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

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?

An inflationary output gap implies that

The Phillips curve describes the relationship between

Consider the AD/AS macro model. An important asymmetry in the behaviour of aggregate supply is the

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

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 -Suppose that 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 an) gap.

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 simplest macro model with demand-determined output. Other things being equal, the the value of the simple multiplier, the stable is real GDP in response to shocks to autonomous spending.

Consider an AD/AS model in long-run equilibrium. An output gap, caused by a leftward shift of the AD curve, will be eliminated if

Automatic fiscal stabilizers are most helpful in

ʺAutomatic fiscal stabilizationʺ in the economy refers to

In the long run in the AD/AS macro model we can say that

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. How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?

Consider the AD/AS macro model. The wage-adjustment process is asymmetrical because

Suppose the government had made a decision to change fiscal policy, but it then took nine months to implement a tax reduction. This is an example of

A common assumption among macroeconomists is that when real GDP is less than potential output, factor prices adjust and the

A recessionary output gap is characterized by

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

FIGURE 24-1 -Refer to Figure 24-1. Suppose the economy is currently in a short-run equilibrium with output of Y0. An appropriate fiscal policy response, to attain potential output Y*), is

The paradox of thrift does not exist in the long run because