Question :
71) There can be strong pressure the Bank of Canada : 1384484
71) There can be strong pressure on the Bank of Canada to validate a large negative supply shock. The motive behind this pressure is
A) to reduce unemployment below the NAIRU.
B) that the Bank of Canada must be seen to be pursuing a restrictive monetary policy, in order to stop any expectational inflation.
C) that wages often fall only very slowly, so the adjustment back to full employment can take a very long time.
D) that there is the danger of initiating a wage-price spiral.
E) to keep a “healthy” amount of inflation in the economy.
72) If the economy is faced with continued negative supply shocks, such as annual wage increases for unionized workers, and there is no monetary validation, we can expect
A) an inflationary gap.
B) a one-time rise in the price level.
C) rising unemployment until the wage increases cease, or are offset by other wage decreases.
D) a shrinking output gap.
E) peace in labour-management relations.
73) If the Bank of Canada validates a positive AD shock,
A) it will have eliminated the possibility of a continued inflation.
B) there is the risk of continued inflation.
C) wages will fall to reduce the resulting unemployment.
D) output will fall more rapidly than if the shock had not been validated.
E) the AD curve will shift to the left and inflation will stop.
74) Suppose that an increase in world oil prices leads to an increase in Canadian aggregate demand but no change in Canadian aggregate supply. The short-term effect on the Canadian price level would be called
A) monetary validation.
B) a monetary transmission.
C) demand inflation.
D) a supply shock.
E) an adjustment process.
75) Suppose that an increase in world oil prices leads to greater aggregate demand for Canadian exports of oil. If the Bank of Canada reduces the overnight interest rate in response to this increase in AD, this is called
A) monetary validation.
B) a demand shock.
C) demand inflation.
D) a supply shock.
E) an adjustment process.
76) “Supply inflation” refers to
A) inflation arising from a leftward shift of the AS curve that is not the result of excess demand for factors of production.
B) inflation arising from a shortage of labour.
C) the increase in the price level that occurs when the excess demand for inputs pushes up input costs.
D) the increase in the price level that occurs when there is excess supply of factors of production.
E) any increase in the price level that results from an upward shift of the AD curve.
77) “Demand inflation” refers to
A) the inflation that results from a decrease in net exports.
B) any inflation that is originally caused by a rightward shift of the AD curve but is maintained at a constant level by monetary validation.
C) any inflation that is originally caused by a rightward shift of the AD curve but is accelerating due to monetary validation.
D) only the inflation that results from an expansionary monetary policy.
E) the inflation that results from any inflationary gap caused by a rightward shift of the AD curve.
78) Suppose the Canadian economy is booming due to rising net exports and there is political pressure to maintain the “good times.” If the Bank of Canada does so by implementing an expansionary monetary policy, it would
A) cause a temporary drop in inflation.
B) decrease the actual inflation rate.
C) cause a permanent recessionary gap.
D) be acting to de-stabilize the economy.
E) decrease employment.
79) An inflation that begins as a result of any demand or supply shock will eventually come to a halt
A) if there is no monetary validation.
B) in the long run.
C) in the short run.
D) independent of the economy’s adjustment process.
E) if expected inflation is positive but constant.
80) Suppose the economy is in a long-run equilibrium. The AS curve now shifts upward due to a one-time increase in the price of raw materials. If the central bank validates this supply shock,
A) an inflationary gap will be created with further inflation
B) an inflationary gap will be created, which will cause the AS curve to shift upward again.
C) the aggregate demand curve will shift up and result in a higher price level.
D) a recessionary gap will be created, which eventually causes the AS curve to shift downward.
E) a recessionary gap will be created and will cause a permanent reduction of employment.
