Recession CORRECT ANSWER -a period of mildly falling incomes and rising unemployment ex.
-caused by a leftward shift in aggregate demand and a leftward shift in aggregate supply
Depression CORRECT ANSWER a severe period of falling incomes and rising unemployment ex. Great Depression
The Bus...
recession correct answer a period of mildly falling incomes and rising unemployment ex 2007 2009 caused by a leftward shift in aggregate demand and a leftward shift in aggregate supply
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ECN 211 ASU EXAM 3 QUESTIONS WITH CORRECT
ANSWERS
Recession CORRECT ANSWER -a period of mildly falling incomes and rising
unemployment ex. 2007-2009
-caused by a leftward shift in aggregate demand and a leftward shift in aggregate
supply
Depression CORRECT ANSWER a severe period of falling incomes and rising
unemployment ex. Great Depression
The Business Cycle CORRECT ANSWER the short-run fluctuations of the economy
Economic Fluctuations CORRECT ANSWER -are irregular and unpredictable
-most macroeconomic variables measuring income, spending, or production move in
the same direction
When Output Falls, Unemployment Rises CORRECT ANSWER when real GDP
declines the rate of unemployment rises because when firms produce fewer goods and
services, they lay off workers
Classical Dichotomy CORRECT ANSWER -the separation of economic variables into
real and nominal
-monetary neutrality is the property that changes money supply and only affects nominal
variables, not real variables
-used for long-run description of the economy
Monetary Neutrality CORRECT ANSWER *if the money supply doubles
-prices, wages and all dollar values double
-real output, employment, real interest rates, and real wages remain unchanged
-money is unlikely to be neutral in the short run, but it is likely to be neutral in the long
run
Nominal Variables CORRECT ANSWER -those variables measured in monetary units
-effected by changes in the money supply
Real Variables CORRECT ANSWER those variables measured in physical units
Short-run Economy CORRECT ANSWER -changes in nominal variables such as
money and prices impact real variables
-nominal and real variables are not independent
-changes in money can temporarily move real GDP away from its long-run trend
Model of Aggregate Supply and Aggregate Demand CORRECT ANSWER -used to
explain short-run economic fluctuations around the economies long-run trend
, -the price level (measured by the CPI/ GDP deflator) is graphed on the vertical axis
-real GDP is graphed on the horizontal axis
-the price level and output adjust to balance aggregate supply and demand
Aggregate-Supply Curve CORRECT ANSWER shows the quantity of goods and
services that firms are willing to produce and sell at each price level
Aggregate-Supply Curve Short-Run CORRECT ANSWER has an upward (positive)
slope because a change in the price level causes output to deviate from its long-run
level for a short period of time
Sticky-Wage Theory (1) CORRECT ANSWER *suppose firms/workers agree on a
nominal wage contract based on the expected price level
-if the price level falls below what the expected level firms pay the same wage but
receive lower prices for their output
-this reduces profits and causes the firm to hire less people and reduces the quantity of
goods and services supplied
Menu Cost CORRECT ANSWER the cost associated with firms changing prices
Sticky-Price Theory (2) CORRECT ANSWER -menu costs cause some firms to resist
reducing their prices when the price level unexpectedly falls
-so prices are "too high" and their sales decline, causing the quantity of goods and
services supplied to fall
Misperceptions Theory (3) CORRECT ANSWER -when the price level unexpectedly
falls, suppliers only notice that the price of their particular product has fallen
-mistakenly firms believe there has been a fall in the relative price of their product
causing them to reduce the quantity of goods and services supplied
Commonality of Aggregate-Supply Curve Short-Run Theories CORRECT ANSWER -
output rises above the natural level when the actual price level exceeds the expected
price level
-the effects will be temporary because people will adjust their expectations over time
Short-Run Aggregate-Supply Curve Shifts Left CORRECT ANSWER caused by an
increase in the cost of production (an increase in wages or oil prices) or higher expected
price level
Short-Run Aggregate-Supply Curve Shifts Right CORRECT ANSWER caused by a
decrease in the cost of production or a lower expected price level
Aggregate-Demand Curve CORRECT ANSWER -shows the quantity of goods and
services households, firms, the government and customers abroad are willing to buy at
each price level
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