Question 1

An adjustment "asymmetry" in aggregate supply is

Accepted Answer

A) the concave shape of the AS curve. 
B) the convex shape of the AS curve. 
C) the difference in speed of a rightward shift versus a leftward shift (when wages adjust to output gaps). 
D) the difference in speed of increases in factor prices versus wage rates (when wages adjust to output gaps). 
E) the difference in speed of decreases in output levels. 
A) the concave shape of the AS curve. 
B) the convex shape of the AS curve. 
C) the difference in speed of a rightward shift versus a leftward shift (when wages adjust to output gaps). 
D) the difference in speed of increases in factor prices versus wage rates (when wages adjust to output gaps). 
E) the difference in speed of decreases in output levels. C

Question 2

A recessionary output gap is characterized by

Accepted Answer

A) rising prices. 
B) constant prices. 
C) real output that varies one-for-one with aggregate demand. 
D) real GDP exceeding potential output. 
E) real GDP falling below potential output. 
A) rising prices. 
B) constant prices. 
C) real output that varies one-for-one with aggregate demand. 
D) real GDP exceeding potential output. 
E) real GDP falling below potential output. E

Question 3

Which of the following are the defining assumptions of the short run in macroeconomics?

Accepted Answer

A) Factor prices are exogenous,and technology and factor supplies are changing. 
B) Factor prices adjust to output gaps,and technology and factor supplies are constant. 
C) Factor prices are exogenous,and technology and factor supplies are constant. 
D) Factor prices adjust to output gaps,and technology and factor prices are changing. 
E) Factor prices are exogenous,technology and factor prices are endogenous. 
A) Factor prices are exogenous,and technology and factor supplies are changing. 
B) Factor prices adjust to output gaps,and technology and factor supplies are constant. 
C) Factor prices are exogenous,and technology and factor supplies are constant. 
D) Factor prices adjust to output gaps,and technology and factor prices are changing. 
E) Factor prices are exogenous,technology and factor prices are endogenous. C

Question 4

Consider the AD/AS macro model.Why do we say that the wage-adjustment process is asymmetrical?

Accepted Answer

A) Because factor prices fluctuate more frequently than goods prices. 
B) Because goods prices rise more quickly than factor prices. 
C) Because employers delay wage increases in a boom but lay off workers quickly during a slump. 
D) Because taxes rise quickly in a boom but do not fall during a slump. 
E) Because wages rise quickly in a boom but fall slowly during a slump. 
A) Because factor prices fluctuate more frequently than goods prices. 
B) Because goods prices rise more quickly than factor prices. 
C) Because employers delay wage increases in a boom but lay off workers quickly during a slump. 
D) Because taxes rise quickly in a boom but do not fall during a slump. 
E) Because wages rise quickly in a boom but fall slowly during a slump.

Question 5

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in a short-run equilibrium at Y1.An appropriate fiscal policy for attaining potential output (Y*)is a(n)

Accepted Answer

A) increase in personal and corporate tax rates. 
B) increase in government spending. 
C) increase in current consumption. 
D) decrease in personal and corporate taxes. 
E) decrease in current imports. 
A) increase in personal and corporate tax rates. 
B) increase in government spending. 
C) increase in current consumption. 
D) decrease in personal and corporate taxes. 
E) decrease in current imports.

Question 6

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

Accepted Answer

A) AD1 curve will shift back to AD0 due to an increase in the price level. 
B) AD1 curve will shift back to the left due to a fall in current consumption. 
C) AS will shift to the left due to an increase in wages. 
D) AS will shift to the left due to an increase in the price level. 
E) AS will shift to the right due to a decrease in the price level. 
A) AD1 curve will shift back to AD0 due to an increase in the price level. 
B) AD1 curve will shift back to the left due to a fall in current consumption. 
C) AS will shift to the left due to an increase in wages. 
D) AS will shift to the left due to an increase in the price level. 
E) AS will shift to the right due to a decrease in the price level.

Question 7

The "long-run aggregate supply curve," vertical at Y*,shows that

Accepted Answer

A) potential output will rise as prices rise. 
B) potential output will fall as prices rise. 
C) potential output is compatible with any price level. 
D) potential output is compatible with one particular price level. 
E) prices will always rise in the long run. 
A) potential output will rise as prices rise. 
B) potential output will fall as prices rise. 
C) potential output is compatible with any price level. 
D) potential output is compatible with one particular price level. 
E) prices will always rise in the long run.

Question 8

Suppose 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 a(n)________ gap.

Accepted Answer

A) aggregate supply; inflationary 
B) aggregate demand; recessionary 
C) aggregate supply; recessionary 
D) aggregate demand; inflationary 
A) aggregate supply; inflationary 
B) aggregate demand; recessionary 
C) aggregate supply; recessionary 
D) aggregate demand; inflationary

Question 9

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A.   FIGURE 24-3 Refer to Figure 24-3.A negative shock to the economy shifts the AD curve from   to   .The initial effect is

Accepted Answer

A) a recessionary output gap of 100. 
B) a recessionary output gap of 300. 
C) a recessionary output gap of 550. 
D) an inflationary output gap of 200. 
E) an inflationary output gap of 100. 
A) a recessionary output gap of 100. 
B) a recessionary output gap of 300. 
C) a recessionary output gap of 550. 
D) an inflationary output gap of 200. 
E) an inflationary output gap of 100.

