Chapter 12.1

Question 1

When firms are at full capacity, real GDP equals potential GDP.

true
false

Answer 1

true

Question 2

According to real business cycle theory, economic fluctuations are a response to changes in:

real GDP

the money supply

money velocity

potential GDP

aggregate demand

Answer 2

potential GDP

Question 3

Economic fluctuations are largely a result of changes in aggregate demand.

true
false

Answer 3

true

Question 4

The economy’s long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

true
false

Answer 4

false

Question 5

If capacity utilization is 95 percent,

the unemployment rate will be below the natural rate of unemployment.

the unemployment rate will equal the natural unemployment rate.

real GDP equals potential GDP.

real GDP is below potential GDP.

workers will be laid off.

Answer 5

the unemployment rate will be below the natural rate of unemployment.