ECON 2020 CH. 10 Practice

Okun's Law

1 percent more unemployment results in 2 percent less output

D. slowdown; slowdown

A decline in new orders for durable goods is typically an indicator of a future _____ in economic production, and a fall in the average weekly hours in manufacturing is typically an indicator of a future _____ in economic production. A. Increase; Slowdown B. Increase; INcrease C.Slowdown: increase D. slowdown; slowdown

B.demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

A difference between the economic long run and the short run is that: A.prices and wages are sticky in the long run only. B.demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. C. the classical dichotomy holds in the short run but not in the long run. D. monetary and fiscal policy affect output only in the long run.

Shocks

An exogenous change in an economic relationship, such as the aggregate demand or aggregate supply curve.

A. output; prices

Assume that the economy starts from long-run equilibrium. If the Bank of Canada increases the money supply, then _____ increase(s) in the short run, and _____ increase(s) in the long run. A. output; prices B. Prices; Prices C. Prices; output D. Output; Output

D. combinations of P and Y for a given value of M.

Assuming velocity is constant, the aggregate demand curve tells us possible: A.combinations of M and Y for a given value of P. B. results if the Bank of Canada reduces the money supply. C. combinations of M and P for a given value of Y. D. combinations of P and Y for a given value of M.

C. output and employment will increase in the short run.

If the short-run aggregate supply curve is horizontal and the Bank of Canada increases the money supply, then: A. prices will decrease in the short run. B. prices will increase in the short run. C. output and employment will increase in the short run. D. output and employment will decrease in the short run.

D. higher; lower

If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in _____ prices and _____ output in the short run. A. lower; lower B.higher; higher C.lower; higher D. higher; lower

, investment growth falls (typically by a larger amount), and unemployment rises.

In particular, when GDP growth declines, consumption growth falls (typically by a smaller amount),

These fluctuations are associated with movement in many macroeconomic variables.

Economies experience short-run fluctuations in economic activity, measured most broadly by real GDP.

D. both Central Bank A and Central Bank B should increase the quantity of money

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money: A.Central Bank A should increase the quantity of money, whereas Central Bank B should keep it stable. B. both Central Bank A and Central Bank B should keep the quantity of money stable. C. Central Bank A should keep the quantity of money stable, whereas Central Bank B should increase it. D. both Central Bank A and Central Bank B should increase the quantity of money

Therefore, shifts in aggregate demand affect the price level but not output or employment.

In the long run, the aggregate supply curve is vertical because output is determined by the amounts of capital and labour and by the available technology but not by the level of prices.

B.prices to fall and output to rise.

In the short run, a favourable supply shock causes: A. both prices and output to rise. B.prices to fall and output to rise. C.both prices and output to fall. D.prices to rise and output to fall.

Therefore, shifts in aggregate demand affect output and employment.

In the short run, the aggregate supply curve is horizontal because wages and prices are sticky at predetermined levels.

C. C; B

In this graph, initially the economy is at point E, with price P0 and output Ȳ aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point _____ and then, in the long run, to point _____. A. B; C B. D; A C. C; B D. A; D

B. weaker; stronger

Measures of average workweeks and of new orders for durable goods are included in the index of leading indicators, because shorter workweeks tend to indicate _____ future economic activity, and more robust orders tend to indicate _____ future economic activity. A. weaker; weaker B. weaker; stronger C. stronger; weaker D. stronger; stronger

Stabilization Policy

Public policy aimed at reducing the severity of short-run economic fluctuations.

it can attempt to offset these shocks to maintain output and employment at their natural levels.

Shocks to aggregate demand and aggregate supply cause economic fluctuations. Because the Bank of Canada can shift the aggregate demand curve,

greater the aggregate quantity of goods and services demanded.

The aggregate demand curve slopes downward. It tells us that the lower the price level, the

short run is that prices are flexible in the long run but sticky in the short run

The crucial difference between how the economy works in the long run and how it works in the

A. during which prices are sticky and cyclical unemployment may occur.

The short run refers to a period: A. during which prices are sticky and cyclical unemployment may occur. B.during which there are no fluctuations. C. of several days. D. during which capital and labour are fully employed.

C. increase by 0.33 percent.

The version of Okun's law studied in Chapter 10 assumes that when real GDP grows at 2.88 percent over a year, the unemployment rate does not change. If real GDP instead grows at 1.88 percent over a year, Okun's law predicts that unemployment would: A.decrease by 0.33 percent. B.decrease by 3 percent. C. increase by 0.33 percent. D. increase by 3 percent.

the introduction and greater availability of credit cards

Which of the following is an example of a demand shock? A.unions obtain a substantial wage increase B. a large increase in the price of oil C. the introduction and greater availability of credit cards D. a drought that destroys agricultural crops

the impact of policies and events varies over different time horizons.

he model of aggregate supply and aggregate demand provides a framework to analyze economic fluctuations and see how

A. increase the demand for money.

If a change in government regulations allows banks to start paying interest on chequing accounts, this will: A. increase the demand for money. B.have no effect on the demand for money. C.increase the demand for currency but decrease the demand for chequing accounts. D. decrease the demand for money.

A. increase; decrease

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will _____, and output will _____. A. increase; decrease B.decrease; decrease C.decrease; increase D. increase; increase

Demand Shocks

unexpected changes in the demand for goods and services

C.higher; lower

According to the quantity theory of money, when velocity is constant, if output is higher, _____ real balances are required, and for fixed M this means _____ P. A.lower; lower B.lower; higher C.higher; lower D.higher; higher