Question 1

Which of the following provides the best explanation for why GDP may increase over long periods of time?

Accepted Answer

A) increase in capital stock 
B) increase in emigration 
C) increase in mortality rates 
D) increase in interest rates 
E) increase in unemployment 
A) increase in capital stock 
B) increase in emigration 
C) increase in mortality rates 
D) increase in interest rates 
E) increase in unemployment

Question 2

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.Consider Economy E.Which of the following best describes the positions of the aggregate demand and aggregate supply curves in this economy?

Accepted Answer

A) The AD curve has shifted to the right and the economy is in a short-run disequilibrium position. 
B) The AS curve has shifted to the left and the economy is in a short-run disequilibrium position. 
C) The intersection of the AD and AS curves is to the right of Y*. 
D) The intersection of the AD and AS curves is to the left of Y*. 
E) The intersection of the AD and AS curves coincide with the long-run aggregate supply curve. 
A) The AD curve has shifted to the right and the economy is in a short-run disequilibrium position. 
B) The AS curve has shifted to the left and the economy is in a short-run disequilibrium position. 
C) The intersection of the AD and AS curves is to the right of Y*. 
D) The intersection of the AD and AS curves is to the left of Y*. 
E) The intersection of the AD and AS curves coincide with the long-run aggregate supply curve.

Question 3

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

Accepted Answer

A) the AD curve will shift downward until it intersects with the AS curve at point E. 
B) the AD curve will shift upward until it intersects with the AS curve at point C. 
C) the AS curve will shift to the left until it intersects with the AD curve at point D. 
D) the AS curve will shift to the right until it intersects with the AD curve at point B. 
E) the AS curve can either shift to the right or left depending on the fiscal policy. 
A) the AD curve will shift downward until it intersects with the AS curve at point E. 
B) the AD curve will shift upward until it intersects with the AS curve at point C. 
C) the AS curve will shift to the left until it intersects with the AD curve at point D. 
D) the AS curve will shift to the right until it intersects with the AD curve at point B. 
E) the AS curve can either shift to the right or left depending on the fiscal policy.

Question 4

The ʺparadox of thriftʺ 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.

Accepted Answer

A) decrease; more severe 
B) decrease; less severe 
C) increase; more severe 
D) increase; less severe 
E) increase; shorter 
A) decrease; more severe 
B) decrease; less severe 
C) increase; more severe 
D) increase; less severe 
E) increase; shorter

Question 5

Consider the AD/AS macro model.The main source of increases in material living standards over the long term is the

Accepted Answer

A) maintenance of a continuous inflationary gap. 
B) continual avoidance of recessionary gaps. 
C) continuous outward shift of aggregate demand. 
D) continual increase in potential national income. 
E) positive slope of the aggregate supply curve. 
A) maintenance of a continuous inflationary gap. 
B) continual avoidance of recessionary gaps. 
C) continuous outward shift of aggregate demand. 
D) continual increase in potential national income. 
E) positive slope of the aggregate supply curve.

Question 6

In macroeconomic analysis,the assumption that potential output (Y*)is changing is a characteristic of

Accepted Answer

A) the short run. 
B) the adjustment process. 
C) the national accounts model. 
D) the long run. 
E) the business cycle model. 
A) the short run. 
B) the adjustment process. 
C) the national accounts model. 
D) the long run. 
E) the business cycle model.

Question 7

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 .

Accepted Answer

A) the output gap; factor productivity 
B) the AD curve; interest rates 
C) the AS curve; potential output 
D) the AD and AS curves; Y* 
E) the AD and AS curves; factor utilization 
A) the output gap; factor productivity 
B) the AD curve; interest rates 
C) the AS curve; potential output 
D) the AD and AS curves; Y* 
E) the AD and AS curves; factor utilization

Question 8

Which of the following statements about output gaps is true?

Accepted Answer

A) When actual GDP is below potential GDP,there is upward pressure on wages. 
B) When actual GDP is below potential GDP,there is upward pressure on output prices. 
C) When actual GDP is above potential GDP,there is downward pressure on wages. 
D) When actual GDP is above potential GDP,there is downward pressure on output prices. 
E) When actual GDP is above potential GDP,there is upward pressure on wages. 
A) When actual GDP is below potential GDP,there is upward pressure on wages. 
B) When actual GDP is below potential GDP,there is upward pressure on output prices. 
C) When actual GDP is above potential GDP,there is downward pressure on wages. 
D) When actual GDP is above potential GDP,there is downward pressure on output prices. 
E) When actual GDP is above potential GDP,there is upward pressure on wages.

Question 9

ʺAutomatic fiscal stabilizationʺ in the economy refers to

Accepted Answer

A) the properties of government spending and taxation that cause the simple multiplier to be increased. 
B) the discretionary fiscal policies that are automatically undertaken by the government when there is a recessionary gap. 
C) the properties of government spending and taxation that cause the simple multiplier to be reduced. 
D) the discretionary fiscal policies that are automatically undertaken by the government when there is an inflationary gap. 
E) all discretionary fiscal policies. 
A) the properties of government spending and taxation that cause the simple multiplier to be increased. 
B) the discretionary fiscal policies that are automatically undertaken by the government when there is a recessionary gap. 
C) the properties of government spending and taxation that cause the simple multiplier to be reduced. 
D) the discretionary fiscal policies that are automatically undertaken by the government when there is an inflationary gap. 
E) all discretionary fiscal policies.

