Macro ch. 6 homework – Flashcards
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business cycles
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short run fluctuations in output and employment
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recession
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the period when output and living standards decline
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2007-2009
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the Great Recession occurred in
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real GDP
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a measure of the value of final output produced within a country in one year, adjusted for changing prices
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increase
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if there is an increase in the level of output, read GDP will
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nominal GDP
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measures the value of final output produced within a nation in one year, using current prices
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Real GDP doesn't change
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Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to real GDP?
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Nominal GDP doubles
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Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP?
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Nominal GDP decreases, while real GDP stays constant
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Suppose a small economy produces only HD TV sets. In year 1, 100,000 sets are produce and sold at a price of $1,200 each. In year 2, 100,000 sets are produced and sold at a price of $1,000 each. What happens to nominal and real GDP?
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inflation
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an increase in the overall level of prices in an economy
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A decrease in real GDP
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Which of the following is most likely to be an indication of higher unemployment?
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Will decrease
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Suppose a family's income increases by 5% at the same time that inflation is 6%. Then the family's living standard:
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is a relatively modern phenomenon
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Rapid and sustained economic growth of nations:
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Output per person necessarily decreases
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Suppose that real GDP increases by 5% while the population of a country increases by 7%. Then:
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Often not large, perhaps 2% per year
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Under modern economic growth, the annual average increase in output per person is:
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At most only two to three times higher than living standards in the poorest parts of the world
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Before the late 1700's, living standards in the richest part of the world were:
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purchasing power parity
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Adjusting GDP figures for the fact that prices are much lower in some countries than in others
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$48,000
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In 2011, output per person in the U.S. was about:
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investment
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When resources are devoted toward increasing future output
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Apple builds a new plant to manufacture iPads
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Which of the following is the best example of economic investment?
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households
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the principal source of savings in an economy
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More current investment and more future consumption
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Increased optimism about the future will lead to:
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Shocks
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Situations in which firms expect one thing to happen but then something else happens are called:
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Negative supply shock
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Sharply rising oil prices are most likely to lead to a:
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Negative demand shock
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If consumers become pessimistic, the economy is likely to experience a:
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Positive supply shock
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An increase in worker productivity will lead to a
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The economy will respond to demand shocks primarily through changes in output and employment
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If prices are "sticky" in the short run, then:
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A decrease in unemployment
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Because prices are sticky, positive demand shock will lead to:
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The firm will increase production to 650 computers per week and charge a price of $1000
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Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a positive demand shock if prices are inflexible?
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The firm will continue to produce 500 computers per week and charge a price of $600
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Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a negative demand shock if prices are flexible?
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The firm's inventories will increase by 200 computers per week
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Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. What happens to the firm's inventory of computers if there is a negative demand shock and prices are inflexible?
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The actual demand for goods and services ends up being more or less than what firms were expecting
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Business cycle fluctuations typically arise because:
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Tend to reduce the severity of short-run fluctuations
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Inventories held by firms:
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Real GDP will likely decrease
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Suppose that inventories are rising. We could expect that, in the future:
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Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.
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Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a negative demand shock?
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Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease
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Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?
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The so-called Great Recession in the U.S.
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Was the worst economic downturn since the Great Depression
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Government actions to increase the total demand for output in the economy
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Economists are sharply divided over how to best fight the Great Recession. The majority of economists favor the "Stimulus Solution," which involves:
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Relying on the invisible hand of the market to reallocate resources, by letting weak firms die out quickly
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Economists are sharply divided over how to best fight the Great Recession. A vocal minority of economists favor the "Structural Solution," arguing that the economy needs to undergo some structural adjustments and:
