Deck 11: The Economy in the Long Run: an Introduction to Economic Growth

Question 1

The leftward shift in the LRAS curve shown in the figure may be caused by

A) an increase in the availability of natural resources.
B) an increase in the size of the capital stock.
C) an improvement in technology.
D) an increase in the size of the labour force.
E) depletion of natural resources.

Answer 1

depletion of natural resources.

Question 2

The aggregate demand curve shows the amount of planned aggregate expenditure (and output)at

A) a constant price level.
B) various price levels.
C) the current price level.
D) last year's price level.
E) an average price level.

Answer 2

various price levels.

Question 3

Potential output for the current period is fixed at the level Y* because the current period's

A) labour force is fixed.
B) labour force is fixed,capital stock is fixed,and natural resources are fixed.
C) labour force and natural resources are fixed.
D) capital stock is fixed,natural resources are fixed,and the productivity of the technology is fixed.
E) labour force is fixed,capital stock is fixed,natural resources are fixed,and the productivity of the technology is fixed.

Answer 3

labour force is fixed,capital stock is fixed,natural resources are fixed,and the productivity of the technology is fixed.

Question 4

An upward shift in short-run aggregate supply curve,from SRAS1 to SRAS2,shown in the diagram may be caused by an increase in the price of

A) oil and labour only.
B) oil and capital only.
C) oil,labour,and capital only.
D) labour,capital and of an input that is widely used in production only.
E) oil,labour,capital and an input that is widely used in production.

Question 5

Potential output refers to the amount of goods and services the economy

A) has produced during the current period.
B) can produce per period,by utilizing available resources at above normal rates.
C) can produce per period,by utilizing available resources at normal rates.
D) can produce per period,by utilizing available resources at below normal rates.
E) produced during the previous period.

Question 6

Because decreases in the price level increase planned aggregate expenditure and short-run equilibrium output,

A) the short-run aggregate supply line is horizontal.
B) the short-run aggregate supply line is upward-sloping.
C) the aggregate demand curve is horizontal.
D) the aggregate demand curve is downward-sloping.
E) the aggregate demand curve is upward-sloping.

Question 7

The aggregate demand curve shows the relationship between aggregate demand and the

A) nominal interest rate.
B) real interest rate.
C) unemployment rate.
D) overall price level.
E) exchange ratE.

Question 8

When all prices rise in equal proportion,including the prices of goods and inputs,

A) one moves along the same vertical LRAS curve,from a lower to a higher point,and the real wage rate and the labour market remain unaffected.
B) the real wage rate and the labour market remain unaffected,and the real price of capital and the capital market remain unaffected.
C) one moves along the same vertical LRAS curve,from a lower to a higher point,the real wage rate and the labour market remain unaffected,and the real price of capital and the capital market remain unaffected.
D) the real wage rate and the labour market remain unaffected,the real price of capital and the capital market remain unaffected,and the real prices of other inputs and their markets remain unaffected.
E) one moves along the same vertical LRAS curve,from a lower to a higher point,the real wage rate and the labour market remain unaffected,the real price of capital and the capital market remain unaffected,and the real prices of other inputs and their markets remain unaffected.

Question 9

The level of a country's potential output depends on the

A) size of its labour force only.
B) amount of its capital stock,the size of its labour force,and the availability of its natural resources only.
C) availability of its natural resources and the size of its labour force only.
D) factors that determine the efficiency (productivity)of its technology,the amount of its capital stock,and the availability of its natural resources only.
E) size of its labour force,the amount of its capital stock,the availability of its natural resources,and the factors that determine the efficiency (productivity)of its labour forcE.

Question 10

The horizontal short-run aggregate supply (SRAS1)expresses the idea that

A) the price level is dependent on the output level in the short run.
B) the output level is independent of the price level in the short run.
C) the price level is independent of the output level in the long run.
D) potential output is fixed in the short run.
E) firms will supply the output demanded at the fixed price level in the short run.

