Question 1

Consider an economy in long- run equilibrium where factor supply is 2.5 million units, the factor utilization rate is 0.85 and a simple measure of productivity (GDP per factor employed)is $200. Now suppose that, other things being equal, the productivity measure rises to $210. The effect of this change will be

Accepted Answer

An increase in productivity means that more output is being produced per factor employed, which increases potential output in the long run. As a result, the economy can produce more goods and services without causing inflationary pressures. There is no need for factor prices to adjust, and there is no shift in aggregate demand.

Question 2

Consider the equation GDP = F × (F_E/F)× (GDP/F_E). If the economy enters a recessionary gap because of a negative aggregate demand shock, the equation changes in which of the following ways?

Accepted Answer

The answer of Consider the equation GDP = F ×...

Question 3

GDP can be represented by the equation: GDP = F x (Fe/F)x (GDP/Fe). The term Fe represents

Accepted Answer

Fe represents the number of employed factors, which is used in the equation to calculate GDP by considering the factor utilization and productivity.

Question 4

The utilization rate for physical capital is called the

Accepted Answer

The utilization rate for physical capital is commonly referred to as the capacity utilization rate. This measures how much of a company's available physical capital is being used in production.

Question 5

The study of the short run in macroeconomics focuses

Accepted Answer

The short run in macroeconomics primarily focuses on changes to the output gap with less emphasis on changes to potential GDP. This is because in the short run, the economy operates below or above its potential GDP and there is a focus on bringing the economy back to potential GDP.

Question 6

The study of the long run in macroeconomics focuses

Accepted Answer

The study of the long run in macroeconomics primarily focuses on changes to potential GDP, which is the maximum level of output that an economy can produce given its resources and technology. This is different from the short run, which focuses on actual GDP and the output gap, or the difference between actual GDP and potential GDP.

Question 7

Consider an economy where factor supply is 2.5 million units, the factor utilization rate is 0.85 and a simple measure of productivity (GDP per factor employed)is $200. This economy's GDP is

Accepted Answer

The GDP is calculated by multiplying the factor supply by the factor utilization rate and then by the productivity per factor employed: 2.5 million units * 0.85 * $200 = $425 million.

Question 8

A decrease in short- run real GDP that leaves potential GDP unaffected would be most likely caused by a (an)

Accepted Answer

A decrease in factor-utilization rates (such as decreases in capital stock, labor, or other inputs) would result in decreased production and therefore a decrease in short-run real GDP, while potential GDP would remain unchanged. A decrease in interest rates or unemployment rates, or an increase in factor productivity, would all likely increase real GDP, rather than decrease it.

Question 9

Long- run increases in real national income can generally be traced to

Accepted Answer

Long-run increases in real national income are generally the result of either an increase in the availability of factors of production or an increase in factor productivity. Option A is incorrect because an excess of demand in the labour market would cause a rise in wages and prices, which would have an adverse effect on the economy in the long run. Similarly, option C is incorrect because growing demand and increases in output and prices could lead to inflation and further economic instability. Option D is incorrect because consumer spending only represents a small fraction of total demand in the economy. Option E is incorrect because the supply of labour is not the only factor that determines economic growth.

Question 10

For the economy as a whole, high rates of factor utilization are associated with

Accepted Answer

High rates of factor utilization indicate that businesses are using their resources at a high level, which could lead to excess demand in factor markets. This may result in rising costs, stimulating inflation in the economy.

Question 11

In the short run, changes in real GDP are primarily determined by changes in factor- utilization rates which, in turn, are due to changes in

Accepted Answer

Changes in real GDP in the short run are determined by both aggregate demand and aggregate supply. An increase in aggregate demand will lead to an increase in output, while an increase in aggregate supply due to changes in factor-utilization rates such as labor and capital, will also lead to an increase in output. Therefore, both aggregate demand and aggregate supply are important factors in determining changes in real GDP in the short run.

Question 12

Changes in factor supplies have little influence on short- run GDP growth but are important to long- run growth in output because

Accepted Answer

Supply factors such as additions to the labour force and capital stock take time to have an impact on output, thus they are more important for long-run growth than short-run GDP growth. Land is a fixed factor of production that cannot be changed in the short run, while changes in the capital stock may also take time to materialize. Wages may increase rapidly in the short run, but this does not necessarily dampen employment growth. Lastly, both aggregate demand and supply are observed in the short run.

Question 13

Consider the equation GDP = F × (F_E/F)× (GDP/F_E). Which component describes the fraction of the available factors actually employed at any time?

Accepted Answer

The term (F_E/F) represents the fraction of available factors actually employed, as it is the ratio of the actual input of factors (F_E) to the potential input of factors (F).

Question 14

the productivity of factors of production.

Accepted Answer

The productivity of factors of production can be influenced by multiple factors, including labor, capital, and technology, which are typically represented by choices 1, 2, and 3.

Question 15

Long- run increases in potential GDP would most likely be caused by a (an)

Accepted Answer

An increase in potential GDP refers to the ability of an economy to produce more output in the long run. This can be accomplished by increasing the availability of key factors of production such as labor, capital, and land. Therefore, choice (B) is the correct answer. A decrease in saving in the short run (choice A) may result in increased consumption and growth in the short run but not sustainable long-run growth. A decrease in factor utilization rates (choice C) implies that resources are being underutilized, which is not conducive to long-run growth. Increases in prices of factors of production (choice D) may slow down economic growth in the short run by increasing costs to businesses, but it does not necessarily lead to long-term growth. A decrease in factor productivity (choice E) would decrease potential GDP.

