ch 26 short run fluctutations

Question 1

economic fluctuations/ business cycles

Answer 1

short run changes in the growth of real gdp

Question 2

economic expansions

Answer 2

periods between recessions

Question 3

3 properties of economic fluctuations

Answer 3

1. co movement of many aggregate machroeconoic variables
   - ex consumption and investment grow together
2. limited predictability of fluctuations
   - ex dont follow a cycle
3. persistence in the rate of economic growth

great depression followed all of these

Question 4

what amplifies shifts in labor demand

Answer 4

rigid downward rages

Question 5

three schools of thought on the sources of fluctuations on aggregate economic fluctuations

Answer 5

1. real business cycle theory: emphasizes changing productivity and technology
2. keynesian theory: emphasizes changing expectations about the future
3. financial and monetary theories: emphasizes changes in prices and interest rates

Question 6

animal spirits/ sentiments

Answer 6

part of keynesian,
animal spirits: psychological factors that lead to changes in the mood of consumers and businesses
sentiments: changes in expectantions and in the perceived uncertainty facing firms and households
causes a decrease in investment

Question 7

shifts in demand curve during recession: short run

Answer 7

initial shock to labor demand
(optional: wage rigidity causes companies to sharply cut employment)
second leftward shift due to multiplierse

Question 8

equilibirum in the medium run

Answer 8

labor demand curve shifts back right due to market forces
-first houses are built, no need for labor, then theyre all sold and need labor once again
demand curve shifts due to govt policies
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