Question 1

A short-run equilibrium with a recessionary gap implies that

Accepted Answer

A)  firms will raise the prices of their goods and services more than needed to fully cover their increases in costs. 
B)  firms will raise the prices of their goods and services as much as needed to fully cover their increases in costs. 
C)  there will be negative inflation. 
D)  firms have incentives to lower the relative prices of their goods and services. 
E)  firms have incentives to raise the relative prices of their goods and services. 
A)  firms will raise the prices of their goods and services more than needed to fully cover their increases in costs. 
B)  firms will raise the prices of their goods and services as much as needed to fully cover their increases in costs. 
C)  there will be negative inflation. 
D)  firms have incentives to lower the relative prices of their goods and services. 
E)  firms have incentives to raise the relative prices of their goods and services.

Question 2

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

Accepted Answer

A)  D;an expansionary 
B)  D;a recessionary 
C)  D;no output 
D)  B;an expansionary 
E)  B;a recessionary 
A)  D;an expansionary 
B)  D;a recessionary 
C)  D;no output 
D)  B;an expansionary 
E)  B;a recessionary

Question 3

The ADI-IA model differs from the basic Keynesian model

Accepted Answer

A)  only in that it assumes that the price level is flexible in the short run. 
B)  only in that it incorporates a central bank policy reaction function. 
C)  only in that it incorporates a self-correcting mechanism. 
D)  only in that it can explain how the inflation rate is determined. 
E)  in that it assumes that the price level is flexible in the short run,it incorporates a central bank policy reaction function,it incorporates a self-correcting mechanism,and it can explain how the inflation rate is determined. 
A)  only in that it assumes that the price level is flexible in the short run. 
B)  only in that it incorporates a central bank policy reaction function. 
C)  only in that it incorporates a self-correcting mechanism. 
D)  only in that it can explain how the inflation rate is determined. 
E)  in that it assumes that the price level is flexible in the short run,it incorporates a central bank policy reaction function,it incorporates a self-correcting mechanism,and it can explain how the inflation rate is determined.

Question 4

An example of an upward inflation shock is

Accepted Answer

A)  an increase in interest rates. 
B)  an increase in government purchases. 
C)  a large tax cut. 
D)  a tax increase. 
E)  a significant rise in oil prices. 
A)  an increase in interest rates. 
B)  an increase in government purchases. 
C)  a large tax cut. 
D)  a tax increase. 
E)  a significant rise in oil prices.

Question 5

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

Accepted Answer

A)  "tightening";shifts right 
B)  "tightening";shifts left 
C)  "tightening";does not shift 
D)  "easing";shifts right 
E)  "easing";shifts left 
A)  "tightening";shifts right 
B)  "tightening";shifts left 
C)  "tightening";does not shift 
D)  "easing";shifts right 
E)  "easing";shifts left

Question 6

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 1%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Accepted Answer

A)  0;8,000 
B)  1;8,000 
C)  1;6,000 
D)  1.5;5,000 
E)  1.5;8,000 
A)  0;8,000 
B)  1;8,000 
C)  1;6,000 
D)  1.5;5,000 
E)  1.5;8,000

Question 7

If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium,then,in the short run,the inflation rate _________ and,in the long run,the inflation rate __________.

Accepted Answer

A)  increases;increases 
B)  decreases;decreases 
C)  does not change;increases 
D)  does not change;decreases 
E)  increases;decreases 
A)  increases;increases 
B)  decreases;decreases 
C)  does not change;increases 
D)  does not change;decreases 
E)  increases;decreases

Question 8

When the Bank of Canada engages in monetary "easing",it ________ the real interest more than normal,which _________ short-run equilibrium output.

Accepted Answer

A)  lowers;decreases 
B)  lowers;increases 
C)  lowers;does not change 
D)  raises;decreases 
E)  raises;increases 
A)  lowers;decreases 
B)  lowers;increases 
C)  lowers;does not change 
D)  raises;decreases 
E)  raises;increases

Question 9

A short-run equilibrium with an output gap of zero implies

Accepted Answer

A)  zero inflation in the near future. 
B)  the rate of inflation will remain the same. 
C)  the rate of inflation will rise. 
D)  the rate of inflation will fall. 
E)  firms have no incentive to raise the prices of their goods and services. 
A)  zero inflation in the near future. 
B)  the rate of inflation will remain the same. 
C)  the rate of inflation will rise. 
D)  the rate of inflation will fall. 
E)  firms have no incentive to raise the prices of their goods and services.