Question 16

Which of the following policies is most likely to have an effect on GDP in the long run?

Accepted Answer

Increasing labor productivity is most likely to have a significant effect on GDP in the long run as it leads to an increase in the output of goods and services per unit of labor input. This can lead to higher economic growth as it increases the potential output of an economy. The other options are likely to have a more short-term impact on GDP. For example, an increase in consumption or government purchases may boost GDP in the short run, but if it is not accompanied by an increase in production or efficiency, it may lead to inflation or debt issues in the long run. Reducing unemployment rates and changing factor utilization rates can also have a positive impact on GDP, but they are more limited in scope and may not necessarily lead to sustained economic growth.

Question 17

An increase in potential GDP would most likely be caused by a (an)

Accepted Answer

An increase in factor productivity means that the economy is producing more with the same amount of inputs, which results in an increase in potential GDP. The other options listed would not necessarily lead to an increase in potential GDP.

Question 18

On the basis of both theory and empirical evidence, most economists believe that changes in monetary policy have

Accepted Answer

The majority of economists believe that changes in monetary policy do not have a long-run effect on real GDP but do have a substantial long-run effect on inflation. This is supported by both theory and empirical evidence, as monetary policy can influence inflation expectations and the behavior of economic agents, but does not have a significant impact on long-run output or productivity.

Question 19

Since 1985, Canada's potential GDP has been

Accepted Answer

According to the Canadian government's economic data, Canada's potential GDP has been rising steadily since 1985.

Question 20

Economists can estimate the value of potential GDP by observing the amounts of available

Accepted Answer

Potential GDP is a measure of the maximum level of output an economy can produce with its available resources, including labor, capital, and natural resources. Economists can estimate the value of potential GDP by observing the amounts of available inputs, their normal rates of utilization, and productivity. This involves looking at how much of the available labor force is employed, how much capital is being used, and how efficiently these resources are being used to produce goods and services. Productivity plays a key role in this estimation as it determines how much output can be generated for a given amount of inputs.

Quiz 25: The Difference Between Short-Run and Long-Run Macroeconomics

Consider the equation GDP = F × (F_E/F) × (GDP/F_E) . If the economy enters a recessionary gap because of a negative aggregate demand shock, the equation changes in which of the following ways?

GDP can be represented by the equation: GDP = F x (Fe/F) x (GDP/Fe) . The term Fe represents

The utilization rate for physical capital is called the

The study of the short run in macroeconomics focuses

The study of the long run in macroeconomics focuses

Consider an economy where factor supply is 2.5 million units, the factor utilization rate is 0.85 and a simple measure of productivity (GDP per factor employed) is $200. This economy's GDP is

A decrease in short- run real GDP that leaves potential GDP unaffected would be most likely caused by a (an)

Long- run increases in real national income can generally be traced to

For the economy as a whole, high rates of factor utilization are associated with

In the short run, changes in real GDP are primarily determined by changes in factor- utilization rates which, in turn, are due to changes in

Changes in factor supplies have little influence on short- run GDP growth but are important to long- run growth in output because

Consider the equation GDP = F × (F_E/F) × (GDP/F_E) . Which component describes the fraction of the available factors actually employed at any time?

the productivity of factors of production.

Long- run increases in potential GDP would most likely be caused by a (an)

Which of the following policies is most likely to have an effect on GDP in the long run?

An increase in potential GDP would most likely be caused by a (an)

On the basis of both theory and empirical evidence, most economists believe that changes in monetary policy have

Since 1985, Canada's potential GDP has been

Economists can estimate the value of potential GDP by observing the amounts of available

Quiz 25: The Difference Between Short-Run and Long-Run Macroeconomics

Consider the equation GDP = F × (FE/F) × (GDP/FE) . If the economy enters a recessionary gap because of a negative aggregate demand shock, the equation changes in which of the following ways?

GDP can be represented by the equation: GDP = F x (Fe/F) x (GDP/Fe) . The term Fe represents

The utilization rate for physical capital is called the

The study of the short run in macroeconomics focuses

The study of the long run in macroeconomics focuses

Consider an economy where factor supply is 2.5 million units, the factor utilization rate is 0.85 and a simple measure of productivity (GDP per factor employed) is $200. This economy's GDP is

A decrease in short- run real GDP that leaves potential GDP unaffected would be most likely caused by a (an)

Long- run increases in real national income can generally be traced to

For the economy as a whole, high rates of factor utilization are associated with

In the short run, changes in real GDP are primarily determined by changes in factor- utilization rates which, in turn, are due to changes in

Changes in factor supplies have little influence on short- run GDP growth but are important to long- run growth in output because

Consider the equation GDP = F × (FE/F) × (GDP/FE) . Which component describes the fraction of the available factors actually employed at any time?

the productivity of factors of production.

Long- run increases in potential GDP would most likely be caused by a (an)

Which of the following policies is most likely to have an effect on GDP in the long run?

An increase in potential GDP would most likely be caused by a (an)

On the basis of both theory and empirical evidence, most economists believe that changes in monetary policy have

Since 1985, Canada's potential GDP has been

Economists can estimate the value of potential GDP by observing the amounts of available

Consider the equation GDP = F × (F_E/F) × (GDP/F_E) . If the economy enters a recessionary gap because of a negative aggregate demand shock, the equation changes in which of the following ways?

Consider the equation GDP = F × (F_E/F) × (GDP/F_E) . Which component describes the fraction of the available factors actually employed at any time?