Exam 12: The Production Function Approach to Understanding Growth

If the Bank of Canada adopts stronger anti-inflation policy (for example,by lowering its inflation target),

When an expansionary gap exists,the rate of inflation will

If the aggregate demand (ADI)curve in an economy is Y = 20,000 - 20,000 ,current inflation ( 11ec9ae2_bd79_1ce7_a39a_a9c7bc0c6307_TB34225555_11 )equals 0.06 (6%),and potential output (Y*)equals 19,200,then in the short run,equilibrium output equals ________ and,in the long run,the inflation rate equals ________%.

In a self-correcting model of the economy,recessionary gaps are eventually eliminated by

Policy-makers' use of stabilization policy is more appropriate when the self-correcting mechanism that eventually eliminates an output gap works ________ and when the output gap is very ________.

If the Bank of Canada's monetary policy rule is r = 0.02 + ,the aggregate demand function for the economy is ADI = 5,000 + 0.8Y - 20,000r,current inflation equals 5% (0.05),and potential output (Y*)equals 20,000,then short-run equilibrium output equals __________,and inflation will eventually equal ________% when the economy returns to potential.

-Based on the diagram above,starting from a long-run equilibrium at point C,a downward inflation shock that decreases inflation from To 11ec9ae2_bd79_1ce7_a39a_a9c7bc0c6307_TB34225555_11 1 will lead to a short-run equilibrium at point ________,creating _________ gap.

Starting from long-run equilibrium,the long-run impact(s)of an increase in autonomous investment,compared to the original equilibrium,would be

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

An increase in the inflation rate corresponds to a _________ the aggregate demand (ADI)curve,and an increase in autonomous aggregate demand corresponds to a _________ the aggregate demand (ADI)curve.

-Based on the diagram above,starting from a long-run equilibrium at point C,an upward inflation shock that increases inflation from To 11ec9ae2_bd79_1ce7_a39a_a9c7bc0c6307_TB34225555_11 1 will lead to a short-run equilibrium at point ________,creating _________ gap.

To reduce inflation in an economy at full employment,policy-makers can use monetary policy or fiscal policy to __________ aggregate demand and lead to a __________ shift in the inflation adjustment line.

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

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

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 0%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

Graphically,inflation shocks shift the _________ and shocks to potential output shift the __________.

All else being equal,an increase in the rate of inflation ________ planned spending and ________ short-run equilibrium output.

Inflation shocks and shocks to potential output are called _________ shocks.

An inflation shock is

Changes in autonomous aggregate demand and the Bank of Canada's reaction function shift the