Question 10

To reduce inflation in an economy at full employment,the central bank must

Accepted Answer

A)  allow an expansionary gap to develop. 
B)  allow a recessionary gap to develop. 
C)  not allow any output gaps to develop. 
D)  allow unemployment to fall below its natural rate. 
E)  allow output to exceed potential output. 
A)  allow an expansionary gap to develop. 
B)  allow a recessionary gap to develop. 
C)  not allow any output gaps to develop. 
D)  allow unemployment to fall below its natural rate. 
E)  allow output to exceed potential output.

Question 11

Sources of inflation include

Accepted Answer

A)  autonomous expenditures and menu costs. 
B)  capital gains and capital losses. 
C)  automatic stabilizers and labour mobility. 
D)  globalization and skill-biased technological change. 
E)  downward inflation shocks and negative shocks to potential output. 
A)  autonomous expenditures and menu costs. 
B)  capital gains and capital losses. 
C)  automatic stabilizers and labour mobility. 
D)  globalization and skill-biased technological change. 
E)  downward inflation shocks and negative shocks to potential output.

Question 12

Graphically,the intersection of the aggregate demand (ADI)curve and the inflation adjustment (IA)line determines

Accepted Answer

A)  potential output. 
B)  the central bank's policy reaction function. 
C)  autonomous spending. 
D)  short-run equilibrium. 
E)  long-run equilibrium. 
A)  potential output. 
B)  the central bank's policy reaction function. 
C)  autonomous spending. 
D)  short-run equilibrium. 
E)  long-run equilibrium.

Question 13

Graphically,the intersection of the aggregate demand (ADI)curve,the inflation adjustment (IA)line,and the long-run aggregate supply curves determines

Accepted Answer

A)  the recessionary gap. 
B)  the expansionary gap. 
C)  the central bank's policy reaction function. 
D)  short-run equilibrium. 
E)  long-run equilibrium. 
A)  the recessionary gap. 
B)  the expansionary gap. 
C)  the central bank's policy reaction function. 
D)  short-run equilibrium. 
E)  long-run equilibrium.

Question 14

An increase in the interest rate by the Bank of Canada based on a given monetary policy rule represents a ________ the aggregate demand (ADI)curve,but an increase in the interest rate resulting from an upward shift in the Bank of Canada's monetary policy rule represents a _________ the aggregate demand (ADI)curve.

Accepted Answer

A)  shift to the left of;movement up 
B)  shift to the left of;shift to the right of 
C)  movement up;movement down 
D)  movement up;shift to the left of 
E)  movement down;shift to the left of 
A)  shift to the left of;movement up 
B)  shift to the left of;shift to the right of 
C)  movement up;movement down 
D)  movement up;shift to the left of 
E)  movement down;shift to the left of

Question 15

The aggregate demand (ADI)curve shifts to the right if,for any given inflation rate,the Bank of Canada ________ interest rates more than normal,making monetary policy _________.

Accepted Answer

A)  raises;"easier" 
B)  raises;"tighter" 
C)  raises;faster 
D)  lowers;"easier" 
E)  lowers;"tighter" 
A)  raises;"easier" 
B)  raises;"tighter" 
C)  raises;faster 
D)  lowers;"easier" 
E)  lowers;"tighter"

Question 16

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 4%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Accepted Answer

A)  3;18,800 
B)  4;20,000 
C)  4;18,800 
D)  5;18,000 
E)  5;18,400 
A)  3;18,800 
B)  4;20,000 
C)  4;18,800 
D)  5;18,000 
E)  5;18,400

Question 17

Assuming fixed potential output is problematic because it may take as much as __________ for an economy to move out of a recession,but potential output changes from __________.

