Macro Econ ch.6 – Flashcards

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question
Did Keynesian or Classical economics support laissez-faire policy?
answer
Classical economics supported laissez-faire policies because they believed business cycles were temporary glitches, which the market would correct.
question
Would Keynesian or Classical economists be more likely to emphasize the fallacy of composition?
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Keynesians are more likely to emphasize the fallacy of composition. The fallacy of composition is the false assumption that what is true for a part will also be true for the whole. Keynes carefully distinguished the adjustment process for a single market from the adjustment process for the aggregate economy, arguing that the effects differ significantly between the two.
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Is structural stagnation a Keynesian or a Classical theory?
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Structural stagnation is neither a Keynesian or Classical theory. It includes elements of both.
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If output rises by 4 percent and population rises by 3 percent, how much does per capita output increase?
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1%
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What are two ways in which long-term economic growth is measured?
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Increases in total output and per capita total output.
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What has happened to growth rates in Western Europe and the United States in recent years?
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In recent years, Western Europe and the United States have exhibited very slow growth rates.
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How does the U.S. per capita growth rate since 1940 compare to growth rates in other areas around the world?
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From 1940 to 1970, the U.S. growth rate was, on average, higher than the average world growth rate. Since 2000, the U.S. growth rate has been lower than the average world growth rate. Explanation: From 1940 to 1970 the U.S. economy grew at a rate of about 2.5 percent per year, which was lower than Western Europe and Japan but higher than many other countries. In the following decades until 2000, U.S. growth was higher than most except for India and China, which have experienced considerable growth. Since 2000 the U.S. economy has been slower than many countries, averaging about 1 percent per year in the first decade of the 2000s.
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label each of the four phases of a representative business cycle.
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Each of the four phases—peak, downturn, trough, and upturn
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How does a structural stagnation differ from a recession?
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1. A recession is a short period of declining output whereas a structural stagnation is a period of protracted slow growth and high unemployment. 2.Unemployment is due to temporary layoffs in a recession but longer-term changes in a structural stagnation.
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Which has the more pessimistic view of the problems facing the United States economy: structural stagnation theory or conventional business cycle theory?
answer
Structural stagnation theory is more pessimistic because the economy remains stuck in a period of growth that is lower than the economy's normal growth rate, whereas in a business cycle the economic downturn is followed by an upturn that returns the economy to its long-term growth rate.
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Distinguish between structural unemployment and cyclical unemployment.
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Structural unemployment is unemployment caused by the institutional structure of an economy or by economic restructuring making some skills obsolete, whereas cyclical unemployment is unemployment resulting from fluctuations in economic activity.
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Which one of the following is short-run involuntary unemployment?
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Cyclical unemployment, which results from fluctuations in economic activity, is best studied in the short-run framework.
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The business cycle is:
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the term used to describe fluctuations in output around its long-term trend.
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Nominal output is best defined as a measure of the:
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value of output at prices in the current year.
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Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:
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a decline in the level of aggregate demand.
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The Classical economists argued that:
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if unemployment occurs, it will cure itself because wages and prices will fall.
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The highest amount of output an economy can sustainably produce and sell using existing production processes and resources is called:
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potential output.
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If a country of 300 million people has a total income of $12 trillion, its per capita income is:
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$40,000.
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From 2001 to 2010, which geographic area or country had the highest per capita growth rate?
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china
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Per capita output would be certain to increase if:
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real output increases and population decreases.
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Which of the following statements best characterizes the Keynesian view of business cycles?
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Expansions and contractions of the business cycle are symptoms of underlying problems and should be dealt with through activist government policies.
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Unemployment caused by recession is called:
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cyclical unemployment.
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News Story: Workers at a car-manufacturing plant in Flint, Michigan are laid off because the economy is weak and GM cars aren't selling well. GM isn't sure when the plant will reopen. What type of unemployment describes the workers' situation?
answer
Cyclical unemployment
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The target rate of unemployment is defined as the:
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lowest sustainable rate of unemployment achievable under existing conditions.
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The U.S. economy did not recover as expected after which economic downturn?
answer
The U.S. economy did not recover as expected after which economic downturn?
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