Question 10

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 Refer to Table 24-1.Which of the economies is operating at its long-run equilibrium?

Accepted Answer

A) Economy A 
B) Economy B 
C) Economy C 
D) Economy D 
E) Economy E 
A) Economy A 
B) Economy B 
C) Economy C 
D) Economy D 
E) Economy E

Question 11

An important assumption in the AD/AS macro model is that when real GDP is less than potential output,factor prices adjust and the

Accepted Answer

A) AS curve shifts to the left fairly rapidly. 
B) AS curve shifts to the right only very slowly. 
C) AS curve shifts to the right very rapidly. 
D) AD curve shifts to the left rapidly. 
E) None of the above - the AS curve remains unchanged. 
A) AS curve shifts to the left fairly rapidly. 
B) AS curve shifts to the right only very slowly. 
C) AS curve shifts to the right very rapidly. 
D) AD curve shifts to the left rapidly. 
E) None of the above - the AS curve remains unchanged.

Question 12

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 ________.

Accepted Answer

A) decrease; decrease; decrease further; will decrease further 
B) decrease; increase; decrease further; will be restored to potential output 
C) decrease; increase; return to its initial level; will be restored to potential output 
D) increase; increase; decrease; will be restored to potential output 
E) increase; increase; return to its initial level; will be restored to potential output 
A) decrease; decrease; decrease further; will decrease further 
B) decrease; increase; decrease further; will be restored to potential output 
C) decrease; increase; return to its initial level; will be restored to potential output 
D) increase; increase; decrease; will be restored to potential output 
E) increase; increase; return to its initial level; will be restored to potential output

Question 13

Suppose the economy is experiencing a significant recessionary gap,but it has taken the government six months to determine that it will change fiscal policy.This is an example of

Accepted Answer

A) an execution lag. 
B) fine tuning. 
C) gross tuning. 
D) a decision lag. 
E) automatic fiscal stabilizers. 
A) an execution lag. 
B) fine tuning. 
C) gross tuning. 
D) a decision lag. 
E) automatic fiscal stabilizers.

Question 14

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

Accepted Answer

A) Potential output is adjusting to changes in factor prices. 
B) Potential output is adjusting to changes in factor supplies. 
C) Potential output is adjusting to changes in technology. 
D) Potential output is constant. 
E) Potential output is not relevant to the analysis of the adjustment process. 
A) Potential output is adjusting to changes in factor prices. 
B) Potential output is adjusting to changes in factor supplies. 
C) Potential output is adjusting to changes in technology. 
D) Potential output is constant. 
E) Potential output is not relevant to the analysis of the adjustment process.

Question 15

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in world demand for Canada's goods.In the short run,________.In the long run,________.

Accepted Answer

A) real GDP and the price level both fall; real GDP is below its original level with a lower price level 
B) real GDP and the price level both rise; real GDP is above its original level with a higher price level 
C) real GDP and the price level both rise; real GDP returns to its original level with a higher price level 
D) real GDP rises and the price level falls; real GDP returns to its original level with a lower price level 
E) real GDP falls and the price level rises; real GDP is below its original level with a higher price level 
A) real GDP and the price level both fall; real GDP is below its original level with a lower price level 
B) real GDP and the price level both rise; real GDP is above its original level with a higher price level 
C) real GDP and the price level both rise; real GDP returns to its original level with a higher price level 
D) real GDP rises and the price level falls; real GDP returns to its original level with a lower price level 
E) real GDP falls and the price level rises; real GDP is below its original level with a higher price level

Question 16

Following any AD or AS shock,economists typically assume that the adjustment process continues until

Accepted Answer

A) the AD and AS curves intersect each other at the correct price level. 
B) real GDP returns to Y*. 
C) factor prices have returned to their levels previous to the shock. 
D) Y* adjusts to its long-run equilibrium level. 
E) the output gap is at a stable level. 
A) the AD and AS curves intersect each other at the correct price level. 
B) real GDP returns to Y*. 
C) factor prices have returned to their levels previous to the shock. 
D) Y* adjusts to its long-run equilibrium level. 
E) the output gap is at a stable level.

Question 17

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

Accepted Answer

A) Factor supplies are assumed to be flexible. 
B) Technology used in production is endogenous and variable. 
C) The level of potential output fluctuates with the price level. 
D) Factor prices are assumed to be exogenous. 
E) Firms cannot operate near their normal capacity. 
A) Factor supplies are assumed to be flexible. 
B) Technology used in production is endogenous and variable. 
C) The level of potential output fluctuates with the price level. 
D) Factor prices are assumed to be exogenous. 
E) Firms cannot operate near their normal capacity.