Question 11

The LRAS curve is drawn as a vertical line at potential output (Y*)to indicate that

A) Y* is independent of the price level.
B) Y* equals actual output (Y)in the long run.
C) Y* is independent of the price level and that actual output Y = Y* in the long run.
D) Y* is independent of the price level and that actual output Y > Y* in the long run.
E) Y* is independent of the price level and that actual output Y < Y* in the long run.

Question 12

The short-run aggregate supply curve is a relationship between the

A) level of real output and the price level in the short run.
B) level of nominal output and the price level in the short run.
C) growth of real output and the price level in the short run.
D) level of potential output and the price level in the short run.
E) level of nominal output and the price level in the long run.

Question 13

A country's potential output depends on each of the following EXCEPT the

A) size of its labour force.
B) amount of its capital stock.
C) price level.
D) productivity of its technology.
E) availability of its natural resources.

Question 14

The downward shift in the short-run aggregate supply curve,from SRAS1 to SRAS2,shown in the diagram may be caused by a fall in the price of

A) oil and labour only.
B) oil and capital only.
C) oil,labour,and capital only.
D) labour,capital and of an input that is widely used in production only.
E) oil,labour,capital and of an input that is widely used in production.

Question 15

A leftward shift in the LRAS curve

A) cannot occur.
B) may be caused by destruction of the capital stock by war or by natural disasters (e.g. ,earthquakes)only.
C) may be caused by natural disasters (e.g. ,earthquakes)or by depletion of natural resources only.
D) may be caused by depletion of natural resources or by destruction of the capital stock by war only.
E) may be caused by destruction of the capital stock by war,by natural disasters (e.g ,earthquakes) or by depletion of natural resources.

Question 16

The aggregate demand curve shows that as the price level falls,overall spending in the economy

A) falls.
B) rises.
C) remains constant.
D) accelerates.
E) first rises and then falls.

Question 17

Because increases in the price level reduce planned aggregate expenditure and short-run equilibrium output,

A) the short-run aggregate supply line is horizontal.
B) the short-run aggregate supply line is downward-sloping.
C) the aggregate demand curve is horizontal.
D) the aggregate demand curve is downward-sloping.
E) the aggregate demand curve is upward-sloping.

Question 18

The rightward shift in the LRAS curve shown in the diagram may be caused by an

A) increase in both the availability of natural resources and the amount of the capital stock only.
B) increase in the availability of natural resources and an improvement in technology only.
C) improvement in technology and an increase in both the amount of the capital stock and in the size of the labour force only.
D) improvement in technology,and an increase in both the availability of natural resources and the amount of the capital stock only.
E) increase in the availability of natural resources,the amount of the capital stock and in the size of the labour force,and an improvement in technology.

Question 19

The AD-AS model combines

A) a short-run AS curve and an AD curve only.
B) a long-run AS curve and an AD curve only.
C) a short-run AS curve,a long-run AS curve and an AD curve.
D) a short-run AS curve and a long-run AS curve only.
E) a short-run AD curve and a long-run AD curve only.

Question 20

A rightward shift in the LRAS curve may be caused by an increase in the

A) amount of the capital stock only.
B) amount of the capital stock,an increase in the size of the labour force,and an increase in the availability of natural resources only.
C) amount of the capital stock and an increase in the availability of natural resources only.
D) size of the labour force,an increase in the availability of natural resources,and an improvement in technology only.
E) amount of the capital stock,an increase in the size of the labour force,an increase in the availability of natural resources,and an improvement in technology.

Question 21

A fall in the price level

A) increases planned aggregate expenditure along the AD curve.
B) decreases planned aggregate expenditure along the AD curve.
C) increases planned aggregate expenditure by shifting the AD curve to the right.
D) decreases planned aggregate expenditure by shifting the AD curve to the left.
E) leaves planned aggregate expenditure unchanged.

Question 22

The idea that a change in the price level changes the real wealth of people,and therefore their consumption spending,is called the

A) real-balances effect.
B) saving effect.
C) consumption effect.
D) foreign trade effect.
E) Fisher effect.

