If national saving is $50 billion, taxes are $45 billion, and the government spends $5 billion more than it collects in taxes, then private saving is _________.

$95 billion
$55 billion
$50 billion
$40 billion

The economy of Tomorrowland is in long-run equilibrium at point a where real GDP is $40 billion and the price level is 120. The central bank of Tomorrowland follows the fixed rule, "Hold the money supply constant." If there is a temporary increase in aggregate demand, the economy will _________________.

initially move to point c
remain at point a
initially move to point d
initially move to point b

The economy of Tomorrowland is in long-run equilibrium at point a where real GDP is $40 billion and the price level is 120. The central bank of Tomorrowland follows the fixed rule, "Hold the money supply constant." If there is a permanent increase in aggregate demand, after all adjustments have been made, the economy will _______.

move to point b
move to point c
move to point d
remain at point a

The economy of Tomorrowland is in long-run equilibrium at point a where real GDP is $40 billion and the price level is 120. The central bank of Tomorrowland follows the feedback rule: "Increase the money supply when aggregate demand decreases, and decrease the money supply when aggregate demand increases." If there are no lags in the effect of monetary policy, to what point will the economy move when aggregate demand has a permanent increase?

point c
remains at point a
point d
point b

The economy is experiencing high inflation and high unemployment. What combination of fiscal and monetary policies will decrease both inflation and unemployment?

feedback rule with an increase in money growth and a decrease in taxes
fixed rule with no money growth and no change in taxes or government purchases
an increase in money wage rates and constant money growth
fixed rule with constant money growth

Some economists prefer fixed rules to feedback rules for all of the following reasons except ________________.

feedback-rule policies are less predictable
aggregate demand shocks are stabilized only under fixed-rule policy
potential GDP is not known
policy lags are longer than the forecast horizon

Suppose that an economy experiences a productivity growth slowdown. According to real business cycle theorists, any policy that increases aggregate demand will result in ___________in real GDP and _________ in the price level.

an increase; no change
no change; an increase
no change; a decrease
an increase; an increase

If the central bank responds to a continuing rise in oil prices by continually increasing the money supply, ___________.

unemployment increases
cost-push inflation occurs
persistent stagflation occurs
the economy remains at a business-cycle peak

An economy is currently at point c in the following figure. If the central bank unexpectedly slows inflation, the economy will _________________.

remain at point c because expectations have not changed
move to point b and unemployment will increase
move to point d and unemployment will decrease
move to point a and unemployment will remain at the natural rate

An economy is currently at point c in the following figure. If the central bank announces that it will lower inflation, and the central bank has a reputation for doing what it says, then the economy will __________________.

move to point b and real GDP will remain constant
move to point a and real GDP will remain constant
move to point a and real GDP will increase due to lower inflation
move to point b and real GDP will decrease

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