B5 - Change in Economic and Business Cycles

Question 1

An increase (shift right) in aggregate demand causes:

Answer 1

An increase in the price level and an increase in real GDP.

Question 2

The trough of a business cycle is generally characterized by: (“EPCTR”)

Answer 2

Trough (T in “EPCTR”)
Unused productive capacity and an unwillingness to risk investments.
EPCTR mnemonic means “Every Peak Contracts Through Recovery”

Question 3

A period which real GDP is rising and unemployment is falling is called a(n):

Answer 3

Expansion

Question 4

Within the framework of the aggregate demand/aggregate supply model, an increase in short run aggregate supply will cause:

Answer 4

Real output to expand and the price level to fall.

Question 5

If the U.S. dollar increases in value relative to the other major currencies, aggregate demand should:

Answer 5

Decrease as U.S. goods become less attractive overseas.

Question 6

A large increase in nominal wages, perhaps orchestrated by unions, would most likely result in:

Answer 6

A decrease in real GDP and an increase in the price level.

An increase in nominal wages represents an increase in input costs. When input costs increase, this shifts the aggregate supply curve to the left.

Question 7

Suppose real GDP is rising while the overall price level is falling. This scenario results in:

Answer 7

A rightward shift in the aggregate supply curve.

Question 8

The measure most often used to compare standards of living across countries or across time is:

Answer 8

Real GDP per capita

Question 9

A significant decline in the exchange rate of the U.S. dollar will have the following effect:

Answer 9

It will benefit U.S. exporters.