Question 1

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

Accepted Answer

A)  expansionary gaps. 
B)  recessionary gaps. 
C)  autonomous spending. 
D)  induced spending. 
E)  unemployment. 
A)  expansionary gaps. 
B)  recessionary gaps. 
C)  autonomous spending. 
D)  induced spending. 
E)  unemployment.

Question 2

When there is an expansionary 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

Question 3

According to the International Monetary Fund,Canada's potential output has __________ at an annual rate of __________ in recent years.

Accepted Answer

A)  expanded;10% 
B)  expanded;7.5% 
C)  expanded;2.5% 
D)  contracted;5% 
E)  contracted;10% 
A)  expanded;10% 
B)  expanded;7.5% 
C)  expanded;2.5% 
D)  contracted;5% 
E)  contracted;10%

Question 4

When actual output equals potential output and the inflation rate is stable,the economy is said to be in ________ equilibrium.

Accepted Answer

A)  contractionary 
B)  recessionary 
C)  expansionary 
D)  short-run 
E)  long-run 
A)  contractionary 
B)  recessionary 
C)  expansionary 
D)  short-run 
E)  long-run

Question 5

Central banks tend to target inflation rates above zero for each of the following reasons EXCEPT

Accepted Answer

A)  positive inflation allows real wages to fall in some industries. 
B)  counteracting negative shocks with a negative real interest rate requires inflation greater than zero. 
C)  having an inflation target of zero increases the risk that the economy will experience deflation. 
D)  workers resist cuts in their nominal wages. 
E)  lower inflation would raise the GDP growth ratE. 
A)  positive inflation allows real wages to fall in some industries. 
B)  counteracting negative shocks with a negative real interest rate requires inflation greater than zero. 
C)  having an inflation target of zero increases the risk that the economy will experience deflation. 
D)  workers resist cuts in their nominal wages. 
E)  lower inflation would raise the GDP growth ratE.

Question 6

The inflation adjustment (IA)line is

Accepted Answer

A)  downward-sloping. 
B)  upward-sloping. 
C)  horizontal at the current rate of inflation. 
D)  vertical at the economy's potential output. 
E)  vertical at the economy's actual output. 
A)  downward-sloping. 
B)  upward-sloping. 
C)  horizontal at the current rate of inflation. 
D)  vertical at the economy's potential output. 
E)  vertical at the economy's actual output.

Question 7

A decrease in the interest rate by the Bank of Canada based on a given monetary policy rule represents a ________ the aggregate demand (ADI)curve,but decrease in the interest rate resulting from a downward 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 right 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 right of

Question 8

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

Accepted Answer

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

Question 9

If policy-makers attempt to offset a downward 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.

Accepted Answer

A)  "tightening";a higher 
B)  "tightening";a lower 
C)  "easing";a higher 
D)  "easing";a lower 
E)  "easing";the same 
A)  "tightening";a higher 
B)  "tightening";a lower 
C)  "easing";a higher 
D)  "easing";a lower 
E)  "easing";the same

Question 10

The short-run effects of a monetary "tightening" are ________ output,_________ unemployment,and _________ inflation.

Accepted Answer

A)  lower;unchanged;higher 
B)  lower;lower;lower 
C)  lower;higher;no change in 
D)  higher;lower;lower 
E)  unchanged;higher;no change in 
A)  lower;unchanged;higher 
B)  lower;lower;lower 
C)  lower;higher;no change in 
D)  higher;lower;lower 
E)  unchanged;higher;no change in

Question 11

If the dollar appreciates in value relative to foreign currencies,

Accepted Answer

A)  planned aggregate expenditure decreases. 
B)  planned aggregate expenditure increases. 
C)  the quantity of real domestic output demanded increases. 
D)  the quantity of real domestic output demanded decreases. 
E)  planned aggregate expenditure is unaffected. 
A)  planned aggregate expenditure decreases. 
B)  planned aggregate expenditure increases. 
C)  the quantity of real domestic output demanded increases. 
D)  the quantity of real domestic output demanded decreases. 
E)  planned aggregate expenditure is unaffected.