Accepted Answer

A)  one month;month to month 
B)  one quarter;quarter to quarter 
C)  one quarter;decade to decade 
D)  six months;year to year 
E)  two years;quarter to quarter 
A)  one month;month to month 
B)  one quarter;quarter to quarter 
C)  one quarter;decade to decade 
D)  six months;year to year 
E)  two years;quarter to quarter

Question 18

Some critics of the ADI-IA model have noted that the economy's potential output could occur at any point over a range of possible outputs,rather than at a single level of output.If the critics are right,then

Accepted Answer

A)  accelerating inflation would be compatible with many output levels. 
B)  decelerating inflation would be compatible with many output levels. 
C)  inflation stability would be compatible with many output levels. 
D)  inflation stability would be compatible with only a single output level. 
E)  inflation stability would be compatible with two separate output levels. 
A)  accelerating inflation would be compatible with many output levels. 
B)  decelerating inflation would be compatible with many output levels. 
C)  inflation stability would be compatible with many output levels. 
D)  inflation stability would be compatible with only a single output level. 
E)  inflation stability would be compatible with two separate output levels.

Question 19

It seems likely that if the inflation rate falls below some threshold level,it may impair the productive capacity of the economy,and the damage is likely to get worse at lower rates of inflation.If so,the LRAS line would

Accepted Answer

A)  bend upward to the right below the threshold inflation rate. 
B)  bend upward to the left below the threshold inflation rate. 
C)  not bend in either direction below the threshold inflation rate. 
D)  bend downward to the left below the threshold inflation rate. 
E)  bend downward to the right below the threshold inflation ratE. 
A)  bend upward to the right below the threshold inflation rate. 
B)  bend upward to the left below the threshold inflation rate. 
C)  not bend in either direction below the threshold inflation rate. 
D)  bend downward to the left below the threshold inflation rate. 
E)  bend downward to the right below the threshold inflation ratE.

Question 20

When there is a recessionary gap,inflation will __________,in response to which the Bank of Canada will ________ real interest rates,and output will _________.

Accepted Answer

A)  decrease;raise;decrease 
B)  decrease;lower;increase 
C)  decrease;lower;decrease 
D)  increase;raise;decrease 
E)  increase;lower;increase 
A)  decrease;raise;decrease 
B)  decrease;lower;increase 
C)  decrease;lower;decrease 
D)  increase;raise;decrease 
E)  increase;lower;increase

A short-run equilibrium with a recessionary gap implies that

-Based on the diagram above,starting from a long-run equilibrium at point C,a decrease in government spending that decreases aggregate demand from ADI¹ to ADI will lead to a short-run equilibrium at ,creating _ gap.

The ADI-IA model differs from the basic Keynesian model

An example of an upward inflation shock is

A downward shift in the Bank of Canada's monetary policy rule is a monetary _,and the aggregate demand (ADI)curve ___.

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 1%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium,then,in the short run,the inflation rate _ and,in the long run,the inflation rate __.

When the Bank of Canada engages in monetary "easing",it the real interest more than normal,which _ short-run equilibrium output.

A short-run equilibrium with an output gap of zero implies

To reduce inflation in an economy at full employment,the central bank must

Sources of inflation include

Graphically,the intersection of the aggregate demand (ADI)curve and the inflation adjustment (IA)line determines

Graphically,the intersection of the aggregate demand (ADI)curve,the inflation adjustment (IA)line,and the long-run aggregate supply curves determines

An increase in the interest rate by the Bank of Canada based on a given monetary policy rule represents a the aggregate demand (ADI)curve,but an increase in the interest rate resulting from an upward shift in the Bank of Canada's monetary policy rule represents a _ the aggregate demand (ADI)curve.

The aggregate demand (ADI)curve shifts to the right if,for any given inflation rate,the Bank of Canada interest rates more than normal,making monetary policy _.

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 4%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

Assuming fixed potential output is problematic because it may take as much as for an economy to move out of a recession,but potential output changes from .