Question 23

In the top panel of the diagram above,the fall in the price level from P = 12 to P = 10 shifts the planned aggregate expenditure line and ___________ short-run equilibrium output from ___________ to ___________.

A) increases;450;500
B) decreases;500;450
C) decreases;500;12
D) increases;10;12
E) decreases;12;10

Question 24

If everything else is held constant,an increase in the price level __________ planned aggregate expenditure and __________ short-run equilibrium output.

A) increases;increases
B) increases;decreases
C) does not change;does not change
D) decreases;increases
E) decreases;decreases

Question 25

A shift in the position of the aggregate demand curve may result from a change in

A) both autonomous consumption and autonomous private investment only.
B) both autonomous private investment and autonomous net exports only.
C) autonomous net exports,autonomous consumption and autonomous private investment only.
D) fiscal and monetary policies,autonomous private investment,and autonomous net exports only.
E) autonomous net exports,autonomous consumption and autonomous private investment,and a change in fiscal and monetary policies.

Question 26

A rise in the price level

A) increases planned aggregate expenditure along the AD curve.
B) decreases planned aggregate expenditure along the AD curve.
C) increases planned aggregate expenditure by shifting the AD curve to the right.
D) decreases planned aggregate expenditure by shifting the AD curve to the left.
E) leaves planned aggregate expenditure unchanged.

Question 27

If the aggregate demand curve is represented by Price Level = 300 - 0.02Y,then the point ____________ lies on the AD line.

A) Y = 20,000 and P = 10
B) Y = 30,000 and P = 10
C) Y = 40,000 and P = 10
D) Y = 10,000 and P = 10
E) Y = 25,000 and P = 10

Question 28

When the price level falls,planned aggregate expenditure increases along an AD curve because of the

A) real-balances effect only.
B) real-balances effect and the Fisher effect.
C) Fisher effect only.
D) foreign trade effect only.
E) real-balances effect and the foreign trade effect.

Question 29

Which of the following will shift the aggregate demand curve to the right?

A) Income taxes are raised.
B) The government reduces purchases to balance the budget.
C) Consumers become pessimistic about the future.
D) A new technology is developed that will increase profits.
E) Foreign economies fall into recession,reducing their demand for domestic exports.

Question 30

Which of the following shifts the aggregate demand curve to the left?

A) The central bank lowers the interest rate.
B) Income taxes are raised.
C) Foreigners increase their demand for net exports.
D) Autonomous private investment increases.
E) Government purchases are increased.

Question 31

In the diagram above,the increase in the level of output following the change in the price level is likely the result of

A) the real-balances effect on consumption.
B) the Fisher effect on inflation.
C) the foreign-trade effect on net exports.
D) a combination of the real-balances and Fisher effects on consumption and investment.
E) a combination of the real-balances and foreign-trade effects on consumption and net exports.

Question 32

The idea that a change in the price level changes the relative price of domestic goods compared to foreign goods,and therefore changes the country's net exports,is called the

A) real-balances effect.
B) saving effect.
C) consumption effect.
D) foreign trade effect.
E) Fisher effect.

Question 33

Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall.Which of the following is the likely result?

A) A movement down the AD curve.
B) A movement up the AD curve.
C) A rightward of the shift the AD curve.
D) A leftward shift the AD curve.
E) There will be no movement of the AD curvE.

Question 34

The top and bottom panels of the diagram above show the relationship between the

A) short-run and the long-run equilibrium output.
B) planned aggregate expenditure curve and the aggregate demand curve.
C) real-balance effect and the Fisher effect.
D) nominal and the real expenditure curves.
E) real-balances effect and the foreign trade effect.

Question 35

When the price level rises,planned aggregate expenditure decreases along the AD curve because of the

A) real-balances effect only.
B) real balances effect and the Fisher effect.
C) Fisher effect only.
D) foreign trade effect only.
E) real-balances effect and the foreign trade effect.

