Question : 11) Suppose the NAIRU for Canada 6.5%, the actual unemployment : 1384478

11) Suppose the NAIRU for Canada is 6.5%, the actual unemployment rate is 5% and productivity is constant. We can conclude that

A) there is a recessionary gap.

B) the NAIRU will re-adjust to 5%.

C) the AD curve will automatically shift up.

D) the excess demand for labour will put upward pressure on wages.

E) the excess supply of labour will put downward pressure on wages.

12) Suppose the NAIRU for Canada is 6.5%, and the actual unemployment rate is 5%. If the Bank of Canada reduces its target for the overnight interest rate,

A) it will move real GDP back toward potential GDP.

B) it will worsen the existing inflationary gap.

C) it will increase the unemployment rate.

D) the AD curve will shift to the left.

E) the AS curve will shift upward.

13) Which of the following will lead to sustained inflation?

A) the imposition of a new sales tax

B) the sudden doubling of a key raw materials price

C) a new payroll tax that raises firms’ unit labour costs

D) persistent expectations of continued inflation

E) an early frost that damages the agricultural harvest

14) Which of the following would be expected to cause a sustained increase in the inflation rate rather than a once-and-for-all increase in the price level?

A) the imposition of a new sales tax

B) the sudden doubling of a key raw materials price

C) a new payroll tax that raises unit wage costs

D) expectations of higher future inflation

E) an early frost that damages the agricultural harvest

15) The reason why inflation can persist even after its original causes have been removed is that

A) workers expect wage increases to match increases in labour productivity.

B) workers are willing to accept wage increases lower than the increase in productivity.

C) the Bank of Canada ensures that money-supply growth matches growth in real GDP.

D) inflationary expectations cause the AS curve to continue shifting upwards.

E) governments embark on a deficit-cutting program.

16) Increases in nominal wages in the economy are generally the effect of which force(s)?

A) output-gap effect

B) expectational effect

C) supply-shock inflation

D) output gap effect plus expectational effect

E) output gap effect plus expectational effect minus supply-shock inflation

17) Actual inflation would be 2% when expected future inflation is ________, output-gap inflation is ________, and supply-shock inflation is ________.

A) 2%; 2%; 2%

B) 2%; 0%; -2%

C) 2%; 0%; 0%

D) 1%; 1%; 1%

E) 0%; 0%; -2%

18) Which of the following is consistent with constant inflation: expected future inflation of ________, output-gap inflation of ________, and supply-shock inflation ________.

A) 2%; 2%; 2%

B) 2%; 0%; -2%

C) 2%; 0%; 0%

D) 1%; 1%; 1%

E) 0%; 0%; -2%

19) Which of the following statements are correct? The expectational effect of inflation

1) is nullified as soon as the government promises zero inflation;

2) often plays a role in accelerating inflation;

3) is not directly a monetary cause of inflation.

A) 1 only

B) 2 only

C) 3 only

D) 1 and 2

E) 2 and 3

20) Suppose the actual rate of inflation in the economy is 5%. If we know that expected inflation is 2%, and that output-gap inflation is 1%, then we also know that

A) the NAIRU is 5%.

B) money wages must be rising by 5%.

C) non-wage supply-shock inflation must equal 2%.

D) expected inflation is rising by 2%.

E) the actual rate of inflation is falling.