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

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. After the negative aggregate demand shock shown in the diagram from AD1 to AD2), which of the following describes the adjustment process that would return the economy to its long -run equilibrium?

Consider the AD/AS macro model. An important asymmetry in the behaviour of the AS curve 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 AD1 to AD2. At the new short-run equilibrium, the price level is and real GDP is .

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

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 are experiencing an inflationary gap?

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

In the long run, aggregate demand is for determining real GDP, and the paradox of thrift .

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

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

If the economy in the short run is experiencing a recessionary gap, we are likely to see

FIGURE 24-1 -Refer to Figure 24-1. If the economy is currently in a short-run equilibrium at Y0, the economy is experiencing

As the macro economy adjusts from the short run to the long run,

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 following statements explains why wages are rising in Economy E?

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

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

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

Suppose Canadaʹs economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is a decrease in the Canadian price of all imported raw materials. In the short run, . In the long run, .

An inflationary output gap would generate which of the following conditions in the economy?

A recessionary output gap implies that