Question 36

One explanation for the inverse relationship between the price level and output,as depicted by a downward-sloping AD curve,is that,other things being held constant,a fall in the price level ___________ the ___________ of people's nominal wealth and so people spend on consumption.This is called the ___________ on spending.

A) increases;real value;real-balances effect
B) increases;nominal value;real-balances effect
C) decreases;real value;real-balances effect
D) decreases;nominal value;real-balances effect
E) increases;real value;foreign trade effect

Question 37

A shift in the position of the aggregate demand curve may result from each of the following EXCEPT for a change in

A) autonomous consumption.
B) autonomous investment.
C) the price level.
D) fiscal policy.
E) monetary policy.

Question 38

Which of the following shifts the aggregate demand curve to the right?

A) The central bank increases the interest rate.
B) Income taxes are increased.
C) Foreigners decrease their demand for net exports.
D) Autonomous private investment decreases.
E) Government purchases are increased.

Question 39

If everything else is held constant,a decrease in the price level ________ planned aggregate expenditure and __________ short-run equilibrium output.

A) increases;increases
B) increases;decreases
C) does not change;does not change
D) decreases;increases
E) decreases;decreases

Question 40

One explanation for the inverse relationship between the price level and output,as depicted by a downward-sloping AD curve,is that a fall in the domestic price level,other things including the exchange rate and the foreign price level remaining constant,makes domestic goods ___________ to foreign consumers and foreign goods more expensive to Canadians,which ___________ Canada's net exports.This is called the ___________ on spending.

A) more expensive;increases;foreign trade effect
B) cheaper;increases;real balance effect
C) cheaper;increases;foreign trade effect
D) cheaper;decreases;foreign trade effect
E) cheaper;decreases;real-balances effect

Question 41

Which of the following will shift the aggregate demand curve to the left?

A) Income taxes are lowered.
B) The government increases spending on education.
C) Consumers become optimistic about the future.
D) A new technology is developed that will increase profits.
E) Foreign economies fall into recession,reducing their demand for domestic exports.

Question 42

Which of the following will shift the aggregate demand curve to the right?

A) Income taxes are raised.
B) The government increases spending on education.
C) Consumers become pessimistic about the future.
D) Business managers become pessimistic about the future.
E) Foreign economies fall into recession,reducing their demand for domestic exports.

Question 43

If the SRAS and AD curves intersect at an output level to the right of the LRAS curve,then

A) there is an expansionary gap,with Y > Y*.
B) there is a recessionary gap,with Y < Y*.
C) there is an expansionary gap,with Y < Y*.
D) there is a recessionary gap,with Y > Y*.
E) there is no output gap and Y = Y*.

Question 44

The SRAS is horizontal at a price level of 3.
According to the AD-AS model,the economy depicted above has a recessionary gap of size ___________ in the short run.In the long run,this output gap will be eliminated through a __________ in the price level to ___________.

A) 50;rise;4
B) 50;fall;2
C) 50;fall;1
D) 100;rise;4
E) 100;fall;2

Question 45

The SRAS is horizontal at a price level of 4.
According to the AD-AS model,the economy depicted above has a(n)___________ gap equal to ___________ in the short run.In the long run,this output gap will be eliminated through a ___________ in the price level to ___________.

A) expansionary;50;rise;4
B) recessionary;50;fall;1
C) expansionary;50;rise;3
D) expansionary;100;rise;4
E) recessionary;100;fall;2

Question 46

Which one of the following neither causes a shift,nor causes a movement along,the AD curve?

A) A change in the price level.
B) A change fiscal policy.
C) A change in autonomous investment.
D) A change in monetary policy.
E) A change in potential output.

Question 47

If the SRAS and AD curves intersect at an output level to the left of the LRAS curve,

A) there is an expansionary gap,with Y > Y*.
B) there is a recessionary gap,with Y < Y*.
C) there is an expansionary gap,with Y < Y*.
D) there is a recessionary gap,with Y > Y*.
E) there is no output gap and Y = Y*.

