Exam 11: The Economy in the Long Run: an Introduction to Economic Growth

A key assumption of the expectations-augmented Phillips curve model is that the long-run Phillips curve is ___________ at the ___________ of unemployment.This means that policies ___________ lower unemployment below the natural rate in the long run.

According to the expectations-augmented Phillips curve model,the amount by which contractionary policies can lower the inflation rate for every one percent increase in the unemployment rate along a short-run Phillips curve,will hold only as long as private sector's expectations of inflation remains unchanged.When circumstances change and the public revise their expectations of inflation downward,the ___________ will shift ___________ and the rate of trade-off between unemployment and inflation will ___________.

The expectations-augmented Phillips curve model assumes that people form their expectations about the future rate of inflation based on their recent experience of the actual inflation rate.This way of forming expectation is called ___________ expectations.

The short-run Phillips curve is

The SRAS is horizontal at a price level of 3. -According to the AD-AS model,the economy depicted above has a recessionary gap of size ___________ in the short run.In the long run,this output gap will be eliminated through a __________ in the price level to ___________.

The economy depicted in the diagram below has ___________ output gap,which can be eliminated with ___________ fiscal or monetary policy

-In the top panel of the diagram above,the fall in the price level from P = 12 to P = 10 shifts the planned aggregate expenditure line and ___________ short-run equilibrium output from ___________ to ___________.

-The AD-AS model in the diagram above shows that at the initial short-run equilibrium point B,the economy is experiencing ___________ gap.Starting from point B,an increase in government purchases that shifts the aggregate demand curve from AD to AD' will lead to the long-run equilibrium at point C,thus raising output at a ___________ price level.

If everything else is held constant,an increase in the price level __________ planned aggregate expenditure and __________ short-run equilibrium output.

Consider an economy initially at long-run equilibrium with output (Y)equal to potential output (Y*).If the SRAS curve is positively sloped,then an increase in the demand for Canadian-made goods in Europe will lead to ___________ in the price level,in the short run.In the long run,the SRAS curve will shift to the left and the equilibrium will be at _________.

The aggregate demand curve shows the relationship between aggregate demand and the

An important limitation of the AD-AS model is that it predicts that a collapse in oil prices would result in a fall in the general price level.But the experience of many countries in the late 1980s clearly demonstrated that,when oil prices fall,the overall price level keeps ___________ but at a ___________ pace.That is,the ___________ falls,but not the price level.

Which of the following shifts the aggregate demand curve to the right?

When all prices rise in equal proportion,including the prices of goods and inputs,

In the AD-AS model,stagflation does not persist,because the working of the self-correcting mechanism of the economy ___________ the level of output and ___________ the price level until the economy eventually returns to a long-run equilibrium state,where actual output ___________ potential output.

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

In the diagram below,the economy is initially in long-run equilibrium at A,with actual unemployment equal to ___________,natural rate of unemployment equal to 6%,actual inflation equal to ___________ and the public's expected inflation equal to ___________.

The SRAS is horizontal at a price level of 2. -According to the AD-AS model,the economy depicted above has a(n)___________ gap equal to ___________ in the short run.In the long run,this output gap will be eliminated through a ___________ in the price level to ___________.

According to the AD-AS model,the economy depicted in the diagram below has a(n)____________ gap and will experience ____________ pressure on the price level over time.

-The top and bottom panels of the diagram above show the relationship between the