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

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in the Canadian-dollar price of all imported raw materials.In the short run,________.In the long run,________.

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.Which of the following events could have shifted the AD curve from to ?

Consider the AD/AS model after factor prices have fully adjusted to output gaps.An increase in the level of potential output,with aggregate demand constant,will

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

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

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 .At the new short-run equilibrium,the price level is ________ and real GDP is ________.

Consider the basic AD/AS macro model in long-run equilibrium.An expansionary AD shock would have ________ output effect in the short run and ________ output effect in the long run.

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

The "paradox of thrift" refers to the understandable tendency of people who are worried about their economic situation to ________ their saving,but in aggregate this behaviour causes a ________ recession.

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.In which economy is there the most unused capacity?

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an unexpected and sharp reduction in desired business investment expenditure.In the short run,________.In the long run,________.

FIGURE 24-2 Refer to Figure 24-2.Suppose the economy is in equilibrium at Y₁.The economy's automatic adjustment process will restore potential output,Y^*,through

Suppose the following conditions are present in the economy: - firms are increasing output to meet rising demand for their goods - workers are able to demand higher wages as firms try to bid workers away from other firms Which of the following statements describes the adjustment that will happen in the AD/AS macro model?

FIGURE 24-1 Refer to Figure 24-1.If the economy is currently producing output of Y₀ and wages are sticky downwards,then the

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

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.Following the negative AD shock shown in the diagram (from to ),the adjustment process will take the economy to a long-run equilibrium where the price level is ________ and real GDP is ________.

What economists sometimes call the "long-run aggregate supply curve" is

Consider the AD/AS model.Since output in the long run is determined by Y^*,the only role of the AD curve is to determine the price level.This is true because

Which of the following statements about the AD/AS macro model in the long run is correct?

FIGURE 24-5 Refer to Figure 24-5.Following a positive demand shock that takes the economy from E₀ to E₁,the movement of the economy from E₁ to E₂ indicates that