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

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

Which of the following statements about fiscal policy is the best description of ʺfine tuningʺ?

Income taxes in Canada can be considered to be automatic stabilizers because tax

Suppose Canadaʹs economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is an increase in world demand for Canadaʹs goods. In the short run, . In the long run, )

In any decision about stimulating the economy with a fiscal expansion increasing government purchases), the government must weigh the short-run benefits of against the long -run costs of .

An expansionary fiscal policy that takes the form of an increase in government purchases carries the possibility that private investment and, as a result, the future growth rate of .

Net tax revenues that rise with national income act as an automatic stabilizer by the marginal propensity to spend and thereby causing the simple multiplier to .

Suppose Canadaʹs 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, .

Which of the following statements about output gaps is true?

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short -run equilibrium at point A. FIGURE 24-7 -Refer to Figure 24-7. If the government takes no action to close the existing output gap, then

In the basic AD/AS model, which of the following is a defining assumption of the adjustment process that takes the economy from the short run to the long run?

What economists sometimes call the ʺlong-run aggregate supply curveʺ is

Which of the following are the defining assumptions of the long run in macroeconomics?

When an economy experiences sustained growth in real GDP,

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. Following the positive AS shock shown in the diagram, the adjustment process will take the economy to a long-run equilibrium where the price level is and real GDP is .

Following any AD or AS shock, economists typically assume that the adjustment process continues until

Suppose the following conditions are present in the economy: - firms are facing lower-than normal sales and have reduced output -there is an excess supply of labour and firms are starting to reduce their workforces Which of the following statements describes the adjustment that will happen in the AD/AS macro model?

Consider an economy with a relatively steep AS curve. If the AD curve shifts to the left, then the price level will And national output will .

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 .

Which of the following will occur as part of the automatic adjustment process in an economy with an inflationary gap?