EC140 Chapter 24: Chapter 24 - Ragan Macroeconomics - EC140
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Factor prices are exogenous; changes not explained by model. Factor prices adjust in response to output gaps. Technology and factor supplies are constant (y* is constant) Factor prices have fully adjusted to any output gap. Excess supply of all factor inputs, including labour. Excess demand for all factor inputs, including labour. Wages fall a lot slower than they rise. Wages fall in high periods of unemployment and rise in low periods of create inflationary gap adjustments in wages and other factor prices eliminate this gap unemployment. Y* as an anchor output gaps close to where y=y* As curve shifts leftward and y=y* again. As curve then shifts rightward and y=y* again. Wage adjustment returns as to initial level. Ad shocks have no lr impact on y. Increases in y* raise y and lower p. Government may use fiscal tools to push y back towards y* Wait for private demand recovery (ad shift) Wait for economic adjustment process (as shift)
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b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
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c) | Stagflation arises in the context of the AD-AS model when some external factor causes
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d) | If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.
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e) | Which of the following will shift the aggregate demand curve to the right?
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f) | 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?
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g) | An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of
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h) | 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.
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i) | The aggregate demand curve shows
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j) | Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.
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