Question 1

Consider an AD/AS model in long-run equilibrium.An output gap,caused by a leftward shift of the AD curve,will be eliminated if

Accepted Answer

A)  wages rise quickly.
B)  the AS curve shifts upward.
C)  wages and other factor prices fall sufficiently.
D)  real national income decreases.
E)  prices rise quickly.F) None of the above
G) C) and D)

Question 2

Consider an economy with a relatively steep AS curve.If the AD curve shifts to the left,then the price level will ________ and national output will ________.

Accepted Answer

A)  increase slightly; significantly increase
B)  increase slightly; significantly decrease
C)  increase sharply; increase slightly
D)  fall sharply; will not change.
E)  fall sharply; decrease slightly.F) A) and D)
G) B) and D)

Question 3

Suppose the government had made a decision to change fiscal policy,but it then took nine months to implement a tax reduction.This is an example of

Accepted Answer

A)  a decision lag.
B)  fine tuning.
C)  gross tuning.
D)  automatic fiscal stabilizers.
E)  an execution lag.F) B) and C)
G) A) and E)

Question 4

An expansionary fiscal policy that takes the form of an increase in government purchases carries the possibility that private investment ________ and,as a result,the future growth rate of ________.

Accepted Answer

A)  rises to an unsustainable level; real GDP is reduced
B)  is crowded out; corporate tax revenue is reduced
C)  increases; aggregate demand increases
D)  increases; net exports increases
E)  is crowded out; potential output is reducedF) A) and D)
G) All of the above

Question 5

0,the economy's automatic adjustment process will have the A) AS curve shifting to the right until point A is reached. B) vertical line at Y* shifting to the left until it gets to Y0. C) AD curve shifting to the right until point B is reached. D) economy remaining where it is. E) level of potential output falling." class="answers-bank-image d-inline" rel="preload" > FIGURE 24-1 Refer to Figure 24-1.If the economy is currently producing output of Y0,the economy's automatic adjustment process will have the

Accepted Answer

A)  AS curve shifting to the right until point A is reached.
B)  vertical line at Y* shifting to the left until it gets to Y0.
C)  AD curve shifting to the right until point B is reached.
D)  economy remaining where it is.
E)  level of potential output falling.F) B) and C)
G) C) and E)

Question 6

Consider the AD/AS model.In the long run,after factor prices have fully adjusted to any output gaps,real GDP

Accepted Answer

A)  and the price level are determined by aggregate demand.
B)  and the price level are determined by "long-run aggregate supply."
C)  is determined by aggregate demand and the price level by potential output.
D)  is determined by potential output and the price level by aggregate demand.
E)  is determined by AD and the price level is determined by the AS curve.F) B) and D)
G) A) and B)

Question 7

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A.  FIGURE 24-4 Refer to Figure 24-4.Following the positive AS shock shown in the diagram,the adjustment process will take the economy to a long-run equilibrium where the price level is ________ and real GDP is ________.

Accepted Answer

A)  60; 1000
B)  60; 1300
C)  90; 750
D)  90; 1200
E)  110; 1000F) B) and C)
G) D) and E)

Question 8

Which of the following statements about fiscal policy is the best example of "gross tuning"?

Accepted Answer

A)  The government continuously alters its spending and taxing plans to hold real GDP at potential.
B)  The government cuts taxes to remove a large and persistent recessionary gap.
C)  The government increases its spending to reduce an inflationary gap.
D)  The government decreases tax rates to decrease an inflationary gap.
E)  The government uses automatic stabilizers to reduce any output gaps.F) A) and B)
G) A) and E)

Question 9

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A.  FIGURE 24-4 Refer to Figure 24-4.The positive aggregate supply shock shown in the diagram results in a new short-run equilibrium where the price level is ________ and real GDP is ________.

Accepted Answer

A)  60; 1000
B)  60; 1300
C)  90; 750
D)  90; 1200
E)  110; 1300F) All of the above
G) B) and E)

Question 10

Net tax revenues that rise with national income act as an automatic stabilizer by ________ the marginal propensity to spend and thereby causing the simple multiplier to ________.

Accepted Answer

A)  increasing; increase
B)  increasing; decrease
C)  decreasing; equal one
D)  decreasing; decrease
E)  decreasing; increaseF) D) and E)
G) A) and D)

Question 11

Why does the "paradox of thrift" not exist in the long run? Because

Accepted Answer

A)  not everyone increases saving in the long run.
B)  aggregate supply has an impact on real GDP only in the short run.
C)  everyone increases consumption in the long run.
D)  changes in aggregate demand have no impact on real GDP in the long run.
E)  potential output is determined by changes in the price level.F) None of the above
G) A) and E)

Question 12

In the long run,aggregate demand is ________ for determining real GDP,and the "paradox of thrift" ________.

Accepted Answer

A)  not important; applies
B)  not important; does not apply
C)  the only influence; applies
D)  the most important influence; does not apply
E)  stable and important; appliesF) D) and E)
G) A) and E)

Question 13

In the basic AD/AS macro model,which of the following events would cause stagflation?