Question 48

According to the AD-AS model,the economy depicted in the diagram below has a(n)___________ gap of size ___________.

A) expansionary;450
B) recessionary;500
C) expansionary;500
D) recessionary;50
E) expansionary;50

Question 49

The leftward shift in the aggregate demand (AD)curve,from AD1 to AD2,shown in the diagram above may be caused by a(n)

A) decrease in consumption induced by a decrease in national income.
B) decrease in consumption induced by a rise in the price level.
C) decrease in consumption induced by a fall in real wealth due to a rise in the price level.
D) decrease in autonomous private investment.
E) increase in autonomous consumption.

Question 50

Which of the following will shift the aggregate demand curve to the left?

A) Income taxes are raised.
B) The government increases spending on education.
C) Consumers become optimistic about the future.
D) A new technology is developed that will increase profits.
E) Foreign economies boom,increasing their demand for domestic exports.

Question 51

The SRAS is horizontal at a price level of 3.
According to the AD-AS model,the economy depicted above has a short-run equilibrium output of ___________ and a(n)___________ gap equal to ___________.

A) 650;expansionary;50
B) 500;recessionary;100
C) 600;recessionary;50
D) 650;expansionary;100
E) 600;recessionary;650

Question 52

In short-run equilibrium in the AD-AS model,output is determined by the intersection of

A) the SRAS and AD curves.
B) the LRAS and AD curves.
C) the SRAS,LRAS,and AD curves.
D) the SRAS and LRAS curves.
E) supply and demand.

Question 53

The SRAS is horizontal at a price level of 3.
According to the AD-AS model,the economy depicted above will achieve a long-run equilibrium with a price level equal to ___________ and output equal to ___________.

A) 1;650
B) 2;650
C) 3;650
D) 4;650
E) 5;600

Question 54

The SRAS is horizontal at a price level of 2.
According to the AD-AS model,the economy depicted above will achieve a long-run equilibrium state with a price level equal to ___________ and output equal to ___________.

A) 2;550
B) 4;550
C) 3;550
D) 4;650
E) 2;650

Question 55

The leftward shift in the aggregate demand (AD)curve,from AD1 to AD2,shown in the diagram above may be caused by a(n)

A) increase in autonomous consumption.
B) increase in government expenditure on roads and bridges.
C) decrease in autonomous private investment.
D) increase in autonomous net exports.
E) decrease in the interest ratE.

Question 56

The rightward shift in the aggregate demand (AD)curve,from AD1 to AD2,shown in the diagram above may be caused by a(n)

A) increase in autonomous consumption.
B) decrease in government expenditure on education.
C) decrease in autonomous private investment.
D) increase in imports.
E) increase in the interest ratE.

Question 57

The SRAS is horizontal at a price level of 2.
According to the AD-AS model,the economy depicted above has a short-run equilibrium output of ___________ and a(n)___________ gap equal to ___________.

A) 550;expansionary;50
B) 600;recessionary;0
C) 600;expansionary;50
D) 650;expansionary;100
E) 600;recessionary;100

Question 58

The SRAS is horizontal at a price level of 2.
According to the AD-AS model,the economy depicted above has a(n)___________ gap equal to ___________ in the short run.In the long run,this output gap will be eliminated through a ___________ in the price level to ___________.

A) expansionary;50;rise;4
B) recessionary;50;fall;1
C) expansionary;50;rise;3
D) expansionary;100;rise;4
E) recessionary;100;fall;1

Question 59

The rightward shift of the aggregate demand (AD)curve,from AD1 to AD2,shown in the diagram above may be caused by a(n)

A) increase in consumption induced by an increase in national income.
B) increase in consumption induced by a fall in the price level.
C) increase in consumption induced by a rise in real wealth due to a fall in the price level.
D) increase in autonomous consumption.
E) decrease in private investment induced by a fall in the interest rate due to a fall in the price level.