Question 12

Inflation inertia is attributable to

Accepted Answer

A)  inflation shocks and shocks to potential output. 
B)  output gaps and inflation shocks. 
C)  disinflation and inflation shocks. 
D)  output gaps and disinflation. 
E)  inflation expectations and long-term wage and price contracts. 
A)  inflation shocks and shocks to potential output. 
B)  output gaps and inflation shocks. 
C)  disinflation and inflation shocks. 
D)  output gaps and disinflation. 
E)  inflation expectations and long-term wage and price contracts.

Question 13

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

Accepted Answer

A)  a downward inflation shock. 
B)  a monetary "easing." 
C)  a decrease in government purchases. 
D)  a monetary "tightening." 
E)  a tax increasE. 
A)  a downward inflation shock. 
B)  a monetary "easing." 
C)  a decrease in government purchases. 
D)  a monetary "tightening." 
E)  a tax increasE.

Question 14

Reliance on the economy's self-correcting mechanism for the elimination of the output gap shown in the diagram below can take a long time

Accepted Answer

A)  only because wage growth may be slow to adjust downward. 
B)  only because growth in production costs may be slow to adjust downward. 
C)  only because inflation and inflation expectations may be slow to adjust downward. 
D)  only because aggregate demand and output may be slow to respond to interest rate cuts by the Bank of Canada. 
E)  because wage growth,growth in production costs,inflation and inflation expectations,and aggregate demand and output may be slow to adjust. 
A)  only because wage growth may be slow to adjust downward. 
B)  only because growth in production costs may be slow to adjust downward. 
C)  only because inflation and inflation expectations may be slow to adjust downward. 
D)  only because aggregate demand and output may be slow to respond to interest rate cuts by the Bank of Canada. 
E)  because wage growth,growth in production costs,inflation and inflation expectations,and aggregate demand and output may be slow to adjust.

Question 15

The 2008-2009 recession in Canada was the result of

Accepted Answer

A)  the Bank of Canada changing to a more anti-inflationary monetary rule. 
B)  the Bank of Canada changing to a less anti-inflationary monetary rule. 
C)  a reduction in private-sector investment. 
D)  a reduction in private-sector investment and net exports. 
E)  too much money chasing too few goods. 
A)  the Bank of Canada changing to a more anti-inflationary monetary rule. 
B)  the Bank of Canada changing to a less anti-inflationary monetary rule. 
C)  a reduction in private-sector investment. 
D)  a reduction in private-sector investment and net exports. 
E)  too much money chasing too few goods.

Question 16

If the Bank of Canada's monetary policy rule changes from r = 0.02 +  
To r = 0.04 +  ,this is an example of monetary __________ and will lead to a _________ the aggregate demand (ADI)curve.

Accepted Answer

A)  "tightening";shift to the right of 
B)  "tightening";shift to the left of 
C)  "tightening";upward movement along 
D)  "easing";shift to the right of 
E)  "easing";shift to the left of 
A)  "tightening";shift to the right of 
B)  "tightening";shift to the left of 
C)  "tightening";upward movement along 
D)  "easing";shift to the right of 
E)  "easing";shift to the left of

Question 17

Suppose that the aggregate demand (ADI)curve in an economy is Y = 10,000 - 10,000  
,current inflation (   )equals 0.05 (5%),and potential output (Y*)equals 9,500.If,starting from long-run equilibrium,an inflation shock raises inflation to 7%,in the short run,output will equal ________ and,in the long run,output will equal _________

Accepted Answer

A)  9,300;9,300 
B)  9,300;9,500 
C)  9,500;5,500 
D)  9,500;9,300 
E)  9,500;9,700 
A)  9,300;9,300 
B)  9,300;9,500 
C)  9,500;5,500 
D)  9,500;9,300 
E)  9,500;9,700

Question 18

Suppose that the aggregate demand (ADI)curve in an economy is Y = 10,000 - 10,000  
,current inflation (  )equals 0.03 (3%),and potential output (Y*)equals 9,700.If,starting from long-run equilibrium,an inflation shock raises inflation to 7%,in the short run,output will equal ________ and,in the long run,output will equal _________