Accepted Answer

A)  a large decrease in wages
B)  a large increase in business confidence
C)  a large increase in the net tax rate
D)  a large increase in the price of raw materials
E)  a large increase in labour productivityF) A) and B)
G) None of the above

Question 14

Given current limitations,fiscal policy as a macroeconomic stabilizer is more defensible the ________ the output gap being suffered,an argument supporting ________.

Accepted Answer

A)  larger; fine tuning
B)  larger; gross tuning
C)  smaller; fine tuning
D)  smaller; crowding out
E)  larger; crowding outF) A) and B)
G) A) and C)

Question 15

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP.One disadvantage of this policy is that

Accepted Answer

A)  the effect of economic shocks on government revenues becomes more volatile,while the economy becomes more stable.
B)  further reductions in the net tax rate will be required to maintain the effectiveness of the tax rate as an automatic stabilizer.
C)  the level of private investment increases,which will destabilize the level of real GDP.
D)  the effect of the automatic stabilizer is reduced and the economy will be more unstable.
E)  the level of private investment decreases,which opens up a recessionary gap.F) A) and B)
G) A) and C)

Question 16

Consider the global recession that began in late 2008.In terms of the AD/AS model,which of the following statements best describes the macroeconomic effect on Canada's economy?

Accepted Answer

A)  The AD curve shifted to the right due to reduced demand for Canadian exports,which created a recessionary gap.
B)  The AD curve shifted to the left due to reduced demand for Canadian exports,which created a recessionary output gap.
C)  The AS curve shifted to the right due to increased factor prices,which created a recessionary gap.
D)  The AS curve shifted to the left due to increased factor prices,which created a recessionary gap.
E)  Potential GDP fell,which reduced actual national income.F) A) and B)
G) A) and C)

Question 17

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is a decrease in the Canadian price of all imported raw materials.In the short run,________.In the long run,________.

Accepted Answer

A)  real GDP and the price level both fall; real GDP is below its original level with a lower price level
B)  real GDP and the price level both rise; real GDP is above its original level with a higher price level
C)  real GDP and the price level both rise; real GDP returns to its original level with a higher price level
D)  real GDP rises and the price level falls; real GDP and the price level return to their original levels
E)  real GDP falls and the price level rises; real GDP is below its original level with a higher price levelF) A) and B)
G) B) and D)

Question 18

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short-run equilibrium at point A.  FIGURE 24-6 Refer to Figure 24-6.If the government takes no action to change the short-run macro equilibrium in this economy,then

Accepted Answer

A)  the AD curve will shift downward until it intersects with the AS curve at point E.
B)  the AD curve will shift upward until it intersects with the AS curve at point C.
C)  the AS curve will shift to the left until it intersects with the AD curve at point D.
D)  the AS curve will shift to the right until it intersects with the AD curve at point B.
E)  the AS curve can either shift to the right or left depending on the fiscal policy.F) B) and C)
G) A) and C)

Question 19

The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy.Under what circumstances might an increase in G cause the level of potential output (  ) to increase?

Accepted Answer

A)  If the increase in G crowds out private investment.
B)  If the increase in G causes a permanent increase in the marginal propensity to consume,which causes a permanent rightward shift of the AD curve.
C)  If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.
D)  If the increase in G leads to a permanent increase in the level of autonomous saving in the economy.
E)  If the increase in G is offset by an equal decrease in C,I,and NX.F) C) and D)
G) B) and E)

Question 20

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a ________ in the price level and ________ in national output.

Accepted Answer

A)  small increase; a large increase
B)  small increase; a large decrease
C)  large increase; a small increase
D)  large increase; a small decrease
E)  large increase; no changeF) A) and E)
G) C) and D)

Exam 24: From the Short Run to the Long Run: the Adjustment of Factor Prices

Consider an economy with a relatively steep AS curve.If the AD curve shifts to the left,then the price level will and national output will .

Correct Answer
verified

In the basic AD/AS macro model,which of the following events would cause stagflation?

Correct Answer
verified

Consider the global recession that began in late 2008.In terms of the AD/AS model,which of the following statements best describes the macroeconomic effect on Canada's economy?

Correct Answer
verified

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP.One disadvantage of this policy is that

Correct Answer
verified

In the long run,aggregate demand is for determining real GDP,and the "paradox of thrift" .

Correct Answer
verified

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short-run equilibrium at point A. FIGURE 24-6 Refer to Figure 24-6.If the government takes no action to change the short-run macro equilibrium in this economy,then

Correct Answer
verified

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A. FIGURE 24-4 Refer to Figure 24-4.The positive aggregate supply shock shown in the diagram results in a new short-run equilibrium where the price level is and real GDP is .

Correct Answer
verified

Given current limitations,fiscal policy as a macroeconomic stabilizer is more defensible the the output gap being suffered,an argument supporting .

