20. The original Phillips Curve trade-off between inflation and unemployment works as long as A) animal spirits do not change. B) there is inflation-rate targeting by the central bank. C) there is an independent central bank. D) exchange rates do not change. E) expectations about inflation do not change. 21. When there is stagflation, the relationship between inflation and unemployment is A) constant. B) non-existent. C) inverse. D) positive. E) negative. 22. Which is not part of the story of downward demand-pull deflation? A) consumers have less income to spend B) demand for output decreases relative to supply C) businesses face shortages of inputs D) businesses have unsold products and services E) workers have difficulty getting raises 23. Which is not part of the story of cost-push inflation? A) increasing costs push up output prices B) demand for output decreases relative to supply C) increasing quantity of money D) businesses have unsold products and services E) consumers have less income to spend 24. Which is a negative supply shock? A) a lower world price for oil. B) a lower world price for copper. C) a drought on the Prairies that reduces wheat production. D) a scientific discovery that lowers costs for solar energy. E) all of the above are negative supply shocks. 25. Short-run aggregate supply increases if A) the price level falls. B) prices for resource inputs fall. C) prices for resource inputs rise. D) the price level rises. E) government transfer payments decrease. 26. Which does not change Canada's short-run aggregate supply? A) Prince Edward Island is submerged by an offshore earthquake. B) Perfect weather all across Canada improves crop yields for all farmers. C) People around the country upgrade their human capital by reading Economics for Life. D) The Government of Canada passes new regulations reducing the imports of advanced Japanese robots by Canadian businesses. E) American consumers stop buying Canadian beef during an outbreak of Mad Cow Disease. 27. What can directly change aggregate demand and long-run aggregate supply? A) GDP in the rest of the world (R.O.W.). B) resource input prices. C) interest rates. D) value of the Canadian dollar. E) business investment. 28. When the Bank of Canada buys bonds on the bond market, this A) decreases chartered bank reserves. B) increases chartered bank loans to the public. C) lowers the price of bonds. D) fights inflation. E) decreases the money supply. 29. When money demand decreases, bond prices A) rise and the price of money rises. B) rise and interest rates fall. C) fall and the price of money rises. D) fall and interest rates fall. E) fall and interest rates rise. 30. When the Bank of Canada buys government securities, exports A) increase and imports decrease, so net exports increase. B) and imports both increase, so the effect on net exports is unclear. C) decrease and imports increase, so net exports decrease. D) and imports both decrease, so the effect on net exports is unclear. E) and imports both increase, so net exports increase. 31. When the Bank of Canada lowers the overnight rate, the exchange rate ________, imports ________, and exports ________. A) appreciates; increase; increase B) appreciates; increase; decrease C) depreciates; decrease; increase D) depreciates; decrease; decrease E) depreciates; increase; decrease 32. During the stagflation triggered by the OPEC price hikes in the 1970's, central banks increased the money supply because A) they thought the recession was caused by a negative demand shock. B) this is the best policy for a negative supply shock. C) low interest rates are appropriate policy for an inflationary gap. D) the government's inflation-rate target range was 10 to 15 percent. E) they thought a lower exchange rate was preferable to low interest rates. 33. If aggregate demand does not change, aggregate supply policies for economic growth A) increase real GDP, increase potential GDP, and raise the price level. B) increase real GDP, increase potential GDP, and lower the price level. C) increase real GDP, do not change potential GDP, and decrease the price level. D) increase real GDP, do not change potential GDP, and do not change the price level. E) fail to produce economic growth. 34. Economists often refer to supply-sider arguments as "voodoo economics" because A) Ronald Reagan and Margaret Thatcher practiced black magic. B) lower tax rates do not create incentive effects. C) lower tax rates affect only aggregate demand, not aggregate supply. D) tax cuts increase real GDP. E) in practice, tax cuts have not led to increased tax revenues. 35. There is a structural deficit when government spending is greater than revenue A) during a deflation. B) during a recessionary gap. C) during an inflationary gap. D) and the national debt is decreasing. E) when the economy is at potential GDP. 36. Due to automatic stabilizers, when real GDP increases, the A) government budget remains in balance. B) government budget deficit decreases or the government budget surplus increases. C) government budget deficit increases or the government budget surplus decreases. D) economy automatically moves to full employment. E) price level remains constant. 37. The economy is in a recession and the federal government is running a deficit. An expansion will A) automatically balance the budget. B) automatically increase the deficit. C) automatically decrease the deficit. D) leave the deficit unchanged. E) automatically create a surplus. 38. The Bank of Canada raises the overnight loans rate. In the foreign exchange market people ________ dollars and the price of the dollar ________ because the Canadian interest rate differential ________. A) sell; rises; falls B) sell; falls; falls C) buy; rises; rises D) buy; falls; rises E) buy; rises; falls 39. Which of the following central banks does not follow an inflation rate targeting strategy? A) The Bank of Canada B) The Federal Reserve (the central bank of the United States) C) The Reserve Bank of Australia D) The Bank of England E) The European Central Bank (the central bank of the Eurozone) 40. When most currency speculators expect the Canadian dollar to appreciate, the A) demand curve for Canadian dollars shifts leftward. B) supply curve of Canadian dollars shifts rightward. C) demand curve for Canadian dollars shifts rightward. D) demand curve for Canadian dollars does not shift. E) supply curve of Canadian dollars does not shift