Exam 12: The Production Function Approach to Understanding Growth

Both the basic Keynesian model and the ADI-IA model have the limitation of assuming that __________ output is fixed,so that __________ output goes up or down relative to a fixed level of __________ output.

An increase in taxes will most likely cause a(n)

Starting from a long-run equilibrium,a reduction in potential output leads to _________ gap in the short run and to ________ rates of inflation in the long run.

If,for any given inflation rate,the Bank of Canada raises interest rates more than normal,this is called a monetary _________ and the aggregate demand (ADI)curve shifts to the __________.

When an expansionary gap exists,actual output _________ potential output and the rate of inflation will tend to __________.

A horizontal line showing the current rate of inflation,as determined by past expectations and pricing decisions,is called the

-The economy pictured in the diagram above has a(n)________ gap with a short-run equilibrium combination of inflation and output indicated by point ________.

An expected rise in the rate of inflation for consumer goods will

When the Bank of Canada responds to higher inflation by raising real interest rates,

Drawing the LRAS curve as a thick line indicates that there is a range of levels of

Graphically,an increase in the inflation adjustment (IA)line represents a(n)_________,and a shift leftward of the long-run aggregate supply line represents a(n)________.