Question : 51) An economy may not quickly and automatically eliminate a : 1384410

51) An economy may not quickly and automatically eliminate a recessionary output gap because wages

A) never change in response to changes in the demand for labour.

B) have a tendency to be sticky downward.

C) have a tendency to fall too quickly.

D) have a tendency to rise too quickly.

E) are flexible but prices have a tendency to be sticky downward.

52) An adjustment “asymmetry” in aggregate supply is

A) the concave shape of the AS curve.

B) the convex shape of the AS curve.

C) the difference in speed of a rightward shift versus a leftward shift (when wages adjust to output gaps).

D) the difference in speed of increases in factor prices versus wage rates.

E) the difference in speed of decreases in output levels.

53) Consider the AD/AS macro model. A permanent demand shock that causes equilibrium output to rise above potential output will

A) allow a stable expansion of real income over time.

B) always reverse itself.

C) be negated in the long run, through the economy’s adjustment process.

D) result in a price level lower than that preceding the demand shock.

E) set off an endless cycle of price rises and increases in unemployment.

54) 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

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.

55) 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.

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 change

56) 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 ________.

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.

57) Suppose Canada’s economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is an increase in world demand for Canada’s goods. In the short run, ________. In the long run, ________.

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 returns to its original level with a lower price level

E) real GDP falls and the price level rises; real GDP is below its original level with a higher price level

58) Suppose Canada’s economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is an unexpected and sharp reduction in desired business investment expenditure. In the short run, ________. In the long run, ________.

A) real GDP and the price level both fall; real GDP is at its original level with a lower price level

B) real GDP and the price level both fall; 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 returns to its original level with a lower price level

E) real GDP falls and the price level rises; real GDP is below its original level with a higher price level

59) Consider the basic AD/AS macro model in long-run equilibrium. An expansionary AD shock will ________ the price level and ________ output in the short run. In the long run, the price level will ________ and output will ________.

A) decrease; decrease; decrease further; decrease further

B) decrease; decrease; decrease further; be restored to potential output

C) increase; decrease; increase further; increase further

D) increase; decrease; increase further; be restored to potential output

E) increase; increase; increase further; be restored to potential output

60) Consider the basic AD/AS macro model in long-run equilibrium. An expansionary AD shock would have ________ output effect in the short run and ________ output effect in the long run.

A) a positive; no

B) a positive; a positive

C) no; a positive

D) no; no

E) not enough information to know