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Exam 9: Introduction to Economic Fluctuations

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Question 31

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If the Bank of Canada reduces the money supply by 5 percent,then the real interest rate will:

A) rise in both the short run and the long run.
B) rise in the short run but return to its original equilibrium level in the long run.
C) rise in the short run but will fall below its original equilibrium level in the long run.
D) be unaffected in both the short run and the long run.

E) B) and C)
F) A) and D)

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Question 32

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Use the following to answer questions : Exhibit: Supply Shock -(Exhibit: Supply Shock) Assume that the economy is at point E.With no further shocks or policy moves,the economy in the long run will be at point:

A) A.
B) B.
C) C.
D) D.

E) All of the above
F) B) and C)

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Question 33

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When a long-term aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis,this curve:

Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0.The aggregate demand curve is Y = 3(M/P)and M = 1,000.a.If the economy is initially in long-run equilibrium,what are the values of P and Y? b.Now suppose a supply shock moves the short-run aggregate supply curve to P = 1.5.What are the new short-run P and Y? c.If the aggregate demand curve and long-run aggregate supply curve are unchanged,what are the long-run equilibrium P and Y after the supply shock? d.Suppose that after the supply shock the central bank wanted to hold output at its long-run level.What level of M would be required? If this level of M were maintained,what would be long-run equilibrium P and Y?

Which of the following is an example of a demand shock?

A 5 percent reduction in the money supply will,according to most economists,reduce prices 5 percent:

The short run refers to a period:

If a short-run equilibrium occurs at a level of output below the natural rate,then in the transition to the long run prices will ______ and output will ______.

A short-run aggregate supply curve shows fixed ______,and a long-run aggregate supply curve shows fixed ______.

A favourable supply shock occurs when:

Use the following to answer questions : Exhibit: Shift in Aggregate Demand -(Exhibit: Shift in Aggregate Demand) In this graph,initially the economy is at point E,with price P₀ and output Y.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 ______.

In the aggregate demand/aggregate supply model,long-run equilibrium occurs at the combination of output and prices where:

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 ______.

The economic response to the overnight reduction in the French money supply by 20 percent in 1724:

The economy of Macroland is initially in long-run equilibrium.A severe drought causes an adverse supply shock.a.What happens to prices and output in the short run? b.What would happen to prices and output in the long run if there is no policy accommodation? c.If the Central Bank of Macroland wants to prevent the short-run changes in price and output,what policy action could it take? How would the results of this policy action differ from the prices and output that would result in the long run with no policy action?

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.

Use the following to answer questions : Exhibit: Supply Shock -(Exhibit: Supply Shock) Assume that the economy starts at point A and there is a drought that severely reduces agricultural output in the economy for just one year.In this situation,point ______ represents the short-run equilibrium immediately following the drought and point ______ represents the eventual long-run equilibrium.

Most economists believe that the classical dichotomy:

In the long run,the level of output is determined by the:

If the short-run aggregate supply curve is horizontal,then the: