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Exam 24: From the Short Run to the Long Run: the Adjustment of Factor Prices

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Question 71

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Consider an economy with a relatively steep AS curve. If there is a shift to the right in the AD curve, there will be a in the price level and in national output.

A) small increase; a large increase
B) small increase; a large decrease
C) large increase; a small increase
D) large increase; a small decrease
E) large increase; no change

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Question 72

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In the basic AD/AS macro model, which of the following events could cause a negative AS shock?

A) a large decrease in wages
B) a large increase in business confidence
C) a large decrease in the net tax rate
D) a widespread outbreak of a serious infectious disease
E) a large increase in labour productivity

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Question 73

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An important automatic fiscal stabilizer in Canada is

Which of the following describes the distinction between the Phillips curve and the AS curve?

Suppose the economy begins in a long-run equilibrium with Y = Y*. A permanent increase in aggregate demand will have its short-run effect on real GDP reversed in the long run with a shift of .

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short -run equilibrium at point A. FIGURE 24-6 -Refer to Figure 24-6. The government could close the existing output gap by

One advantage of using expansionary fiscal policy rather than relying on automatic adjustment to recover from a recessionary gap is that

FIGURE 24-5 -Refer to Figure 24-5. The economy is not in long-run equilibrium at E1 because the

In our macro model, the level of aggregate output is determined in the short run by but in the long run by the level of .

FIGURE 24-2 -Refer to Figure 24-2. If the economy is currently in a short-run equilibrium at Y1, the economy is experiencing

The table below shows data for five economies of similar size. Real GDP is measured in billions of dollars. Assume that potential output for each economy is $340 billion. TABLE 24-1 -Suppose that the economy is initially in a long-run macroeconomic equilibrium. A shock then hits the economy and we observe that the unemployment rate increases and the price level increases. We can conclude that Has decreased and there is now an) gap.

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short -run equilibrium at point A. FIGURE 24-6 -Refer to Figure 24-6. If the government takes no action to change the short-run macro equilibrium in this economy, then

When we study the adjustment process in macroeconomics, what assumption are we making about potential output, Y*?

The economyʹs output gap is defined as the

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short -run equilibrium at point A. FIGURE 24-7 -Consider Figure 24-7. At the initial short-run equilibrium, there is output gap of . This gap could be closed by a .

In the basic AD/AS macro model, permanent increases in real GDP are possible only if

Consider the AD/AS model, and suppose that the economy begins at potential output. The effect of a positive AS shock on real GDP will be reversed in the long run with a shift in .

Automatic fiscal stabilizers the impact of demand or supply shocks on the economy since governmentʹs net tax revenues during booms and during recessions.

Consider the basic AD/AS macro model, initially in a long -run equilibrium. A positive AS shock will The price level and output in the short run. In the long run, the price level will and output )

Which of the following is a defining assumption of the AD/AS macro model in the short run?