Question : 21)  Average wages in Canada have increased each year since : 1384479

21)  Average wages in Canada have increased each year since the Second World War, even though the economy has experienced some severe recessions during this time. The explanation for this continued increase in nominal wages is

A) the existence of powerful labour unions in Canada.

B) that the actual unemployment rate is consistently below the NAIRU.

C) that wage effects of the inflationary gaps outweigh the wage effects of the recessionary gaps.

D) the persistent expectation that the price level will increase.

E) a continued shortage of labour.

22) Assume your salary is $2000 per month and the expectation is that over the next twelve months inflation will be 6%. In order to prevent a drop in your real salary over the year, your employer would have to agree to change your nominal salary by

A) – 12%.

B) – 6%.

C) 0.

D) + 6%.

E) + 12%.

23) In the basic AD/AS macro model, actual inflation is the sum of three separate components. They are

A) accelerated inflation, expected inflation and output gap inflation.

B) validated inflation, expected inflation, and output gap inflation.

C) output gap inflation, wage-push inflation and demand inflation.

D) output gap inflation, expected inflation and supply-shock inflation.

E) accelerated inflation, demand inflation and supply inflation.

24) Assume your salary is $2000 per month and your employer gives you a raise of 6%. Over the next twelve months the inflation rate is 12%. Your real salary will change by

A) +12%.

B) + 6%.

C) 0%.

D) – 6%.

E) – 12%.

25) Consider the AD/AS model with a sustained and constant inflation. In this case,

A) there is no effective set of monetary policy tools to reduce inflation.

B) there is a tendency for the price of bonds to be increasing rapidly.

C) the AS curve is shifting upward because of inflation expectations.

D) expected inflation tends to be significantly less than actual inflation.

E) the AD curve is not shifting at all.

26) When a central bank attempts to stop a sustained inflation, it tries to remove the inflationary gap by

A) shifting the AS curve upward.

B) shifting the AS curve downward.

C) increasing the outward shift of the AD curve.

D) stopping the outward shift of the AD curve.

E) taking no action and allowing the market to correct itself.

27) A major reason why it is so difficult to eliminate a sustained inflation is that inflationary expectations

A) make it impossible to stop the rightward shift of the AD curve.

B) make it impossible to reduce aggregate expenditure.

C) keep shifting the AS curve upward.

D) keep shifting the AS curve downward.

E) cannot be influenced by monetary policy.

28) A constant inflation in the AD/AS macro model is only possible when

A) AS shifts upward at a uniform rate and AD shifts downwards at a uniform rate.

B) AS shifts downward at a uniform rate and AD shifts upwards at a uniform rate.

C) AD shifts upwards at a uniform rate and AS shifts upwards at the same uniform rate.

D) AD shifts upwards at a uniform rate and AS shifts upwards at a higher uniform rate.

E) None of the above – constant inflation is not possible.

29) A constant inflation rate can be illustrated by the AD curve shifting upward

A) with no shifts in aggregate supply.

B) at the same rate as aggregate supply shifts upward.

C) at the same rate as aggregate supply shifts downward.

D) faster than aggregate supply shifts upward.

E) faster than aggregate supply shifts downward.

30) Consider an economy without any supply shocks. If the expected inflation rate is 3% and the actual inflation rate is also 3%, then it is probably true that

A) real GDP equals potential GDP.

B) real GDP is less than potential GDP.

C) real GDP is more than potential GDP.

D) we can deduce nothing about the level of GDP.

E) the economy cannot be in a short-run equilibrium.