Exam 12: The Production Function Approach to Understanding Growth

An upward shift of the Bank of Canada's monetary policy rule function corresponds to a _________ the aggregate demand (ADI)curve,and an increase in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI)curve.

When actual inflation equals the value determined by past expectations and pricing decisions,and output equals the level of short-run equilibrium output consistent with that inflation,the economy is said to be in ________ equilibrium.

Starting from a long-run equilibrium,immediate or eventual increases in the rate of inflation may be the result of any of the following EXCEPT

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 4%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

When no output gap exists,actual output _________ potential output and the rate of inflation will tend to __________.

The long-run self-correcting mechanism that eliminates a recessionary gap (Y < Y*)in the economy requires

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule: If inflation is 3%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

An increase in government purchases will cause a(n)

The short-run costs of disinflation are

Low expected inflation leads to ________ increases in wages and costs and to ________ actual inflation.

An upward shift in the Bank of Canada's monetary policy rule is a monetary _________,and the aggregate demand (ADI)curve ___________.

When actual output equals potential output,there is ________ output gap and the rate of inflation will tend to ________.

Suppose that,in an economy,ADI = 5,000 + 0.75 Y - 10,000r,and the central bank acts according to the following monetary policy rule: If inflation is 0%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Which of the following will shift the aggregate demand (ADI)curve to the left?

To achieve long-run equilibrium in an economy with an expansionary gap,output will __________ and the inflation rate will _________.

A substantial reduction in the rate of inflation is called

Compared to an initial long-run equilibrium,an aggregate supply shock that reduces potential output results in a(n)_________ gap in the short run,and _________ output and _________ inflation in the long run.

-Based on the diagram above,starting from a long-run equilibrium at point C,an increase in government spending that increases aggregate demand from ADI to ADI¹ will lead to a short-run equilibrium at point ________,creating _________ gap.

To achieve long-run equilibrium in an economy with a recessionary gap,output will __________ and the inflation rate will _________.

A decrease in net exports will cause