ECON-E 202 Chapter Notes - Chapter 13: Stock Market, Money Supply, Government Spending

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amethystbear726

9 Apr 2017

School

Department

Economics

Course

ECON-E 202

Professor

James Self

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Document Summary

Fluctuations in the growth rate of real gdp around its trend growth rate. Recession: a significant, widespread decline in real income and employment. Shows all the combinations of inflation and real growth that are consistent with a specified rate of spending growth (m + v: m + v = inflation + real growth. Straight line with a slope of -1: one percentage point increase in real growth reduces inflation by 1 percentage point. Shifts in the aggregate demand curve: caused by an increase/decrease in m or v. Solow growth rate: an economy"s potential growth rate, the rate of economic growth that would occur given flexible princes and the existing real factors of production. Long run aggregate supply curve: vertical line at the solow growth rate. Real shocks: also called a productivity shock, is any shock that increases or decreases the potential growth rate, positive real shock - shifts the lras to the right.

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1. In the long run, when prices are perfectly flexible:

a. aggregate supply is vertical and a market economy is self-correcting.

b. a market economy cannot self-correct.

c. government will be required to set prices to maintain equilibrium.

d. changes in aggregate demand cause equilibrium real GDP to change.

2. An increase in household wealth when the SRAS curve is upward sloping:

a. leads to an increase in the price level but has no impact on real GDP

b. has no impact on the price level but leads to an increase in real GDP

c. leads to an increase in both the price level and real GDP

d. has no impact on the price level or real GDP

3. In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:

a. an increase in the full-employment level of real GDP

b. a recessionary gap

c. a decrease in the price level

d. an increase in the price level

4. The vertical long-run aggregate supply curve implies that:

a. changes in aggregate demand will not affect the price level

b. the short-run aggregate supply curve is also vertical

c. natural or full-employment real GDP does not depend on the price level, in the long run

d. natural or full-employment real GDP is the same as the equilibrium real GDP in the short run

5. A rightward shift of the long-run aggregate supply curve illustrates:

a. economic growth

b. a recessionary gap

c. an inflationary gap

d. a decrease in natural real GDP

6. When the economy is in a recessionary gap

a. there is a surplus of labor

b. there is a shortage of labor

c. it is producing a real GDP level that is greater than natural real GDP

d. the unemployment rate is less than the natural unemployment rate

7. If the actual unemployment rate is less than the natural unemployment rate:

a. a recessionary gap exists and wages are likely to rise

b. an inflationary gap exists and wages are likely to rise

c. a recessionary gap exists and wages are likely to fall

d. an inflationary gap exists and wages are likely to fall

8. An economy in long-run equilibrium is producing:

a. a level of real GDP that is greater than its natural real GDP

b. where both the price level and real output are maximized

c. a level of real GDP equal to its natural real GDP

d. in the vertical range of aggregate demand.

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Q17. The term "recession" refers to a
a. period of decline in real GDP over two consecutive quarters
b. fall in the general level of real wages over two consecutive quarters
c. fall in the CPI over two consecutive quarters
d. fall in the rate of increase of real per capita GDP

Q18. Cost changes generally lag behind price changes during the business cycle.
a. true
b. false

Q19. Measuring the intensity of the business cycle requires
a. adding seasonal variations to cyclical fluctuations
b. adding seasonal variations and random fluctuations to cyclical changes
c. eliminating seasonal variations and identifiable random forces from the data
d. multiplying the trend by the cyclical fluctuations

Q20. During the contraction phase of the business cycle,
a. prices fall relative to costs, reducing profit margins
b. costs fall relative to prices, reducing profit margins
c. prices fall relative to costs, increasing profit margins
d. costs fall relative to prices, increasing profit margins

Q21. The aggregate supply curve is
a. a curve showing the quantities of total output that business will purchase for investment at various price levels
b. a curve showing the quantities of total output that will be offered for sale at various price levels
c. a curve showing the quantities of goods and services that households will provide at various price levels
d. one point on the aggregate expenditure curve

Q22. The aggregate demand curve is the sum of individual demand curves in the economy.
a. true
b. false

Q23. The classical economic doctrine held that the normal equilibrium position of the economy was one of
a. rising interest rates
b. some unemployment
c. rising prices
d. full employment

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48. In order to be classified officially as unemployed, a personmust
a. Be out of work and available for work, need not be activelylooking for work
b. Be out of work, actively looking for work, and currentlyavailable for work
c. Only be out of work
d. Have been out of work for over 3 months

49. If exports rise and imports fall, (ceteris paribus)
a. Aggregate expenditure falls
b. Aggregate expenditure rises
c. Aggregate expenditure remains the same
d. Net exports are irrelevant when considering aggregateexpenditure

50. Over the past 25 years, the U.S. has had a net trade____________; which means
the U.S. has exported _________ it has imported.
a..Deficit; less than
b. Balance; the same amount as
c. Deficit; more than
d. Surplus; more than

43. If our economy was experiencing inflation, which of thefollowing would move us
back toward macro equilibrium?
a. Lower Taxes
b. Increase Investment
c. Reduce Net Exports
d. Increase Consumer Spending

42. If our economy slumped into a recession, which of the followingwould help move us back toward macro equilibrium?:
a. Reduce Taxes
b. Reduce Investment
c. Reduce Net Exports
d. Reduce Government Purchases

34. Economists consider that we are at full employment whenthe
a. Officially reported unemployment rate is at the naturalunemployment rate, about 5%
b. Natural unemployment rate is equal to 10 %.
c. Officially reported unemployment rate is zero.
d. Natural unemployment rate is equal to 0 percent.

35. Beginning at macro equilibrium, inflation occurs becauseaggregate
a. supply increases more rapidly than aggregate demand.
b. supply and aggregate demand increase at the same rate.
d. supply and aggregate demand decrease at the same rate.
c. demand increases more rapidly than aggregate supply.

36. If the U.S. government decreases significantly its expenditureon defense, then, ceteris paribus, the aggregate
a. demand curve shifts rightward.
b. demand curve shifts leftward.
c. supply curve shifts rightward.
d. supply curve shifts leftward.

37. According to Keynesian economics, which of the following ismost likely to raise the unemployment rate?
a. Aggregate demand increases.
b. Aggregate demand decreases.
c. Aggregate supply increases.
d. None of the above is likely to raise the unemploymentrate.

38. If a government has a budget deficit, it must
a. raise the real interest rate.
b. borrow in the financial market.
c. decrease taxes.
d. Increase spending

39. The U.S. gross public debt is approximately ________________which is
approximately ______________ % of U.S. GDP.

40. Under the U.S. Constitution, the ultimate power for determiningfiscal policy is:
e. The President
f. The Congress
g. The Council of Economic Advisors
h. The State governments

32. The Marginal Propensity to Consume (MPC) is:
e. The rate at which consumption changes over time
f. The percentage of an additional dollar of disposable income thatwill go toward additional consumption
g. The average percentage of total income one consumes
h. The average percentage of total income one saves

ECON-E 202 Chapter Notes - Chapter 13: Stock Market, Money Supply, Government Spending

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