Exam 12: The Production Function Approach to Understanding Growth

When the central bank undertakes a monetary tightening,the resulting __________ leads to an eventual __________,represented by a __________ shift in the inflation adjustment line.

A combination of higher inflation and recession is called

When the economy is in short run equilibrium,all of the following are true EXCEPT that

Suppose that 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.If,starting from long-run equilibrium,an inflation shock raises inflation to 8%,in the short run,output will equal ________ and,in the long run,output will equal _________

_________ inflation will eventually move the economy pictured in the diagram above from short-run equilibrium at point ________ to long-run equilibrium at point ________,

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

If the correction process that eventually eliminates output gaps works very slowly,so that actual output differs from potential output for long periods of time,then active

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 6% (0.06),and potential output (Y*)equals 19,000,then short-run equilibrium output equals __________,and inflation will eventually equal ________% when the economy returns to potential.

A shift in the aggregate demand (ADI)curve would be caused by a change in

In general,it may be expected that the speed with which a particular economy corrects an output gap

Starting from a long-run equilibrium,a downward inflation shock results in a short-run equilibrium with ________ inflation and ________ output.

Suppose that 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 9,500.If,starting from long-run equilibrium,an aggregate supply shock reduces potential output to 9,300,in the short run,there will be a(n)___________ gap and,in the long run,inflation will equal _________.

-Based on the diagram above,an economy in short-run equilibrium at point A has a(n)___________ gap.The gap could be eliminated by the self-correcting mechanism of the model and eventually achieve a long-run equilibrium at point ________,or the central bank could intervene with monetary "easing" and the long-run equilibrium would be at point ________.

Based on the Bank of Canada's monetary policy rule,when inflation falls,the Bank of Canada ________ interest rates,hence _________ short-run equilibrium output.

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 2%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

A decrease in taxes will cause a

-The economy pictured in the diagram above is in short-run equilibrium with the combination of inflation and output indicated by point ________.The long-run equilibrium combination of inflation and output for this economy is indicated by point ________.

Because decreases in inflation increase planned spending and short-run equilibrium output,the

Starting from long-run equilibrium,an increase in autonomous consumption results in ________ actual output in the short run and _________ output in the long run.

As a result of the overnight target rate set at the effective lower bound during the 2008-2009 Canadian recession,the ADI-IA model was