Short Answer Questions to Know for Quad Quiz

Chapter 27 Short Answer Question.

1. Give an example of government spending that is not fiscal policy and an example
of government
spending that is fiscal policy.
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2. Show how expansionary fiscal policy can be used to lessen the impact of weak
AD growth on the
economy.
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3. Determine the government purchases multiplier if an increase in government
purchases of $10
billion increases equilibrium real GDP by $25 billion. Suppose the tax multiplier is
2. How
much must taxes change to change equilibrium real GDP by $10 million?
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4. Why is crowding out from an increase in government purchases complete in the
long run but not
in the short run?
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5. Explain how the federal government debt grows over time.
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6. Suppose at the beginning of the current year, the federal government debt is at
$9,000 billion, and
that during the year federal expenditures are $2,900 billion and receipts are $2,600
billion.
Determine the value of the surplus or deficit during the year and the value of the
federal
government debt at the end of the year.

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Chapter 28 Short Answer Question

1. Why does the short-run Phillips curve have a negative slope?
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484 CHAPTER 16 (28) | Inflation, Unemployment, and Federal Reserve Policy
2. In 2006, average hourly earning in manufacturing was $16.80 and the price level
(measured by
the GDP deflator) was 116.6. Suppose that in 2007, the inflation rate was 3 percent.
How much
would average hourly earnings needed to have changed to keep the real wage
constant?
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3. Suppose that workers and firms both expect prices to increase by 3 percent. The
current average
wage rate is $16.80. The price level is 116.6. Show what will happen to the real
wage if the actual
inflation rate is 5 percent but expected inflation remains at 3 percent.
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4. Why does a vertical long-run aggregate supply curve imply a vertical long-run
Phillips curve?
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CHAPTER 16 (28) | Inflation, Unemployment, and Federal Reserve Policy 485

5. If the Fed tries to reduce the inflation rate using contractionary monetary policy,
the impact the
policy will have on the unemployment rate depends on how expectations of inflation
are formed.
Explain.
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6. Explain the different effects expansionary monetary policy will have on
unemployment with
adaptive expectations compared to rational expectations.
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