Using aggregate demand and aggregate supply analysis, explain why increases in oil did not lead to stagflation in 2006–2008 but did lead to stagflation in the 1970s and early 1980s.
What will be an ideal response?
In the 1970s, the increases in oil prices caused a decrease in aggregate supply, which led to both higher prices and reduced output which is the very definition of stagflation. In contrast, the increased energy costs in the mid-2000s did not shift aggregate supply inward —at least not to the same degree. The reason is that the U.S. economy and other economies were no longer as dependent on energy with the energy content of the U.S. GDP declining by 50 percent. In addition, sound economic policies and various structural changes made the economy less volatile since the 1980s, which resulted in less severe movements in aggregate supply.
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An increase in an individual's income without changing relative prices will
a. rotate the budget constraint about the X-axis. b. shift the indifference curves outward. c. shift the budget constraint outward in a parallel way. d. rotate the budget constraint about the Y axis.
If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
a. it increases by $100,000 b. it increases by $150,000 c. it decreases by $100,000 d. it decreases by $200,000
We would not consider ________ an act of capital investment.
A. a florist delivering roses on Valentine's Day B. a company purchasing solar panels for its headquarters C. a son paying for his mother to go back to college D. a city government building a new fire station
When households choose to hold money as a store of value, rather than holding assets such as certificates of deposit, stocks, and bonds, ________ demand for money results
A) liquidity B) asset C) transactions D) precautionary