Question

Fill in the blanks to make the following statements correct.

a. In the long​ run, total output is determined only by ▼ (potential output or actual output). In the long​ run, aggregate demand determines the ▼ (price level or output level).

b. Permanent increases in real GDP are possible only if ▼ (potential output or actual output) is increasing.

c. Suppose illiteracy in Canada were​ eliminated, and the school dropout rate was reduced to zero. The effect would be a permanent▼(decrease or increase) in productivity and ▼ (a decrease or an increase) in potential output.

d. A reduction in corporate income tax is likely to make▼ (net exports or investment or consumption) more attractive and thus shift the ▼(aggregate supply or aggregate demand) curve to the right. The result is ▼(an increase or a decrease) in the​ short-run level of real GDP. In the long​ run, the greater rate of ▼ (net exports or consumption or investment) by firms will lead to a greater level of ▼(potential GDP or actual GDP).

Answer 1

a. In the long​ run, total output is determined only by potential output (potential output or actual output). In the long​ run, aggregate demand determines the price level(price level or output level).

b. Permanent increases in real GDP are possible only if potential output (potential output or actual output) is increasing.

c. Suppose illiteracy in Canada were​ eliminated, and the school dropout rate was reduced to zero. The effect would be a permanent Increase(decrease or increase) in productivity and Increase (a decrease or an increase) in potential output.

d. A reduction in corporate income tax is likely to make Investment (net exports or investment or consumption) more attractive and thus shift the aggregate demand(aggregate supply or aggregate demand) curve to the right. The result is an increase(an increase or a decrease) in the​ short-run level of real GDP. In the long​ run, the greater rate of investment (net exports or consumption or investment) by firms will lead to a greater level of potential GDP(potential GDP or actual GDP).