Question 1

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

Accepted Answer

A) short-run aggregate supply curve. 
B) long-run aggregate supply curve. 
C) price level in the short run. 
D) demand for real balances per unit of output.

Question 2

A difference between the economic long run and the short run is that:

Accepted Answer

A) the classical dichotomy holds in the short run but not in the long run. 
B) monetary and fiscal policy affect output only in the long run. 
C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. 
D) prices and wages are sticky in the long run only.

Question 3

Which of the following is an example of a demand shock?

Accepted Answer

A) a large increase in the price of oil 
B) the introduction and greater availability of credit cards 
C) a drought that destroys agricultural crops 
D) unions obtain a substantial wage increase

Question 4

Starting from long-run equilibrium, without policy intervention, the long-run impact of a temporary adverse supply shock is that prices will:

Accepted Answer

A) be permanently higher, and output will be restored to the natural rate. 
B) return to the old level, and output will be restored to the natural rate. 
C) be permanently higher, and output will be permanently lower. 
D) return to the old level, but output will be permanently lower.

Question 5

In the long run, the level of output is determined by the:

Accepted Answer

A) interaction of supply and demand. 
B) money supply and the levels of government spending and taxation. 
C) amounts of capital and labour and the available technology. 
D) preferences of the public.

Question 6

Measures of average workweeks and of new orders for durable goods are included in the index of leading indicators, because shorter workweeks tend to indicate _____ future economic activity, and more robust orders tend to indicate _____ future economic activity.

Accepted Answer

A) stronger; stronger 
B) stronger; weaker 
C) weaker; stronger 
D) weaker; weaker

Question 7

Suppose that droughts in Ontario and floods in Manitoba substantially reduce food production in Canada. Use the aggregate demand-aggregate supply model to illustrate graphically the impact in the short run and the long run of this adverse supply shock. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; v. the short-run equilibrium values; and vi. the long-run equilibrium values. State in words what happens to prices and output in the short run and the long run.

Accepted Answer

The answer of Suppose that droughts in Ontario and floods...

Question 8

What is the relationship between unemployment and real GDP?

Accepted Answer

The answer of What is the relationship between unemployment and...

Question 9

Along an aggregate demand curve, which of the following are held constant?

Accepted Answer

A) real output and prices 
B) nominal output and velocity 
C) the money supply and real output 
D) the money supply and velocity

Question 10

Over the business cycle, investment spending _____ consumption spending.

Accepted Answer

A) is inversely correlated with 
B) is more volatile than 
C) has about the same volatility as 
D) is less volatile than

Question 11

Short-run fluctuations in output and employment are called:

Accepted Answer

A) sectoral shifts. 
B) the classical dichotomy. 
C) business cycles. 
D) productivity slowdowns.

Question 12

Leading economic indicators are:

Accepted Answer

A) the most popular economic statistics. 
B) data that are used to construct the consumer price index and the unemployment rate. 
C) variables that tend to fluctuate in advance of the overall economy. 
D) data that are computed by the Bank of Canada.

Question 13

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

Accepted Answer

A) downward and to the left. 
B) downward and to the right. 
C) upward and to the left. 
D) upward and to the right.

Question 14

You are given information about the following leading indicators for the Canadian economy. For each indicator, explain whether the information suggests that a recession or expansion should be expected in the future.
a.Claims received for employment insurance rise.
b.New orders for durable goods increase.
c.The interest rate spread between the three-month Treasury bill and the prime lending rate narrows.
d.The Conference Board of Canada's Index of Consumer Confidence falls.

Accepted Answer

The answer of You are given information about the following...

Exam 10: Introduction to Economic Fluctuations