Some critics of the ADI-IA model have noted that the economy's potential output could occur at any point over a range of possible outputs,rather than at a single level of output.If the critics are right,then

It seems likely that if the inflation rate falls below some threshold level,it may impair the productive capacity of the economy,and the damage is likely to get worse at lower rates of inflation.If so,the LRAS line would

When there is a recessionary gap,inflation will __,in response to which the Bank of Canada will real interest rates,and output will _.

Measuring Macroeconomic Performance: Output and Prices

Measuring Macroeconomic Performance: Saving and Wealth

Measuring Macroeconomic Performance: Wages, Employment and the Labour Market

Short-Term Economic Fluctuations

Spending and Output in the Short Run

Fiscal Policy

Money, Prices and the Reserve Bank

The Reserve Bank and the Economy

The Aggregate Demand - Aggregate Supply Model

Macroeconomic Policy

The Economy in the Long Run: an Introduction to Economic Growth

Savings, Capital Formation and Comparative Economic Growth

International Trade

Exchange Rates and the Open Economy

The Balance of Payments: Net Exports and International Capital Flows

Filters

Exam 12: The Production Function Approach to Understanding Growth

A short-run equilibrium with a recessionary gap implies that

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

The ADI-IA model differs from the basic Keynesian model

An example of an upward inflation shock is

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

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 1%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium,then,in the short run,the inflation rate _________ and,in the long run,the inflation rate __________.

When the Bank of Canada engages in monetary "easing",it ________ the real interest more than normal,which _________ short-run equilibrium output.

A short-run equilibrium with an output gap of zero implies

To reduce inflation in an economy at full employment,the central bank must

Sources of inflation include

Graphically,the intersection of the aggregate demand (ADI)curve and the inflation adjustment (IA)line determines

Graphically,the intersection of the aggregate demand (ADI)curve,the inflation adjustment (IA)line,and the long-run aggregate supply curves determines

The aggregate demand (ADI)curve shifts to the right if,for any given inflation rate,the Bank of Canada ________ interest rates more than normal,making monetary policy _________.

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 4%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Assuming fixed potential output is problematic because it may take as much as __________ for an economy to move out of a recession,but potential output changes from __________.

Some critics of the ADI-IA model have noted that the economy's potential output could occur at any point over a range of possible outputs,rather than at a single level of output.If the critics are right,then

It seems likely that if the inflation rate falls below some threshold level,it may impair the productive capacity of the economy,and the damage is likely to get worse at lower rates of inflation.If so,the LRAS line would

When there is a recessionary gap,inflation will __________,in response to which the Bank of Canada will ________ real interest rates,and output will _________.

Measuring Macroeconomic Performance: Output and Prices

Measuring Macroeconomic Performance: Saving and Wealth

Measuring Macroeconomic Performance: Wages, Employment and the Labour Market

Short-Term Economic Fluctuations

Spending and Output in the Short Run

Fiscal Policy

Money, Prices and the Reserve Bank

The Reserve Bank and the Economy

The Aggregate Demand - Aggregate Supply Model

Macroeconomic Policy

The Economy in the Long Run: an Introduction to Economic Growth

Savings, Capital Formation and Comparative Economic Growth

International Trade

Exchange Rates and the Open Economy

The Balance of Payments: Net Exports and International Capital Flows

Filters

-Based on the diagram above,starting from a long-run equilibrium at point C,a decrease in government spending that decreases aggregate demand from ADI¹ to ADI will lead to a short-run equilibrium at ,creating _ gap.

A downward shift in the Bank of Canada's monetary policy rule is a monetary _,and the aggregate demand (ADI)curve ___.

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 1%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium,then,in the short run,the inflation rate _ and,in the long run,the inflation rate __.

When the Bank of Canada engages in monetary "easing",it the real interest more than normal,which _ short-run equilibrium output.

The aggregate demand (ADI)curve shifts to the right if,for any given inflation rate,the Bank of Canada interest rates more than normal,making monetary policy _.

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 4%,the central bank will set a real interest rate of %,and short-run equilibrium output will be equal to _.

Assuming fixed potential output is problematic because it may take as much as for an economy to move out of a recession,but potential output changes from .

When there is a recessionary gap,inflation will __,in response to which the Bank of Canada will real interest rates,and output will _.