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ECN 211 Exam 3 ASU Hill Questions and Answers 100% Correct
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ECN 211 Exam 3 ASU Hill Questions and Answers 100% Correct
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ECN 211 Exam 3 ASU Hill Questions andAnswers 100% Correct
What is a recession? - ANSWER economic contraction; two straight quarters of
negative GDP growth
What is a boom? - ANSWER economic expansion; boom length does not
predict a recession
What are the characteristics of a good economy? - ANSWER lots of job
openings, firms are raising wages to attract workers, asset values are rising,
consumers borrow and spend money freely
What are the characteristics of a bad economy? - ANSWER new job openings
are scarce, firms not seeking new employees, asset prices fall, consumers try to
save money
business cycle - ANSWER Alternating periods of economic expansion and
economic recession
Unemployment rates in the business cycle... - ANSWER are a lagging indicator;
when a recession occurs, employment may stay low for awhile
Why do economies fluctuate? - ANSWER a change in supply or demand
Demand side recession - ANSWER Changes in willingness of consumers and
firms to spend causes fluctuations in GDP
, Supply side recession - ANSWER Rare, large events like earthquakes, plagues,
wars, oil shocks
Say's Law - ANSWER supply creates its own demand (if you buy something
someone will want to buy it)
Keynes Theory - ANSWER Recession caused by business and consumers
hoarding cash; explained the Great Depression
paradox of thrift - ANSWER If everyone saves at the same time, income falls, so
no one saves
why can't prices change to restore the economy to full production? - ANSWER
frictions
Friction #1:Sector switching - ANSWER Switching people from slowing sectors
to rising sectors takes time and resources
Friction #2: The liquidity trap - ANSWER Savings increase and investment
decrease lowers equilibrium interest rate below zero; fed can not make the
interest rate any lower-> :(
Friction #3: Deflationary cycle - ANSWER Spending falls --> prices fall --> wages
fall --> repeat
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