Question 10

If wages rise faster than increases in labour productivity,then unit labour costs will

Accepted Answer

A) fall and the AS curve will shift left. 
B) fall and the AS curve will shift right. 
C) rise and the AS curve will shift left. 
D) rise and the AS curve will shift right. 
E) not change because only total labour costs change. 
A) fall and the AS curve will shift left. 
B) fall and the AS curve will shift right. 
C) rise and the AS curve will shift left. 
D) rise and the AS curve will shift right. 
E) not change because only total labour costs change.

Question 11

In the basic AD/AS macro model,which of the following events would cause stagflation?

Accepted Answer

A) a large decrease in wages 
B) a large increase in business confidence 
C) a large increase in the net tax rate 
D) a large increase in the price of raw materials 
E) a large increase in labour productivity 
A) a large decrease in wages 
B) a large increase in business confidence 
C) a large increase in the net tax rate 
D) a large increase in the price of raw materials 
E) a large increase in labour productivity

Question 12

Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be ________, and real GDP may ________ potential GDP.

Accepted Answer

A) too weak; stay below 
B) too weak; rise above 
C) too strong; stay below 
D) too strong; rise above 
E) appropriate; equal 
A) too weak; stay below 
B) too weak; rise above 
C) too strong; stay below 
D) too strong; rise above 
E) appropriate; equal

Question 13

What is meant by the term ʺstagflationʺ?

Accepted Answer

A) the combination of falling real GDP and a rising price level 
B) a persistent inflationary gap 
C) a persistent recessionary gap 
D) the sluggish downward wage adjustment in response to a recessionary gap 
E) the combination of inflation and rising real GDP 
A) the combination of falling real GDP and a rising price level 
B) a persistent inflationary gap 
C) a persistent recessionary gap 
D) the sluggish downward wage adjustment in response to a recessionary gap 
E) the combination of inflation and rising real GDP

Question 14

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

Accepted Answer

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 
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

Question 15

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

Accepted Answer

A) Y* is independent of the price level. 
B) the aggregate demand curve is vertical. 
C) the aggregate demand curve is horizontal. 
D) Y* depends on the price level. 
E) the AS curve is upward sloping. 
A) Y* is independent of the price level. 
B) the aggregate demand curve is vertical. 
C) the aggregate demand curve is horizontal. 
D) Y* depends on the price level. 
E) the AS curve is upward sloping.

Question 16

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

Accepted Answer

A) affect only the price level. 
B) decrease real GDP and the price level. 
C) affect only the level of real GDP. 
D) increase real GDP and lower the price level. 
E) decrease real GDP and raise the price level. 
A) affect only the price level. 
B) decrease real GDP and the price level. 
C) affect only the level of real GDP. 
D) increase real GDP and lower the price level. 
E) decrease real GDP and raise the price level.

Question 17

The use of government purchases (G)as a fiscal policy tool can have an effect on long -run growth in the economy.Under what circumstances might an increase in G cause the level of potential output (Y*)to increase?

Accepted Answer

A) If the increase in G crowds out private investment. 
B) If the increase in G causes a permanent increase in the marginal propensity to consume,which causes a permanent rightward shift of the AD curve. 
C) If the increase in G is spent on public infrastructure that increases the productivity of private -sector production. 
D) If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. 
E) If the increase in G is offset by an equal decrease in C,I,and NX. 
A) If the increase in G crowds out private investment. 
B) If the increase in G causes a permanent increase in the marginal propensity to consume,which causes a permanent rightward shift of the AD curve. 
C) If the increase in G is spent on public infrastructure that increases the productivity of private -sector production. 
D) If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. 
E) If the increase in G is offset by an equal decrease in C,I,and NX.

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 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 20

An important automatic fiscal stabilizer in Canada is

Accepted Answer

A) the exchange rate. 
B) the marginal propensity to consume. 
C) the marginal propensity to import. 
D) the income-tax system. 
E) government purchases of goods and services. 
A) the exchange rate. 
B) the marginal propensity to consume. 
C) the marginal propensity to import. 
D) the income-tax system. 
E) government purchases of goods and services.

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

Which of the following provides the best explanation for why GDP may increase over long periods of time?

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

The ʺparadox of thriftʺ 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.

Consider the AD/AS macro model.The main source of increases in material living standards over the long term is the

In macroeconomic analysis,the assumption that potential output (Y*)is changing is a characteristic of

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 .

Which of the following statements about output gaps is true?

ʺAutomatic fiscal stabilizationʺ in the economy refers to

If wages rise faster than increases in labour productivity,then unit labour costs will

In the basic AD/AS macro model,which of the following events would cause stagflation?

Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be ________, and real GDP may ________ potential GDP.

What is meant by the term ʺstagflationʺ?

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

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

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

The use of government purchases (G)as a fiscal policy tool can have an effect on long -run growth in the economy.Under what circumstances might an increase in G cause the level of potential output (Y*)to increase?

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 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 .

An important automatic fiscal stabilizer in Canada is

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

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

Output and Prices 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

Exchange Rates and the Balance of Payments

Filters

The ʺparadox of thriftʺ 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.

Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be , and real GDP may potential GDP.