use the data to show the shift in the aggregate demand/inflation curve.
(A) | What type of monetary policy is the Fed undertaking? |
(B) | How does the Fed accomplish this goal? What is the response of investment and net exports? |
(C) | In the short run, what is the deviation from potential GDP? |
(D) | How will the inflation adjustment line adjust in the medium and long run? Explain how this occurs. |
PART I | |
(A) | The gap between real and potential GDP is $100 billion. This is shown in the diagram below. |
| |
(B) | The rate of inflation will decline because real GDP will be below potential GDP. This will cause the rate of interest to fall if the Fed maintains its policy rule. In the long run, the rate of inflation will be 2.5 percent. This is shown in the diagram where IA1 intersects the AD curve. |
PART II | |
(A) | This is an example of reinflation. |
(B) | To increase spending, the Fed purchases Treasury securities on the open market. The permanent increase in reserves causes interest rates to decline. Investment and net exports increase as a result of this policy. This increase in the interest-sensitive component of aggregate expenditures, in turn, causes income to increase and the AD curve to shift out from AD0 to AD1 in the diagram below. |
| |
(C) | In the short run, real GDP will be $100 billion more than potential GDP. |
(D) | The increase in the interest-sensitive components of aggregate expenditures will result in a positive GDP gap. The positive GDP gap will lead to an increased rate of inflation. In the medium run, the IA line will shift up, and so will the rate of interest. The increase in interest rates will lead to a decline in investment and net exports and subsequently real GDP because of the multiplier effect. In the long run, where real and potential GDP will be equal, the rate of inflation will be 3.5 percent. This corresponds to IA2 in the diagram. Notice that IA2 is the same as IA0 in Part I. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Adjustment to Potential GDP | Change in the Monetary Policy Rule
MSC: Bloom's: Analysis | AACSB: Analytic
175. Suppose the target rate of inflation is 3 percent and real GDP equals potential GDP. Now, suppose a major oil-producing country decides to increase the supply of oil in order to discipline the other members of the oil-producing cartel. There is a sharp decline in the price of oil, and, in turn, the rate of inflation falls to 2 percent in the short run. The Fed views this decline in inflation as temporary and expects the price adjustment line to shift back up to 3 percent next year, which it does.
(A) | Where will real GDP be in the short run? If the Fed follows its usual policy rule, how will the economy adjust back to potential? |
(B) | Now, suppose the Fed is sure this is a temporary decline in the inflation rate. Therefore, it decides not to follow its typical policy rule, but instead maintains the interest rate at the level it was at prior to the shock. What happens to real GDP? Why? What will the long-run adjustment be in this case? |
(A) | The IA line shifts down and intersects the AD curve at a point where real GDP is above potential GDP. Because real GDP is above potential, there will be pressure on firms to increase their prices, causing the rate of inflation to increase. The higher rate of inflation will lead to higher interest rates, assuming the Fed does not change its policy rule. |
(B) | Real GDP will remain constant because the interest rate does not change. There will be no long-run adjustment if the price shock automatically reverses itself. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Oil Price Shock
MSC: Bloom's: Analysis | AACSB: Analytic
176. Suppose the GDP deflator is 100 in 2015 and 101 in 2016.
(A) | Suppose the economy is at potential GDP in 2015 and 2016. What is the rate of inflation in 2016? |
(B) | Suppose instead that real GDP is above potential GDP in 2016. How is the adjustment back to potential made in this situation? |
(A) | The rate of inflation in 2016 is 1 percent. |
(B) | The rate of inflation will increase above 1 percent between 2015 and 2016. Assuming the central bank maintains its policy rule, interest rates will rise and the interest-sensitive components of aggregate spending will decline, causing real GDP to decline. This process will continue until real GDP and potential GDP are again equal. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Adjustment to Potential GDP
MSC: Bloom's: Analysis | AACSB: Analytic
177. Answer the questions below:
(A) | Is there a unique rate of inflation that corresponds to long-run equilibrium? Explain. What determines the rate of inflation when the economy is at long-run equilibrium? |
(B) | Suppose the central bank is interested in stimulating growth in the economy. Should it aim for a higher or lower target inflation rate? Will higher growth be achieved in the short run and the long run? |
(A) | No. The target rate of inflation is the rate of inflation that corresponds to potential GDP. The target rate is determined by the central bank. |
(B) | If the central bank wants to stimulate growth, it needs to think about growth in labor, capital, and technology. Since capital and, to some extent, technology are determined by the level of investment, the central bank needs to set the target inflation rate to encourage investment. If the central bank raises the target inflation rate, interest rates will decrease (for any given rate of inflation, the interest rate is lower). The decrease in the interest rate will stimulate consumption, investment, and net exports, and real GDP will increase above potential. The growth rate will be temporarily higher in the short run. In the long run, prices and wages will rise, and the inflation adjustment line will shift upwards. As the real interest rate increases back to its original level, consumption, investment, and net exports will fall back to their original levels, and real GDP will again equal potential GDP. In the long run, inflation will be higher and nothing else will change. |
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Long-Run Equilibrium and Inflation
MSC: Bloom's: Analysis | AACSB: Analytic
178. Suppose exports increase. According to the shares of spending model from Chapter 7, what would happen to interest rates, consumption, investment, and net exports in the long run? According to this chapter's model, which is made up of the aggregate demand curves and the inflation adjustment line, what will happen to interest rates, consumption, investment, and net exports in the long run?
OBJ: conceptual
SEC: 4. Using the Economic Fluctuations Model to Understand the Recent Recession
TOP: Exports
MSC: Bloom's: Analysis | AACSB: Analytic