Question 1

Which of the following best explains why the long-run aggregate supply (LRAS) curve is vertical?

Accepted Answer

Because, in the long run, input prices fully adjust to changes in output prices and the economy operates at full employment.

Question 2

Suppose the Canadian economy experiences an increase in the annual growth rate of labour and improvements in technology. What is the likely effect on the LRAS curve?

Accepted Answer

The LRAS curve will shift to the right.

Question 3

Which of the following is NOT a reason why the aggregate demand (AD) curve slopes downward?

Accepted Answer

The substitution effect between goods

Question 4

If the price level in Canada rises, which of the following is most likely to occur according to the interest rate effect?

Accepted Answer

Interest rates increase, causing businesses and consumers to reduce desired spending.

Question 5

Which scenario best illustrates a rightward shift in the aggregate demand curve?

Accepted Answer

A tax reduction combined with improved economic security about jobs.

Question 6

Long-run equilibrium in the economy occurs when:

Accepted Answer

Total planned real expenditures equal real GDP at the intersection of the AD and LRAS curves.

Question 7

If the LRAS curve shifts rightward due to economic growth, but the AD curve remains stationary, what is the likely effect on the price level?

Accepted Answer

The price level will fall, resulting in secular deflation.

Question 8

Which of the following policies could help avoid secular deflation in a growing economy?

Accepted Answer

Shifting the AD curve rightward at the same pace as the LRAS curve by increasing the money supply.

Question 9

Persistent inflation in Canada in recent decades is best explained by:

Accepted Answer

Aggregate demand increasing faster than long-run aggregate supply.

Question 10

Suppose Turkey’s economy experiences both rapid growth in LRAS and an even faster increase in aggregate demand. What is the most likely outcome?

Accepted Answer

A burst of inflation despite economic growth.

Question 11

Which of the following would cause a leftward shift in the LRAS curve?

Accepted Answer

A reduction in capital accumulation.

Question 12

Japan’s government implemented a flexible workweek program to:

Accepted Answer

Increase the average worker’s output per hour and shift the LRAS curve rightward.

Question 13

Which of the following best describes the real-balance effect?

Accepted Answer

A change in expenditures resulting from a change in the real value of money balances when the price changes.

Question 14

If the price level in Canada rises, what is the likely effect according to the open economy effect?

Accepted Answer

Canadian residents buy more foreign-made goods, reducing net exports.

Question 15

Which of the following equations best represents the condition for long-run equilibrium in the economy?

Accepted Answer

$$ AD = LRAS $$

Question 16

A leftward shift in the LRAS curve could be caused by:

Accepted Answer

A reduction in the labour force due to higher government benefits discouraging work.

Question 17

If the aggregate demand curve shifts rightward faster than the LRAS curve, what is the most likely macroeconomic outcome?

Accepted Answer

Persistent inflation

Question 18

Which of the following is a plausible real-world example of a non-price-level change that would shift the aggregate demand curve to the right?

Accepted Answer

A significant increase in government spending on infrastructure

Question 19

Which of the following statements about secular deflation is correct?

Accepted Answer

Secular deflation is a persistent decline in prices resulting from economic growth with stable aggregate demand.

Real GDP and the Price Level in the Long Run: Macroeconomic Analysis

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