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

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?

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 ________.

Fiscal policy refers to the

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 ________.

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

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in world demand for Canada's goods.In the short run,________.In 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.In which economy is there the most unused capacity?

One advantage of using expansionary fiscal policy rather than relying on automatic adjustment to recover from a recessionary gap is that

Suppose Canada's 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,________.

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 to .At the new short-run equilibrium,the price level is ________ and real GDP is ________.

FIGURE 24-1 -Refer to Figure 24-1.If the economy is currently producing output of Y₀ and the government initiates an expansionary fiscal policy adequate to close the output gap,the result is intended to be

A recessionary output gap is characterized by

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

FIGURE 24-1 -Refer to Figure 24-1.If the economy is currently producing output of Y₀ and wages are sticky downwards,then the

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 to ),which of the following describes the adjustment process that would return the economy to its long-run equilibrium?

Which of the following is a defining assumption of the AD/AS macro model in the long run?

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

Which of the following would occur as part of the automatic adjustment process in an economy with a recessionary gap?

When we study the adjustment process in macroeconomics,what assumption are we making about potential output,Y*?

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