Correct Answer
verified

Consider an AD/AS model in long-run equilibrium.An output gap,caused by a leftward shift of the AD curve,will be eliminated if

Correct Answer
verified

FIGURE 24-1 Refer to Figure 24-1.If the economy is currently producing output of Y₀,the economy's automatic adjustment process will have the

Correct Answer
verified

Correct Answer
verified

Consider the AD/AS model.In the long run,after factor prices have fully adjusted to any output gaps,real GDP

Correct Answer
verified

An expansionary fiscal policy that takes the form of an increase in government purchases carries the possibility that private investment and,as a result,the future growth rate of .

Correct Answer
verified

Net tax revenues that rise with national income act as an automatic stabilizer by the marginal propensity to spend and thereby causing the simple multiplier to .

Correct Answer
verified

The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy.Under what circumstances might an increase in G cause the level of potential output ( ) to increase?

Correct Answer
verified

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a in the price level and in national output.

Correct Answer
verified

Why does the "paradox of thrift" not exist in the long run? Because

Correct Answer
verified

Suppose the government had made a decision to change fiscal policy,but it then took nine months to implement a tax reduction.This is an example of

Correct Answer
verified

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is a decrease in the Canadian price of all imported raw materials.In the short run,.In the long run,.

Correct Answer
verified

Which of the following statements about fiscal policy is the best example of "gross tuning"?

Correct Answer
verified

Exam 24: From the Short Run to the Long Run: the Adjustment of Factor Prices

Consider an economy with a relatively steep AS curve.If the AD curve shifts to the left,then the price level will ________ and national output will ________.

Correct AnswerverifiedShow Answer

In the basic AD/AS macro model,which of the following events would cause stagflation?

Correct AnswerverifiedShow Answer

Consider the global recession that began in late 2008.In terms of the AD/AS model,which of the following statements best describes the macroeconomic effect on Canada's economy?

Correct AnswerverifiedShow Answer

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP.One disadvantage of this policy is that

Correct AnswerverifiedShow Answer

In the long run,aggregate demand is ________ for determining real GDP,and the "paradox of thrift" ________.

Correct AnswerverifiedShow Answer

The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short-run equilibrium at point A. FIGURE 24-6 Refer to Figure 24-6.If the government takes no action to change the short-run macro equilibrium in this economy,then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Given current limitations,fiscal policy as a macroeconomic stabilizer is more defensible the ________ the output gap being suffered,an argument supporting ________.

Correct AnswerverifiedShow Answer

Consider an AD/AS model in long-run equilibrium.An output gap,caused by a leftward shift of the AD curve,will be eliminated if

Correct AnswerverifiedShow Answer

FIGURE 24-1 Refer to Figure 24-1.If the economy is currently producing output of Y0,the economy's automatic adjustment process will have the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider the AD/AS model.In the long run,after factor prices have fully adjusted to any output gaps,real GDP

Correct AnswerverifiedShow Answer

An expansionary fiscal policy that takes the form of an increase in government purchases carries the possibility that private investment ________ and,as a result,the future growth rate of ________.

Correct AnswerverifiedShow Answer

Net tax revenues that rise with national income act as an automatic stabilizer by ________ the marginal propensity to spend and thereby causing the simple multiplier to ________.

Correct AnswerverifiedShow Answer

The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy.Under what circumstances might an increase in G cause the level of potential output ( ) to increase?

Correct AnswerverifiedShow Answer

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a ________ in the price level and ________ in national output.

Correct AnswerverifiedShow Answer

Why does the "paradox of thrift" not exist in the long run? Because

Correct AnswerverifiedShow Answer

Suppose the government had made a decision to change fiscal policy,but it then took nine months to implement a tax reduction.This is an example of

Correct AnswerverifiedShow Answer

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is a decrease in the Canadian price of all imported raw materials.In the short run,________.In the long run,________.

Correct AnswerverifiedShow Answer

Which of the following statements about fiscal policy is the best example of "gross tuning"?

Correct AnswerverifiedShow Answer

Consider an economy with a relatively steep AS curve.If the AD curve shifts to the left,then the price level will and national output will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In the long run,aggregate demand is for determining real GDP,and the "paradox of thrift" .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Given current limitations,fiscal policy as a macroeconomic stabilizer is more defensible the the output gap being suffered,an argument supporting .

Correct Answer
verified

Correct Answer
verified

FIGURE 24-1 Refer to Figure 24-1.If the economy is currently producing output of Y₀,the economy's automatic adjustment process will have the

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An expansionary fiscal policy that takes the form of an increase in government purchases carries the possibility that private investment and,as a result,the future growth rate of .

Correct Answer
verified

Net tax revenues that rise with national income act as an automatic stabilizer by the marginal propensity to spend and thereby causing the simple multiplier to .

Correct Answer
verified

Correct Answer
verified

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a in the price level and in national output.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is a decrease in the Canadian price of all imported raw materials.In the short run,.In the long run,.

Correct Answer
verified

Correct Answer
verified