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

FIGURE 24-5 -Refer to Figure 24-5. If the economy is currently in equilibrium at E3, the concept of asymmetrical adjustment of the AS curve suggests that

The ʺlong-run aggregate supply curve,ʺ vertical at Y*, shows that

The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in long-run equilibrium at point A. FIGURE 24-4 -Refer to Figure 24-4. The positive aggregate supply shock shown in the diagram results in a new short -run equilibrium where the price level is and real GDP is .

Fiscal policy refers to the

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

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 AD1 to AD2), the adjustment process will take the economy to a long-run equilibrium where the price level is and real GDP is .

Consider a simple macro model with demand-determined output. Which of the following parameters will produce the largest fluctuations in real GDP from autonomous expenditure shocks?

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.

Consider a simple macro model with demand-determined output. Which of the following parameters will produce the most stable real GDP in the face of autonomous expenditure shocks?

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.

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 an)

Consider the basic AD/AS macro model in long -run equilibrium. An expansionary AD shock will the price level and output in the short run. In the long run, the price level will and output will )

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?

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

Which of the following statements about fiscal policy is the best example of ʺgross tuningʺ?

Consider the AD/AS macro model. The study of short-run cyclical fluctuations usually assumes, for simplicity, that there are no changes in

Suppose the economy has a high level of unemployment and a low level of aggregate output. Which of the following policies could the government implement to alleviate these conditions?

FIGURE 24-1 -Refer to Figure 24-1. If the economy is currently producing output of Y0, the economyʹs automatic adjustment process will have the

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

What is meant by the term ʺstagflationʺ?