24.3 Q&A – Flashcards
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Which one of the following is not true when the economy is in macroeconomic equilibrium?
answer
When the economy is in macroeconomic equilibrium, firms will have excess capacity
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1) A supply shock is...?
2) Stagflation is ...?
3) Stagflation occurs when..?
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1) a sudden increase in the price of an important resource, resulting in a leftward shift of the SRAS
2) a combination of inflation and recession
3) a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP
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1) The four components of aggregate demand are?
2) These four categories of spending are represented in the GDP formula by..?
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1) Consumption, Investments, government purchases, and net exports
2) C+I+G+NZ
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1) In the short-run, an increase of aggregate demand ....
2) ... whereas in the long-run, an automated mechanism brings...
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1) increases the price level and actual GDP beyond potential GDP
2) the economy back to potential GDP but the price level remains higher.
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The graph on the right shows the economy in long-term equilibrium at point A. Draw the lines.
1) At the new short run equilibrium, the unemployment rate will ...
2) Which of the following best explains how the economy will adjust back to long run?
3) At the new long-run equilibrium, ...?
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1) be lower
2) Short-run aggregate supply will decrease as firms and workers adjust to the new price level
3) Real GDP and the unemployment rate will remain the same, but price level will be higher compared to the initial equilibrium prior to the increase in exports
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1) Which of the following would cause a decrease in REAL GDP and, if large enough, a recession
2) Which of the following scenarios would lead to a reduction of real GDP and may even cause a recession?
3) Which of the following would cause an increase in the PRICE LEVEL (i.e. short-term inflation)?
4) Which of the following scenarios would cause an increase in the PRICE LEVEL (i.e. short-term inflation)?
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A reduction in consumer confidence that causes aggregated demand to fall
2) An increase in oil price that causes short-run aggregated supply to fall
3) A reduction in taxes that increases aggregated demand
4) Am increase in oil price that decreases short-run supply.
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Spending on housing is likely to fluctuate more than spending by households on consumers durable such as cars or furniture [..] because
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housing is very sensitive to interest rate changes, which are cyclical.
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Consider the data in the following table.
a) In 1969, actual GDP was greater than potential GDP. Which of the following explains this?
b) Even tough real GDP in 1970 was slightly greater than real GDP n 1969, the unemployment rate increased substantially. Which of the following explains...?
c) The table does not give the inflation rate. If the inflation rate for 1970 is greater than in 1969, it is likely the recession was caused by...
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a) The economy can produce a level of GDP above potential GDP in the short-term
b) Potential GDP increased but actual GDP did not, and thus there is unemployment.
c) a negative supply shock rather an increase in aggregate demand.
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Related to making the connection. Why would the cause of a recession and its severity affect the accuracy of forecasts of when the economy would return to potential GDP?
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Models used for forecasting are based on historical experience and the relationship in the model can change
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a. Match the following scenarios to the appropriate graph
i - An increase in the expected price level
ii - an increase in households expectations of future income
iii - A decrease in the price of am important natural resource
iv - A decrease in a firm's expectation of the future profitability
b. Match one or more of the four graphs to each of the following scenarios.
i. The economy experiences a recession
ii. The economy experiences short-term inflation
iii. The economy experiences stagflation
answer
a.
i - 1 | An increase in the expected price level (movement upwards the curve)
ii - 4 | an increase in households expectations of future income
iii - 2 | A decrease in the price of am important natural resource
iv - 3 | A decrease in a firm's expectation of the future profitability
b.
i. - 1,3 | The economy experiences a recession
ii. 1,4 | The economy experiences short-term inflation
iii. - 1| The economy experiences stagflation
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Suppose that initially, the economic equilibrium occurs at Point A. If there is increased pessimism about the future of the economy..
1) the AD curve will shift
2) The new short-run macroeconomic equilibrium occurs at
3) Long-run adjustment will shift the SRARS
4) the new long-run macroeconomic equilibrium occurs at
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1) AD-0 to AD-1
2) Point B
3) SRAS-0 to SRAS-1
4) Point-B
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1) If the economy adjust through the automatic adjustment mechanism, then a decline in aggregate demand causes
2) f the economy is initially at full-employment equilibrium, then am increase in aggregate demand causes [x] in real GDP in the short-run and [Y] in the price level in the long-run
3) Which of the following is usually the cause of stagflation?
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1) A recession n the short run and a decline in the price level in the long-run.
2) increase / increase
3) a supply shock as
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What has contributed to the slow growth in employment in recent years?
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Both A and B.