Question 60

In long-run equilibrium in the AD-AS model,which of the following is true?

A) Y = Y*.
B) Y > Y*.
C) Y < Y*.
D) Y Y*.
E) YY*.

Question 61

An economy characterized by the AD equation P = 220 - 0.02Y,SRAS equation P = 100,and LRAS equation Y* = 7,000 has a recessionary gap equal to ___________.In an attempt to eliminate this recessionary gap,the policy authorities engineer a shift in the AD curve to the position P = 230 - 0.02Y.It may be concluded that the policy will ___________ in achieving its goal because the authorities have ___________ the size of recessionary gap.

A) 1,000;succeed;correctly guessed
B) 1,000;fail;underestimated
C) 1,200;fail;overestimated
D) 1,500;fail;underestimated
E) 1,000;fail;overestimated

Question 62

According to the AD-AS model,the economy depicted in the diagram below has a(n)___________ gap at point B and is experiencing downward pressure on the price level.Other things remaining the same,the SRAS curve in this economy will shift down over time and,in the long run,its price level will be ___________ and its output level will be ___________.

A) recessionary;7;450
B) expansionary;7;500
C) recessionary;7;500
D) recessionary;10;450
E) expansionary;10;450

Question 63

An economy is initially in long-run equilibrium with the vertical LRAS Y* = 5,000,horizontal SRAS P = 100,and the AD equation P = 200 - 0.02Y.Then the AD shifts rightward to P = 220 - 0.02Y.The new long-run equilibrium price level will be

A) 120.
B) 110.
C) 100.
D) 130.
E) 115.

Question 64

The AD-AS model depicts a self-correcting economy.In the long run,the price level ___________ to eliminate a ___________ gap and ___________ to eliminate a(n)____________ gap without help from government policies.

A) falls;recessionary;rises;expansionary
B) rises;recessionary;falls;expansionary
C) falls;expansionary;rises;recessionary
D) falls;recessionary;falls;recessionary
E) rises;expansionary;rises;expansionary

Question 65

According to the AD-AS model,the economy depicted in the diagram below has a(n)__________ gap at point B and is experiencing upward pressure on the price level.Other things remaining the same,the SRAS curve in this economy will shift up over time and,in the long run,its price level will be ___________ and its output level will be ___________.

A) expansionary;12;500
B) expansionary;12;450
C) expansionary;10;450
D) recessionary;12;450
E) recessionary;10;500

Question 66

According to the AD-AS model,the economy depicted in the diagram below has a(n)____________ gap and will experience ____________ pressure on the price level over time.

A) recessionary;downward
B) expansionary;upward
C) zero output;no
D) expansionary;downward
E) recessionary;upward

Question 67

According to the AD-AS model,the economy depicted in the diagram below has a(n)____________ gap and will experience ____________ pressure on the price level over time.

A) recessionary;no
B) expansionary;downward
C) recessionary;upward
D) expansionary;upward
E) recessionary;downward

Question 68

An economy is characterized by the AD equation P = 300 - 0.02Y,SRAS equation P = 100 and LRAS equation Y* = 5,000.In the absence of any change in policy or exogenous shocks,this economy will achieve a long-run price level of

A) 110.
B) 200.
C) 120.
D) 105.
E) 90.

Question 69

An economy is characterized by the AD equation P = 200 - 0.02Y,SRAS equation P = 100 and LRAS equation Y* = 5,000.In the absence of any change in policy or exogenous shocks,this economy will achieve a long-run price level of

A) 110.
B) 100.
C) 120.
D) 105.
E) 90.

Question 70

The economy depicted in the diagram below has ___________ output gap,which can be eliminated with ___________ fiscal or monetary policy

A) a recessionary;expansionary
B) a recessionary;contractionary
C) an expansionary;expansionary
D) an expansionary;contractionary
E) an expansionary;no change in

Question 71

According to the AD-AS model,the economy depicted in the diagram below has a(n)___________ gap and will experience ___________ pressure on the price level over time.

