Chapter 24 - From the Short Run to the Long Run: The Adjustment of Factor Prices Flashcards
If wages rise slower than increases in labour productivity, then unit labour costs will:
A) rise and the AS curve will shift left.
B) fall and the AS curve will shift right.
C) not change because only total labour costs change.
D) rise and the AS curve will shift right.
E) fall and the AS curve will shift left.
B
The adjustment asymmetry would imply that wages adjust:
A) quickly during slumps and booms
B) slowly during slumps but quickly during booms
C) quickly during slumps but slowly during booms
D) slowly during slumps and booms.
E) instantaneously during slumps and quickly during booms
B
Consider an economy with a recessionary gap. The advantage of using an expansionary fiscal policy rather than allowing the economy’s natural adjustment mechanism to operate is that:
A) it will reduce the inflationary pressure on prices that would otherwise occur.
B) it will close the output gap.
C) it will shorten what might otherwise be a long recession.
D) if private-sector expenditures increase on their own, the policy will stabilize real GDP.
C
Which of the following is a defining characteristic of the long-run macroeconomic model?
A) Factor supplies are assumed to be fixed.
B) Changes in real GDP are determined by the changes in potential output, Y.
C) The level of potential output, Y is constant.
D) The technology used in production is constant.
B
A recessionary output gap implies that:
A) the intersection of AD and AS occurs where real GDP exceeds potential output.
B) the demand for all factor services will be relatively low.
C) there is excess demand for most factors of production.
D) there is upward pressure on wages.
E) the economy`s resources are being used at more than their normal capacity.
B
Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be ________, and real GDP may ________ potential GDP.
Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be ________, and real GDP may ________ potential GDP.
A.too strong; rise above
B.appropriate; equal
C.too weak; rise above
D.too weak; stay below
E.too strong; stay below
D
Which of the following is a defining characteristic of the AD/AS macro model in the short run?
A) firms cannot operate near their normal capacity.
B) the level of potential output fluctuates with price level.
C) factor prices are assumed to be constant.
D) technology used in production is endogenous and variable.
E) factor supplies are assumed to be flexible.
C
Which of the following would be automatic stabilizers? (Select all that apply.)
A.Income taxes, if the system is progressive.
B.Cost-of-living escalators in government contracts and pensions, because it automatically increases payments to in times of inflation.
C.Employment-insurance payments, since the number of unemployed workers eligible for EI varies negatively with income.
D.Free university tuition for unemployed workers after six months of unemployment, provided that they are under 30 years old and have had five or more years of full-time work experience since high school.
E.All of the above.
A, C
Which of the following is a defining characteristic of the adjustment process that takes the economy from the short run to the long run?
A) the level of potential output fluctuates with price level.
B) factor prices are assumed to be flexible.
C) firms cannot operate over their normal capacity.
D) technology used in production evolves of the time period.
B
Between 2006 and 2012, the Canadian government reduced both personal and corporate income taxes. Is this a demand-side or a supply-side policy?
A.Supply-side policy, since the reduction of corporate income tax allows firms to produce more with the same costs.
B.Supply-side policy, since lower personal and corporate income taxes stimulate workers and firms to act more efficiently in order to gain more profits.
C.Demand-side policy, because the reduction of corporate income tax increases desired investment expenditure and shift the AD curve to the right.
D.Both, since in this situation the tax cut increases desired consumption and investment expenditures, and it also increases the return to working (as opposed to leisure).
E.Demand-side policy, because the tax cut increases desired consumption expenditure and shift the AD curve to the right.
D
When actual GDP is higher than potential GDP, we say that there is __________ gap.
An inflationary gap leads to excess _______ for labour, which tends to cause wages and thus unit costs to _____. Firms _________ prices to supply any level of output, and so the AS curve shifts _______.
The downward adjustment of wages in response to a recessionary gap is much ______ than the upward adjustment of wages in response to ________ gap. Economists refer to this phenomenon as __________.
an inflationary;demand;rise;require higher;leftward;slower;an inflationary;sticky wages
The Phillips curve describes the relationship between:
A) money supply and interest rates.
B) output gap and actual GDP.
C) unemployment and the rate of change of wages.
D) interest rates and inflation.
E) aggregate expenditure and aggregate demand.
C
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’s oil price. 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 an initial price level
B.real GDP falls and the price level rises; real GDP returns to its original level with an initial price level
C.real GDP rises and the price level falls; real GDP is below its original level with a higher price level
D.real GDP and the price level both rise; real GDP returns to its original level with a higher price level
B
