|a)||In the AD-AS model, stagflation does not persist, because the
working of the self-correcting mechanism of the economy _____ the
level of output and _____ the price level until the economy
eventually returns to a long-run equilibrium state, where actual
output _____ potential output.
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Question: A) In the AD-AS model, stagflation does not persist, because the working of the self-correcting m…
|b)||The LRAS curve is drawn as a vertical line at potential output
(Y*) to indicate that
|c)||Stagflation arises in the context of the AD-AS model when some
external factor causes
|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.
|e)||Which of the following will shift the aggregate demand curve to
|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?
|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
|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.
|i)||The aggregate demand curve shows
|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 __________.