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

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

The growth rate of potential output might be decreased by an expansionary fiscal policy if

If the short-run macroeconomic equilibrium occurs with real GDP less than Y*,the economy is

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 ________.

Suppose the economy is experiencing an inflationary gap in the short run.The advantage of using a contractionary fiscal policy rather than allowing the economy's natural adjustment process to operate is that

The Phillips curve provides a theoretical link between

Fiscal policies typically affect the short-run level of GDP because they cause shifts in the ________,but they will not generally have any long-run effects on real GDP unless they affect ________.

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.In the initial short-run equilibrium,there is ________ output gap of ________,but this gap could be closed by a ________.

The curve that is sometimes called the "long-run aggregate supply curve" (vertical Y*)relates the aggregate price level to real GDP

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

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that ________ has increased and there is now a(n)________ gap.

A reduction in the net tax rate might lead to an increase in the growth rate of potential output if

As a global recession began in late 2008,the governments of all major economies searched for policy responses to dampen the effects of the recession.In general,governments were aiming to

An inflationary output gap occurs when

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in a short-run equilibrium at Y₁.An appropriate fiscal policy for closing the output gap is

Which of the following will occur as part of the automatic adjustment process in an economy with an inflationary gap?

Consider the AD/AS macro model.A permanent demand shock that causes equilibrium output to rise above potential output will

Why are income taxes in Canada considered to be automatic stabilizers? Because

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

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in a short-run equilibrium at Y₁.A contractionary fiscal policy would restore the economy to potential output (Y^*)by shifting the