Question 1

Long-run growth in real GDP is determined primarily by _____, while short-run movements in real GDP are associated with _____.

Accepted Answer

A) variations in labour-market utilization; technological progress 
B) technological progress; variations in labour-market utilization 
C) money supply growth rates; changes in velocity 
D) changes in velocity; money supply growth rates 
A) variations in labour-market utilization; technological progress 
B) technological progress; variations in labour-market utilization 
C) money supply growth rates; changes in velocity 
D) changes in velocity; money supply growth rates

Question 2

Explain the concepts of shocks in aggregate demand and aggregate supply.

Accepted Answer

Changes in the aggregate demand and supp

Question 3

A favourable supply shock occurs when:

Accepted Answer

A) environmental protection laws raise costs of production. 
B) the Bank of Canada increases the money supply. 
C) unions push wages up. 
D) an oil cartel breaks up and oil prices fall. 
A) environmental protection laws raise costs of production. 
B) the Bank of Canada increases the money supply. 
C) unions push wages up. 
D) an oil cartel breaks up and oil prices fall.

Question 4

What are the defining features of a recession?

Accepted Answer

When an economy experiences a

Question 5

What is stabilization policy?

Accepted Answer

The demand and supply shocks disrupt the

Question 6

The short-run aggregate supply curve is horizontal at:

Accepted Answer

A) a level of output determined by aggregate demand. 
B) the natural level of output. 
C) the level of output at which the economy's resources are fully employed. 
D) a fixed price level. 
A) a level of output determined by aggregate demand. 
B) the natural level of output. 
C) the level of output at which the economy's resources are fully employed. 
D) a fixed price level.

Question 7

If the Bank of Canada reduces the money supply by 5 percent, then the real interest rate will:

Accepted Answer

A) rise in both the short run and the long run. 
B) rise in the short run but return to its original equilibrium level in the long run. 
C) rise in the short run but fall below its original equilibrium level in the long run. 
D) be unaffected in both the short run and the long run. 
A) rise in both the short run and the long run. 
B) rise in the short run but return to its original equilibrium level in the long run. 
C) rise in the short run but fall below its original equilibrium level in the long run. 
D) be unaffected in both the short run and the long run.

Question 8

The index of leading indicators compiled by the Conference Board of Canada includes 10 data series that are used to forecast economic activity about _____ in advance.

Accepted Answer

A) 1 month 
B) 6 to 9 months 
C) 1 to 2 years 
D) 5 to 10 years 
A) 1 month 
B) 6 to 9 months 
C) 1 to 2 years 
D) 5 to 10 years

Question 9

Exhibit: Supply Shock   Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point:

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 10

If the demand for money increases, but the Bank of Canada keeps the money supply the same, then in the short run output will:

Accepted Answer

A) fall, and in the long run prices will remain unchanged. 
B) remain unchanged, and in the long run prices will fall. 
C) remain unchanged, and in the long run prices will remain unchanged. 
D) fall, and in the long run prices will fall. 
A) fall, and in the long run prices will remain unchanged. 
B) remain unchanged, and in the long run prices will fall. 
C) remain unchanged, and in the long run prices will remain unchanged. 
D) fall, and in the long run prices will fall.

Question 11

In the short run, a favourable supply shock causes:

Accepted Answer

A) both prices and output to rise. 
B) prices to rise and output to fall. 
C) prices to fall and output to rise. 
D) both prices and output to fall. 
A) both prices and output to rise. 
B) prices to rise and output to fall. 
C) prices to fall and output to rise. 
D) both prices and output to fall.

Question 12

The economy of Macroland is initially in long-run equilibrium. A severe drought causes an adverse supply shock.
a.What happens to prices and output in the short run?
b.What would happen to prices and output in the long run if there is no policy accommodation?
c.If the Central Bank of Macroland wants to prevent the short-run changes in price and output, what policy action could it take? How would the results of this policy action differ from the prices and output that would result in the long run with no policy action?

Accepted Answer

a.In the short run, prices increase, and

Question 13

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines), the Bank of Canada might be able to stabilize output by:

Accepted Answer

A) decreasing the money supply. 
B) increasing the money supply. 
C) decreasing the price level. 
D) increasing the price level. 
A) decreasing the money supply. 
B) increasing the money supply. 
C) decreasing the price level. 
D) increasing the price level.

Question 14

If a change in government regulations allows banks to start paying interest on chequing accounts, this will:

Accepted Answer

A) increase the demand for money. 
B) decrease the demand for money. 
C) have no effect on the demand for money. 
D) increase the demand for currency but decrease the demand for chequing accounts. 
A) increase the demand for money. 
B) decrease the demand for money. 
C) have no effect on the demand for money. 
D) increase the demand for currency but decrease the demand for chequing accounts.

Question 15

Exhibit: Shift in Aggregate Demand   Assume that the economy is initially at point A with aggregate demand given by AD2. A shift in the aggregate demand curve to AD0 could be the result of either a(n) _____ in the money supply or a(n) _____ in velocity.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 16

The version of Okun's law studied in Chapter 10 assumes that when real GDP grows at 2.88 percent over a year, the unemployment rate does not change. If real GDP instead grows at 1.88 percent over a year, Okun's law predicts that unemployment would:

Accepted Answer

A) increase by 0.33 percent. 
B) decrease by 0.33 percent. 
C) decrease by 3 percent. 
D) increase by 3 percent. 
A) increase by 0.33 percent. 
B) decrease by 0.33 percent. 
C) decrease by 3 percent. 
D) increase by 3 percent.

