Ch 10 Part 1

Question 1

The version of Okun’s law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate fell by 1 percentage point over a year, Okun’s law predicts that real GDP would:

Answer 1

increase by 5 percent.

Question 2

A difference between the economic long run and the short run is that:

Answer 2

demand can affect output and employment in the short run, whereas supply is the
ruling force in the long run.

Question 3

Over the business cycle, investment spending ______ consumption spending.

Answer 3

is more volatile than

Question 4

The aggregate demand curve tells us possible:

Answer 4

combinations of P and Y for a given value of M

Question 5

Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity.

Answer 5

weaker; stronger

Question 6

Okun’s law is about the ______ relationship between real GDP and the ______.

negative; unemployment rate
positive; unemployment rate
positive; inflation rate
negative; inflation rate

Answer 6

negative; unemployment rate

Question 7

Alan Blinder’s survey of firms found that the theory of price stickiness accepted by the most firms was:

Answer 7

coordination failure.

Question 8

Business cycles are:

Answer 8

irregular and unpredictable.

Question 9

Suppose real GDP has been growing at 3 percent per year. Between last year and this year, the unemployment rate rose by 2 percentage points. This would suggest that real GDP growth:

Answer 9

decreased by 1 percent.

Question 10

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P.

Answer 10

higher; lower

Question 11

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

Answer 11

demand for real balances per unit of output

Question 12

The full-employment level of output (Y-bar) is:

Answer 12

the level of output at which the unemployment rate is at its natural level.

Question 13

The long run refers to a period:

Answer 13

during which prices are flexible

Question 14

Recessions typically, but not always, include at least ______ consecutive quarters of declining real GDP.

Answer 14

two