Macroeconomics – Short Answer Topics for the Final Quiz 1. (T/F Explain) The Phillip’s curve implies that there is always a tradeoff between inflation and unemployment 2. (T/F Explain) An increase in the Money Supply never leads to a change in real variables like real GDP or unemployment 3. What is the historical (data) evidence for: a. An upward sloping (or flat) aggregate supply curve? b. For a vertical aggregate supply curve? c. For a vertical Phillip’s curve? d. For the Quantity Theory of Money equation? 4. How does the AD/AS model explain why there can be an inflation/unemployment tradeoff in the short-run, but not in the long-run? 5. When can government economic policy be effective, i.e., when can government intervention in the economy increase output and lower unemployment? 6. When will government intervention not be effective? 7. How do sticky prices/wages explain the large increase in unemployment during the Great Depression? 8. How do sticky wages/prices explain the upward sloping short-run AS curve? 9. Milton Friedman, in his presidential address to the AEA, says that monetary policy can not be used to: (a) decrease unemployment, (b) decrease interest rates or (c) increase real output (real GDP). Why? Is he always correct? 10. How can an increase in the money supply lead to both an increase and decrease in the interest rate? 11. How does misperception(expectations about inflation) explain short-run increases in output and employment? Why don’t these increases persist in the long-run according to this theory? 12. What 3 tools does the government have to affect monetary policy? Which branch of the government exercises them? How do they affect Aggregate Demand? Which components and how? (C,I,G,NX) 13. What tools does the government have for fiscal policy? How do they affect Aggregate Demand? Which components? 14. What is an example of an Aggregate Demand shock? How does it affect the economy? Use and AS/AD model. How could the affect be “accommodated” by government intervention? What would be the effect? What would happen if the government did not intervene? 15. What is an example of an Aggregate Supply shock? How does it affect the economy? Use and AS/AD model. How could the affect be “accommodated” by government intervention? What would be the effect? What would happen if the government did not intervene?