Econ 15 – Flashcards
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When the economy goes into a recession, real GDP ________, and unemployment ________.
rises, rises
rises, falls
falls, rises
falls, falls
answer
falls, rises
A recession is a period of economic contraction rather than growth. During such periods, the economy produces fewer goods and services, thus real GDP falls and unemployment rises.
question
A sudden crash in the stock market shifts
the aggregate demand curve.
the short-run aggregate-supply curve.
the long-run aggregate-supply curve.
both the short-run and the long-run aggregate-supply curves.
answer
the aggregate demand curve.
A stock market crash, or any event that causes consumers to cut back in spending and firms to cut back in their investments, reduces aggregate demand at any given price level (that is, causes a shift in the aggregate-demand curve).
question
A change in the expected price level shifts
the aggregate demand curve.
the short-run aggregate-supply curve.
the long-run aggregate-supply curve.
both the short-run and the long-run aggregate-supply curves.
answer
the short-run aggregate-supply curve.
A change in the expected price level shifts the short-run aggregate-supply curve. If people expect lower prices in the future, they will accept lower wages (that is, supply more labor for any given price level) and set lower prices (or produce more output at any given price level). This would be reflected in a rightward shift of the short-run aggregate-supply curve.
question
An increase in the aggregate demand for goods and services has a larger impact on output ________ and a larger impact on the price level ________.
in the short run, in the long run
in the long run, in the short run
in the short run, also in the short run
in the long run, also in the long run
answer
in the short run, in the long run
An increase in aggregate demand affects output in the short run. In the long run, the increase in aggregate demand has little or no effect on output and only impacts the price level, as wages and prices adjust to bring output back toward its original level.
question
Stagflation is caused by
a leftward shift in the aggregate-demand curve.
a rightward shift in the aggregate-demand curve.
a leftward shift in the aggregate-supply curve.
a rightward shift in the aggregate-supply curve.
answer
a leftward shift in the aggregate-supply curve.
Stagflation is a period of time where output is falling and prices are rising. When firms experience an increase in the costs of production, selling goods becomes less profitable, and firms supply less output at any given price level. This causes the aggregate-supply curve to shift to the left, resulting in lower output and a higher price level.
