Question 1

In Canada, the labour- force participation rate is about

Accepted Answer

The answer of In Canada, the labour- force participation rate...

Question 2

In the long run, changes to real GDP are most likely to be caused by an increase in

Accepted Answer

Factor productivity refers to the efficiency in which an economy uses its resources to produce goods and services. An increase in factor productivity allows an economy to produce more output with the same level of inputs, leading to an increase in real GDP in the long run. Factors such as technological advancements, education and training, and investment in physical and human capital can contribute to an increase in factor productivity.

Question 3

Relatively small annual changes in factor productivity are

Accepted Answer

Relatively small annual changes in factor productivity are thought to be an important cause of long-run economic growth. This is because productivity reflects how efficiently inputs (such as labor and capital) are used in the production process. Over time, small improvements in productivity can lead to significant increases in output and GDP. Changes in the growth of factor supplies, on the other hand, are more likely to affect short-run fluctuations in output rather than long-run growth.

Question 4

A former Governor of the Bank of Canada argued that high interest rates tend to accompany high inflation because inflation

Accepted Answer

High inflation erodes the purchasing power of a currency, causing lenders to demand higher interest rates to compensate for the reduced value of the money they will be repaid in.

Question 5

For the economy as a whole, changes in the factor- utilization rate are associated with short- run fluctuations in output because

Accepted Answer

In the short run, factor prices, such as wages and rents, do not fully adjust, leading to changes in the factor-utilization rate, which in turn causes fluctuations in output.

Question 6

GDP can be represented by the equation: GDP = F x (Fe/F)x (GDP/Fe). This equation tells us that real aggregate output can be expressed as factor

Accepted Answer

The equation GDP = F x (Fe/F) x (GDP/Fe) can be interpreted as supply (F) times the factor-utilization rate (Fe/F) times factor productivity (GDP/Fe).

Question 7

When accounting for changes in real GDP, changes in the factor- utilization rate are most important in the

Accepted Answer

In the short run, firms can adjust the utilization of existing resources, such as labor and capital, to meet changes in demand without immediately investing in new facilities.

Question 8

Which of the following statements describes a possible self- fulfilling prophesy in the short run involving households' behaviour? A belief of an impending recession leads households

Accepted Answer

When households believe a recession is coming, they may increase their savings to prepare for potential financial difficulties. This reduction in consumption can lead to decreased demand, potentially triggering or worsening the recession they feared, thus becoming a self-fulfilling prophecy.

Question 9

An economy's stock of capital increases directly because of

Accepted Answer

Capital accumulation is the process of increasing the stock of capital goods, which are used to produce goods and services. A positive flow of investment, such as businesses investing in new machinery or individuals purchasing homes, increases the economy's stock of capital. Decrease in business cycles, high levels of immigration, and low levels of saving may indirectly affect capital accumulation but they do not directly increase the stock of capital. An increase in interest rates may encourage saving, which could eventually lead to increased capital accumulation, but it is not a direct cause.

Question 10

A former governor of the Bank of Canada argued that interest rates must be increased in order to reduce inflation, and this would ultimately result in lower interest rates. This apparent contradiction can be explained by noting that

Accepted Answer

Higher short-term interest rates can help to slow down spending and inflation in the economy, which can lead to lower long-term interest rates as the demand for borrowing decreases.

Question 11

GDP can be represented by the equation: GDP = L x [E/L] x [GDP/E]. In this equation, the term [E/L] represents

Accepted Answer

The answer of GDP can be represented by the equation:...

Question 12

Potential GDP is defined as the level of aggregate output at which

Accepted Answer

Potential GDP is defined as the level of aggregate output at which all factors of production are employed at their "normal" utilization rates. This means that there is no cyclical or structural unemployment, and capital equipment is being used at a rate that is considered to be sustainable in the long run. However, it does not require that all factors of production be utilized at 100 percent capacity, as this may not be sustainable or even desirable in the long run.

Question 13

In the long run, many economists argue that fiscal policy is ineffective because it has little effect on

Accepted Answer

Fiscal policy can have short-term effects on the economy, but in the long run, it is believed to have little effect on potential GDP. This is because potential GDP is determined by the economy's underlying productive capacity, such as its labor force, capital stock, and technology, which are not directly affected by fiscal policy.

Question 14

In the long run, increases in potential GDP are possible only if there is

Accepted Answer

Increases in potential GDP can only occur if there is growth in the supply of available factors of production (such as labor, capital, and natural resources) or growth in factor productivity (the efficiency with which factors are used). The other options listed do not directly contribute to an increase in potential GDP.

Question 15

On the basis of both theory and empirical evidence, most economists believe that changes in fiscal policy have

Accepted Answer

Most economists believe that changes in fiscal policy can have important short-run effects on real GDP and factor utilization, but they are less effective in changing potential GDP in the long run. This is because potential GDP is primarily determined by the economy's supply-side factors such as labor force, capital stock, and technology, which are not significantly affected by changes in fiscal policy. However, fiscal policy can affect the demand side and therefore real GDP in the short run through changes in government spending, taxes, and transfer payments, which can impact consumer and business confidence, consumption, investment, and net exports. Fiscal policy can also have some influence on factor utilization in the short run through targeted spending or tax policies that incentivize certain sectors or activities. However, these effects tend to be transitory and fade away as the economy adjusts to the new policy regime.

Question 16

A decrease in long- run real GDP (potential GDP)would be most likely caused by a (an)

Accepted Answer

A decrease in factor productivity, which refers to the efficiency or effectiveness of the inputs used in producing goods and services, would cause a decrease in long-run real GDP or potential GDP. This means that the economy is not able to produce as much output with the same amount of resources or inputs, leading to a decline in living standards over time. Factors that can affect productivity include technological progress, education and training, infrastructure, research and development, and the quality of institutions and governance.

Question 17

Changes in factor- utilization rates are considered important for explaining short- run changes in real GDP because

Accepted Answer

The employment ratio of labour and the amount of excess capacity respond quickly to changes in aggregate demand or supply, making factor-utilization rates an important factor in explaining short-run changes in real GDP. Changes to the labour force and capital stock are relatively slow, while land and capital cannot change in the short run, and wage changes may dampen the effects of factor utilization.

Question 18

A characteristic of the short run in macroeconomics is that

Accepted Answer

In the short run, the output gap (difference between actual GDP and potential GDP) can open or close as the economy moves through the phases of the business cycle. This is because of factors such as changes in consumer spending, business investment, and government spending, which can affect overall demand and production levels. The other options are not true of the short run.

Question 19

Fiscal and monetary policies typically affect the short- run level of GDP because they cause shifts in the but they will not generally have any long- run effects on real GDP unless they affect .

Accepted Answer

Fiscal and monetary policies affect the short-run level of GDP by shifting the Aggregate Demand (AD) curve. However, for long-run effects on real GDP, these policies must affect the level of potential output, which is determined by factors like technology, resources, and institutional structures.

Question 20

Suppose there are 7000 people in the labour force of an economy and the unemployment rate is 6 percent. If GDP per worker in this economy is $15, then GDP is equal to

Accepted Answer

The answer of Suppose there are 7000 people in the...

Quiz 25: The Difference Between Short-Run and Long-Run Macroeconomics