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1. All of the following factors are fundamental to an economy’s potential growth rate except for: *
a. Labor.
b. Capital.
c. Money supply.
d. Ideas.
2. How does inflation affect the long-run real growth? *
a. Inflation causes long-run real growth to increase.
b. Inflation causes long-run real growth to decrease.
c. Inflation does not have an effect on long-run real growth.
d. There are many other factors to consider before determining how inflation will affect long-run real growth.
3. An economy’s potential growth rate is also known as what? *
a. Solow growth rate.
b. Keynesian growth rate.
c. Inflation rate.
d. Real interest rate.
4. Which of the following is an example of a negative real shock to an economy? *
a. Consumer confidence in the future of the economy falls.
b. A drought stifles crop growth for the season.
c. The government spends more money on a war.
d. The government reduces taxes.
5. A negative real shock to the economy shifts the LRAS curve to the left, causing a(n) ____________ in growth and a(n) ____________ in inflation. *
a. Increase/increase
b. Decrease/decrease
c. Decrease/increase
d. Increase/decrease
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