Exam 12: The Production Function Approach to Understanding Growth

In a self-correcting model of the economy,rising inflation and rising real interest rates eventually eliminate

-Based on the diagram above,starting from a long-run equilibrium at point C,a tax cut that increases aggregate demand from ADI to ADI¹ will lead to a short-run equilibrium at point ________,and eventually to a long-run equilibrium at point ________,due to rising inflation and the raising of real interest rates by the Bank of Canada.

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

When national income in other nations increases,the domestic

The Bank of Canada's response to changes in inflation is more complex than identified in the ADI-IA model because

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

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 3%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Real-world policy debates are about the __________ of actual output relative to the __________ of potential output,not about the __________ of actual output relative to the __________ of potential output.

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

Starting from long-run equilibrium,the long-run impact(s)of a war that increases government purchases,compared to the original equilibrium,would be

A low rate of expected inflation tends to lead to a ________ rate of actual inflation,and a high rate of expected inflation tends to lead to a ________ rate of actual inflation.

Aggregate supply shocks are

If policy-makers attempt to offset an upward inflation shock with monetary _________,the resulting long-run equilibrium will be at _________ inflation rate compared to allowing the self-correcting mechanism to return the economy to potential output.

If the aggregate demand (ADI)curve in an economy is Y = 10,000 - 10,000 ,current inflation ( 11ec9ae2_bd79_1ce7_a39a_a9c7bc0c6307_TB34225555_11 )equals 0.05 (5%),and potential output (Y*)equals 9,700,then in the short run,equilibrium output equals ________ and,in the long run,the inflation rate equals ________%

Which would be one of the factors that shift the aggregate demand (ADI)curve? A change in

Expansionary output gaps are eliminated through

A __________ can open up without a __________ taking place,if __________ output is growing at an unusually slow rate that is less than the growth rate of __________ output.

The long-run self-correcting mechanism that eliminates recessionary and expansionary output gaps in the economy assumes

The self-correcting character of the ADI-IA model implies that the central bank should

The aggregate demand (ADI)curve shows the relationship between inflation and the