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ECN 211 EXAM 3 ASU LATEST ACTUAL EXAM 200 QUESTIONS AND CORRECT DETAILED ANSWERS
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ECN 211 EXAM 3 ASU LATEST ACTUAL EXAM 200 QUESTIONS AND CORRECT DETAILED ANSWERS
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ECN 211 EXAM 3 ASU LATEST ACTUAL EXAM 200 QUESTIONSAND CORRECT DETAILED ANSWERS
Recession - 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 - ANSWER: a severe period of falling incomes and rising unemployment
ex. Great Depression
The Business Cycle - ANSWER: the short-run fluctuations of the economy
Economic Fluctuations - ANSWER: -are irregular and unpredictable
-most macroeconomic variables measuring income, spending, or production move in
the same direction
When Output Falls, Unemployment Rises - ANSWER: when real GDP declines the rate
of unemployment rises because when firms produce fewer goods and services, they
lay off workers
Classical Dichotomy - 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 - 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 - ANSWER: -those variables measured in monetary units
-effected by changes in th emoney supply
Real Variables - ANSWER: those variables measured in physical units
Short-run Economy - 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 - 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 - 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 - 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) - 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 - ANSWER: the cost associated with firms changing prices
Sticky-Price Theory (2) - 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) - 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 - 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 - 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 - ANSWER: caused by a decrease in
the cost of production or a lower expected price level
Aggregate-Demand Curve - 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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