Midterm 2 Flashcards
From 1991 to 2001 the U.S. was in a period of
expansion
what is the name of the organization that defines business cycle peaks and troughs in the United States
the National Bureau of Economic Research
The effect of a recession on a company like Whirlpool Corporation is such that
sales decline more sharply for Whirlpool as compared to firms that do not produce durable
goods.
Between 1950 and 2009, the average length of recessions in the United States was
11 months.
Which of the following explains why fluctuations in real GDP have become less volatile in the
United States since 1950?
Unemployment insurance and other government transfer programs are more prevalent since
the 1950s.
The aggregate expenditure model focuses on the relationship between ________ and
________ in the short run, assuming ________ is constant.
total spending; real GDP; the price level
The key idea of the aggregate expenditure model is that in any particular year, the level of
GDP is determined mainly by__________
the level of aggregate expenditure.
An unplanned increase in inventories results from _______
actual investment that is greater than planned investment.
Consumption is $5 million, planned investment spending is $8 million, government purchases
are $10 million, and net exports are equal to $2 million. If GDP during that same time period is
equal to $27 million, what unplanned changes in inventories occurred?
There was an unplanned increase in inventories equal to $2 million
If aggregate expenditure is less than GDP, how will the economy reach macroeconomic
equilibrium?
Inventories will rise, and GDP and employment will decline.
If inflation in the United States is higher than inflation in other countries, what will be the
effect on net exports for the United States?
Net exports will decrease as U.S. exports decrease
An increase in taxes will ________ consumption spending, and a decrease in transfer
payments will ________ consumption spending.
decrease; decrease
If disposable income increases by $500 million, and consumption increases by $400 million,
then the marginal propensity to consume is ______
0.8.
LOOK AT 14 AND 15
1
Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000,
what will the new equilibrium level of GDP be if government spending increases to 2,500?
C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500
$34,000
17) Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000,
what is the marginal propensity to consume?
C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500
0.75
The basic aggregate demand and aggregate supply curve model helps explain
short-term fluctuations in real GDP and the price level.
Which of the following is one explanation as to why the aggregate demand curve slopes
downward?
Decreases in the price level raise real wealth and increase consumption spending.
The recession of 2007-2009 made many consumers pessimistic about their future incomes.
How does this increased pessimism affect the aggregate demand curve?
This will shift the aggregate demand curve to the left.
If the economy receives an influx of new workers from immigration,
the long-run aggregate supply curve will shift to the right
An increase in the price level will
move the economy up along a stationary short-run aggregate supply curve.
Workers expect inflation to rise from 3% to 5% next year. As a result, this should
shift the short-run aggregate supply curve to the left.
Studies have shown that
firms are reluctant to cut nominal wages during recessions but instead freeze workers’ nominal wages and allow inflation to gradually reduce real wages
Interest rates in the economy have fallen. How will this affect aggregate demand and
equilibrium in the short run?
Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of
GDP will rise
Forecasts made by White House economists and economists at the Congressional Budget
Office in 2011 projected that real GDP
would not return to potential GDP until 2016.
Declines in spending on residential construction are often due to increases in interest rates.
The collapse in residential construction prior to and during the recession of 2007-2009 was due
more to ________ than to higher interest rates.
the financial crisis that began in 2007
number 28
1
In the dynamic aggregated demand and aggregate supply model, inflation occurs if _
AD shifts faster than SRAS.
If wages and intermediate prices are stickier, an increase in the price level will lead to
______ profits, ________ real GDP supplied, and, as a result, a ________ SRAS curve.
larger; larger; flatter
multiplier formula
1/(1-MPC)