A) recessionary;upward
B) expansionary;downward
C) recessionary;downward
D) expansionary;upward
E) zero output;no

Question 72

An economy characterized by the AD equation P = 220 - 0.02Y,SRAS equation P = 100,and LRAS equation Y* = 7,000 has a recessionary gap equal to ___________.In an attempt to eliminate this recessionary gap,the policy authorities engineer a shift in the AD curve to the position P = 250 - 0.02Y.It may be concluded that the policy will ___________ to achieve its goal because the authorities have ___________ the size of recessionary gap.

A) 1,000;succeed;correctly guessed
B) 1,000;fail;underestimated
C) 1,000;fail;overestimated
D) 1,200;fail;underestimated
E) 1,200;fail;overestimated

Question 73

For the economy depicted in the diagram below,which of the following policy actions would eliminate the output gap?

A) An income tax increase.
B) An interest rate increase.
C) A cut in government transfer payments.
D) A decrease in government purchases.
E) An income tax decreasE.

Question 74

The economy depicted in the diagram below has ___________ output gap,which can be eliminated with ___________ fiscal or monetary policy

A) a recessionary;expansionary
B) a recessionary;contractionary
C) an expansionary;expansionary
D) an expansionary;contractionary
E) an expansionary;no change in

Question 75

The AD-AS model depicts a self-correcting economy.This means that the price level in the model adjusts automatically in response to a(n)___________ gap,so as to eliminate the ___________ gap in the long run,without requiring any help from government policies.

A) output;output
B) recessionary;recessionary
C) expansionary;expansionary
D) recessionary;expansionary
E) expansionary;recessionary

Question 76

An economy characterized by the AD equation P = 220 - 0.02Y,SRAS equation P = 100,and LRAS equation Y* = 7,000 has a recessionary gap equal to ___________.In an attempt to eliminate this output gap,the policy authorities engineer a shift in the AD curve to the position P = 240 - 0.02Y.It may be concluded that the policy will ___________ in achieving its goal because the authorities have ___________ the size of recessionary gap.

A) 1,000;succeed;correctly guessed
B) 1,000;fail;underestimated
C) 1,200;fail;overestimated
D) 1,500;fail;underestimated
E) 1,000;fail;overestimated

Question 77

For the economy depicted in the diagram below,which of the following policy actions would eliminate the output gap?

A) An income tax decrease.
B) An interest rate decrease.
C) An income tax increase.
D) An increase in government purchases.
E) A decrease in government transfer payments.

Question 78

An economy is characterized by the AD equation P = 210 - 0.02Y,SRAS equation P = 100 and LRAS equation Y* = 5,000.According to the AD-AS model,this economy currently has a(n)___________ gap of size ___________.In the absence of any change in government policy,the long-run equilibrium price level in this economy will be ___________ and the output level will be 5000.

A) recessionary;500;110
B) expansionary;500;110
C) recessionary;500;120
D) expansionary;450;110
E) recessionary;450;120

Question 79

An economy is characterized by the AD equation P = 210 - 0.02Y,SRAS equation P = 100 and LRAS equation Y* = 6,000.According to the AD-AS model,this economy currently has a(n)___________ gap of size ___________.In the absence of any change in government policy,the long-run equilibrium price level in this economy will be ___________ and the output level will be 6,000.

A) recessionary;500;90
B) expansionary;500;110
C) recessionary;500;120
D) expansionary;450;90
E) expansionary;500;90

Question 80

The AD-AS model in the diagram above shows that at the initial short-run equilibrium point B,the economy is experiencing ___________ gap.Other factors remaining the same,the self-correcting mechanism of the economy will result in ___________ prices and ___________ output until the economy eventually moves to the point A,thus eliminating the output gap.

A) a recessionary;falling;falling
B) an expansionary;rising;rising
C) a recessionary;falling;rising
D) an expansionary;falling;rising
E) a recessionary;rising;rising