Question 18

If an economy is experiencing neither a recessionary gap nor an inflationary gap,the real output of the economy will be reflected by

Accepted Answer

A) the aggregate supply curve shifting to the left. 
B) the aggregate demand curve shifting to the left. 
C) the aggregate expenditure curve shifting upward. 
D) the intersection of the AD and AS curves at potential output. 
E) a point to the right of the aggregate supply curve at potential GDP. 
A) the aggregate supply curve shifting to the left. 
B) the aggregate demand curve shifting to the left. 
C) the aggregate expenditure curve shifting upward. 
D) the intersection of the AD and AS curves at potential output. 
E) a point to the right of the aggregate supply curve at potential GDP.

Question 19

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

Accepted Answer

A) prices are sticky but wages are not. 
B) positive output gaps can persist for a long time without causing increases in wages and prices,whereas negative output gaps lead to immediate reductions in wages and prices. 
C) negative output gaps can persist for a while without causing large decreases in wages and prices,whereas positive output gaps lead more quickly to increases in wages and prices. 
D) wages are very flexible in the downward direction,but not in the upward direction. 
E) wages and prices are equally sticky in both directions. 
A) prices are sticky but wages are not. 
B) positive output gaps can persist for a long time without causing increases in wages and prices,whereas negative output gaps lead to immediate reductions in wages and prices. 
C) negative output gaps can persist for a while without causing large decreases in wages and prices,whereas positive output gaps lead more quickly to increases in wages and prices. 
D) wages are very flexible in the downward direction,but not in the upward direction. 
E) wages and prices are equally sticky in both directions.

Question 20

In the basic AD/AS model,which of the following is a defining assumption of the adjustment process that takes the economy from the short run to the long run?

Accepted Answer

A) Factor supplies are assumed to be varying. 
B) Technology used in production is endogenous. 
C) The level of potential output is changing. 
D) Factor prices respond to output gaps. 
E) Firms cannot operate near their normal capacity. 
A) Factor supplies are assumed to be varying. 
B) Technology used in production is endogenous. 
C) The level of potential output is changing. 
D) Factor prices respond to output gaps. 
E) Firms cannot operate near their normal capacity.

An adjustment "asymmetry" in aggregate supply is

A recessionary output gap is characterized by

Which of the following are the defining assumptions of the short run in macroeconomics?

Consider the AD/AS macro model.Why do we say that the wage-adjustment process is asymmetrical?

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in a short-run equilibrium at Y₁.An appropriate fiscal policy for attaining potential output (Y^*)is a(n)

FIGURE 24-5 Refer to Figure 24-5.The economy is not in long-run equilibrium at E₁because the

The "long-run aggregate supply curve," vertical at Y^*,shows that

Suppose 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 a(n) gap.

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A. FIGURE 24-3 Refer to Figure 24-3.A negative shock to the economy shifts the AD curve from to .The initial effect is

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 Refer to Table 24-1.Which of the economies is operating at its long-run equilibrium?

An important assumption in the AD/AS macro model is that when real GDP is less than potential output,factor prices adjust and the

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 .

Suppose the economy is experiencing a significant recessionary gap,but it has taken the government six months to determine that it will change fiscal policy.This is an example of

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

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in world demand for Canada's goods.In the short run,.In the long run,.

Following any AD or AS shock,economists typically assume that the adjustment process continues until

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

If an economy is experiencing neither a recessionary gap nor an inflationary gap,the real output of the economy will be reflected by

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

In the basic AD/AS model,which of the following is a defining assumption of the adjustment process that takes the economy from the short run to the long run?

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

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

An adjustment "asymmetry" in aggregate supply is

A recessionary output gap is characterized by

Which of the following are the defining assumptions of the short run in macroeconomics?

Consider the AD/AS macro model.Why do we say that the wage-adjustment process is asymmetrical?

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in a short-run equilibrium at Y1.An appropriate fiscal policy for attaining potential output (Y*)is a(n)

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

The "long-run aggregate supply curve," vertical at Y*,shows that

Suppose 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 a(n)________ gap.

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A. FIGURE 24-3 Refer to Figure 24-3.A negative shock to the economy shifts the AD curve from to .The initial effect is

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 Refer to Table 24-1.Which of the economies is operating at its long-run equilibrium?

An important assumption in the AD/AS macro model is that when real GDP is less than potential output,factor prices adjust and the

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 ________.

Suppose the economy is experiencing a significant recessionary gap,but it has taken the government six months to determine that it will change fiscal policy.This is an example of

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

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in world demand for Canada's goods.In the short run,________.In the long run,________.

Following any AD or AS shock,economists typically assume that the adjustment process continues until

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

If an economy is experiencing neither a recessionary gap nor an inflationary gap,the real output of the economy will be reflected by

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

In the basic AD/AS model,which of the following is a defining assumption of the adjustment process that takes the economy from the short run to the long run?

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in a short-run equilibrium at Y₁.An appropriate fiscal policy for attaining potential output (Y^*)is a(n)

FIGURE 24-5 Refer to Figure 24-5.The economy is not in long-run equilibrium at E₁because the

The "long-run aggregate supply curve," vertical at Y^*,shows that

Suppose 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 a(n) gap.

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 .

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in world demand for Canada's goods.In the short run,.In the long run,.