Accepted Answer

A)  9,300;9,300 
B)  9,300;9,500 
C)  9,300;9,700 
D)  9,700;9,700 
E)  9,700;9,300 
A)  9,300;9,300 
B)  9,300;9,500 
C)  9,300;9,700 
D)  9,700;9,700 
E)  9,700;9,300

Question 19

Starting from long-run equilibrium,the long-run impact(s)of an "easing" of monetary policy by the Bank of Canada (a downward shift in the monetary policy rule),compared to the original equilibrium,would be

Accepted Answer

A)  higher inflation. 
B)  higher output. 
C)  higher inflation and higher output. 
D)  lower inflation and lower output. 
E)  no change in inflation or output. 
A)  higher inflation. 
B)  higher output. 
C)  higher inflation and higher output. 
D)  lower inflation and lower output. 
E)  no change in inflation or output.

Question 20

Which would shift the aggregate demand (ADI)curve? A change in

Accepted Answer

A)  input prices. 
B)  net export spending. 
C)  the prices of imported resources. 
D)  the legal-institutional environment. 
E)  the price level. 
A)  input prices. 
B)  net export spending. 
C)  the prices of imported resources. 
D)  the legal-institutional environment. 
E)  the price level.

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

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

According to the International Monetary Fund,Canada's potential output has at an annual rate of in recent years.

When actual output equals potential output and the inflation rate is stable,the economy is said to be in ________ equilibrium.

Central banks tend to target inflation rates above zero for each of the following reasons EXCEPT

The inflation adjustment (IA)line is

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

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

If policy-makers attempt to offset a downward 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.

The short-run effects of a monetary "tightening" are ____ output,_ unemployment,and _____ inflation.

If the dollar appreciates in value relative to foreign currencies,

Inflation inertia is attributable to

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

Reliance on the economy's self-correcting mechanism for the elimination of the output gap shown in the diagram below can take a long time

The 2008-2009 recession in Canada was the result of

If the Bank of Canada's monetary policy rule changes from r = 0.02 + To r = 0.04 + ,this is an example of monetary __ and will lead to a _ the aggregate demand (ADI)curve.

Starting from long-run equilibrium,the long-run impact(s)of an "easing" of monetary policy by the Bank of Canada (a downward shift in the monetary policy rule),compared to the original equilibrium,would be

Which would shift the aggregate demand (ADI)curve? A change in

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

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

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

According to the International Monetary Fund,Canada's potential output has __________ at an annual rate of __________ in recent years.

When actual output equals potential output and the inflation rate is stable,the economy is said to be in ________ equilibrium.

Central banks tend to target inflation rates above zero for each of the following reasons EXCEPT

The inflation adjustment (IA)line is

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

If policy-makers attempt to offset a downward 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.

The short-run effects of a monetary "tightening" are ________ output,_________ unemployment,and _________ inflation.

If the dollar appreciates in value relative to foreign currencies,

Inflation inertia is attributable to

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

Reliance on the economy's self-correcting mechanism for the elimination of the output gap shown in the diagram below can take a long time

The 2008-2009 recession in Canada was the result of

If the Bank of Canada's monetary policy rule changes from r = 0.02 + To r = 0.04 + ,this is an example of monetary __________ and will lead to a _________ the aggregate demand (ADI)curve.

Starting from long-run equilibrium,the long-run impact(s)of an "easing" of monetary policy by the Bank of Canada (a downward shift in the monetary policy rule),compared to the original equilibrium,would be

Which would shift the aggregate demand (ADI)curve? A change in

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

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

According to the International Monetary Fund,Canada's potential output has at an annual rate of in recent years.

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

If policy-makers attempt to offset a downward 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.

The short-run effects of a monetary "tightening" are ____ output,_ unemployment,and _____ inflation.

If the Bank of Canada's monetary policy rule changes from r = 0.02 + To r = 0.04 + ,this is an example of monetary __ and will lead to a _ the aggregate demand (ADI)curve.