Question 17

If the short-run aggregate supply curve is horizontal, and each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

Accepted Answer

A) output and employment will increase in the short run. 
B) output and employment will decrease in the short run. 
C) prices will increase in the short run. 
D) prices will decrease in the short run. 
A) output and employment will increase in the short run. 
B) output and employment will decrease in the short run. 
C) prices will increase in the short run. 
D) prices will decrease in the short run.

Question 18

An oil cartel effectively increases the price of oil by 100 percent, leading to an adverse supply shock in both Country A and Country B. Both countries were in long-run equilibrium at the same level of output and prices at the time of the shock. The central bank of Country A takes no stabilizing policy actions. After the short-run impacts of the adverse supply shock become apparent, the central bank of Country B increases the money supply to return the economy to full employment.
a.Describe the short-run impact of the adverse supply shock on prices and output in each country.
b.Compare the long-run impact of the adverse supply shock on prices and output in each country.

Accepted Answer

a.In both Country A and Country B, outpu

Question 19

Business cycles are:

Accepted Answer

A) regular and predictable. 
B) irregular but predictable. 
C) regular but unpredictable. 
D) irregular and unpredictable. 
A) regular and predictable. 
B) irregular but predictable. 
C) regular but unpredictable. 
D) irregular and unpredictable.

Question 20

Recessions typically, but not always, include at least _____ consecutive quarters of declining real GDP.

Accepted Answer

A) two 
B) four 
C) six 
D) eight 
A) two 
B) four 
C) six 
D) eight

Long-run growth in real GDP is determined primarily by _, while short-run movements in real GDP are associated with _.

Explain the concepts of shocks in aggregate demand and aggregate supply.

A favourable supply shock occurs when:

What are the defining features of a recession?

What is stabilization policy?

The short-run aggregate supply curve is horizontal at:

If the Bank of Canada reduces the money supply by 5 percent, then the real interest rate will:

The index of leading indicators compiled by the Conference Board of Canada includes 10 data series that are used to forecast economic activity about _____ in advance.

Exhibit: Supply Shock Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point:

If the demand for money increases, but the Bank of Canada keeps the money supply the same, then in the short run output will:

In the short run, a favourable supply shock causes:

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines), the Bank of Canada might be able to stabilize output by:

If a change in government regulations allows banks to start paying interest on chequing accounts, this will:

Exhibit: Shift in Aggregate Demand Assume that the economy is initially at point A with aggregate demand given by AD₂. A shift in the aggregate demand curve to AD₀ could be the result of either a(n) _ in the money supply or a(n) _ in velocity.

The version of Okun's law studied in Chapter 10 assumes that when real GDP grows at 2.88 percent over a year, the unemployment rate does not change. If real GDP instead grows at 1.88 percent over a year, Okun's law predicts that unemployment would:

If the short-run aggregate supply curve is horizontal, and each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

Business cycles are:

Recessions typically, but not always, include at least _____ consecutive quarters of declining real GDP.

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Exam 10: Introduction to Economic Fluctuations

Long-run growth in real GDP is determined primarily by _____, while short-run movements in real GDP are associated with _____.

Explain the concepts of shocks in aggregate demand and aggregate supply.

A favourable supply shock occurs when:

What are the defining features of a recession?

What is stabilization policy?

The short-run aggregate supply curve is horizontal at:

If the Bank of Canada reduces the money supply by 5 percent, then the real interest rate will:

The index of leading indicators compiled by the Conference Board of Canada includes 10 data series that are used to forecast economic activity about _____ in advance.

Exhibit: Supply Shock Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point:

If the demand for money increases, but the Bank of Canada keeps the money supply the same, then in the short run output will:

In the short run, a favourable supply shock causes:

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines), the Bank of Canada might be able to stabilize output by:

If a change in government regulations allows banks to start paying interest on chequing accounts, this will:

Exhibit: Shift in Aggregate Demand Assume that the economy is initially at point A with aggregate demand given by AD2. A shift in the aggregate demand curve to AD0 could be the result of either a(n) _____ in the money supply or a(n) _____ in velocity.

The version of Okun's law studied in Chapter 10 assumes that when real GDP grows at 2.88 percent over a year, the unemployment rate does not change. If real GDP instead grows at 1.88 percent over a year, Okun's law predicts that unemployment would:

If the short-run aggregate supply curve is horizontal, and each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

Business cycles are:

Recessions typically, but not always, include at least _____ consecutive quarters of declining real GDP.

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Long-run growth in real GDP is determined primarily by _, while short-run movements in real GDP are associated with _.

Exhibit: Shift in Aggregate Demand Assume that the economy is initially at point A with aggregate demand given by AD₂. A shift in the aggregate demand curve to AD₀ could be the result of either a(n) _ in the money supply or a(n) _ in velocity.