Question 6 (0.5 pts) Since the AD tells that aggregate demand (of output) declines with inflation, it implies that inflation is the only variable that affects aggregate demand. The government cannot hope to change aggregate demand by using fiscal policies. This statement is a) True b) FalseQuestion 13 (0.5 pts) The impact of the Obama Administration stimulus plan of 2009 was a) The "overheat" of the US economy b) A large increase in inflation and a small increase in output c) An increase in output insufficient to reach full-employment and a negligible increase in inflation d) An increase in unemployment and an increase in inflation Question 14 (1 pts) A negative shock to aggregate supply results in an economy ending up in "stagflation". Which of the following policies would be effective to counteract stagflation, reduce inflation and increase employment and output? a) A very tight monetary policy and the Fed commitment to tolerate low inflation in the future b) A very tight fiscal policy reducing public spending or increasing taxes c) An expansionary fiscal policy generating an increase in output and inflation d) An expansionary monetary policyQuestion 7 (1 pt) For each element in Column A, on your answer sheet write the letter corresponding to the correct element in Column B Column A Column B 1) Aggregate Supply (A) A self-reinforcing tendency of wages and prices to rise 2) Real Wealth Effect (B) The economy's amount of output produced (supplied) in relation to inflation 3) Maximum Capacity (C) A war that causes an increase in the cost of oil Output 4) Wage-Price Spiral (D) The economy's total production if all its resources are fully utilized 5) Adverse Supply Shock (E) Increased (or decreased) spending as a result of feeling wealthier (or poorer)Question 15 (0.5 pts) A fiscal policy that increases public spending too much or cuts taxes too much can cause the economy to overheat and enter a wage-price spiral. This statement is a) True b) False Question 16 (1 pts) An expansionary fiscal policy is unlikely to be able to help an economy out of stagflation. This is because a) An expansionary fiscal policy generates a further increase in unemployment (decline in output) b) An expansionary fiscal policy generates a further increase in inflation c) An expansionary fiscal policy is not effective to help an economy out of any type of recession d) None of the aboveQuestion 5 {0.25 pte) The econon'i},r is hit by a positive shock to autonomous consumption (3-. The effect is a) n increase in the interest rate b] A decrease in AB and a shift back of the JED c) A decrease in the interest rate c1) Pm increase in E and a shift outward of the El} Question 2 (0.25) Referring to question 1, the shift in the AE curve is driven by a change in a) Consumption b) Investment c) Government spending Question 3 (0.5) Among other things, the negative slope of the AD curve is determined by the Fed monetary policies. In fact, the Fed reacts to high inflation by raising the interest rates, thus generating a fall in investments and in aggregate expenditure that make the amount of output demanded by the economy (in equilibrium) to fall. This statement is a) True b) FalseQuestion 8 (0.5) A wage-price spiral can be informally described as the outcome of the very high competition to hire (the few remaining unemployed) workers and purchase productive resources when the economy is close to its maximum capacity. This statement is a) True b) False