Economic 3

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thestudy of aggregate economic behavior is referred to as
alternating periods of growth and contraction
business cycles
which of the following is a basic measure of macroeconomic performance
output growth unemploymentinflation
which is of the following is a downturn in the business cycle
higher unemployment rates
which of the following is true during the expansionary phase of the business cycle
real GDP increases
as the economy falls from the peak to the trough of the business cycle
cyclical unemployment should increase and real GDP should decline
the total value of goods and services produced within a nations boarders measured in constant prices refers to the
real GDP
a decline in an economy's level of output can lead to
a lower standard of loving
a decline in the real gdp for at least two consecutive quarters is referred to as
which of the following is likely if an economy is in a recession or headed for 1"?
a decrease in consumer confidencea decrease in the rate of inflationan increase in unemployment
if the population of a country is 1000000 people its labor force consists of 800000 and 80000 people are unemployed the unemployment rate is
unemployment rate
unemployment rate= number of unemployed /size of labor force =80000/80000 = 10%
a stock person who is laid off by a department store because retail stores across the country have decreased is_______________unemployed.

full employment in the U.S. economy means
the total employment rate has been reduced to zero
inflation is defined as
an increase in the average level of prices
inflation functions as a redistribution mechanism because people
have different abilities and incomes
real income
is real income adjusted for inflationis the amount of money income measured in constant dollars
reflects the purchasing power of money

the consumer price index
a measure of changes in the average price of consumer goods
which of the following are internal market forces
population spending behavior
external shocks to the economy
disruptions in trade
war, natural disasters
which of the following are policy levers
government regulation, tax policy, availability of money
which of the following concepts is consistent with classical theory
self adjustment of the economy\flexible priceslack of goverment intervention
the classical view of the economy is built on the concept
flexible wages and pricesself adjustment
says law sates that
supply creates its own demand
according to Keynes
small disturbances in prices or output were likely to be magnified by the market
government intervention in the economy is necessary at times
the economy is fairly unstable
any influences on macro outcomes must be transmitted through
aggregate supply and demand
the various quantities of output that all market participants are willing and able to buy at alternative levels in a given time period
aggregate demand
which of the following is not a reason for the downward slope of the aggregate demand curve
the income effect
the aggregate supply curve is upward sloping because
a higher price means wider profit margins and more incentive to produce
in macro equilibrium
buyers and sellers intentions are compatible
even if the economy is in macro equilibrium it is possible that the equilibrium
output is not optimal
which of the following is likely to occur if the U.S. government significantly increases spending o military weapons
aggregate demand will increase or shift to the right
if an economy is experiencing a recession the keynesian approach to achieving full employment is to
employ expansionary fiscal policy including tax cuts and more government spending
Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should
cut taxes and or increase government spending
which of the following ia an example of fiscal policy
a change in the government spending on goods and services;a change in taxes that affects consumer spending;a change in taxes that affects investment spending
monetary policy involves
the use of money and interest rates to influence the macro economy
a supply side policy approach to achieve both lower prices and full employment would be to
decrease marginal tax rates and reduce government regulation
fiscal policy involves
the use of government spending and taxes
inflation occurs when
aggregate demand increases faster than output
the four components of aggregate demand are
consumption,investment, government spending, and net exports
the largest component of aggregate demand for the U.S. economy is
expenditures on new plant and equipment plus changes inventories is known as
net exports are
negative if american exports less goods that they import
which of the following will occur if aggregate demand is below full employment gdp
the marginal propensity to consume
the percentage of disposable income spent on consumption
the multiplier is equal to
if consumers spend 80 cents out of every dollar received
multiplier =1/1-.80 =1/.2 =5
assume an MPC of .75. the change in total spending for the economy as a result of $20 billion new government spending injection would be
multiplier=1/1-.75 =4total change in spending= 4x 20 billion =80 billion
when we compare the total impact o aggregate demand of a 100 billion increase in government expenditures and a 100 billion decrease in taxes we find that the
increase on governt expenditures will have a greater total impact on aggregate demand
fiscal restraint
is used to reduce inflationary pressures results in leftward shift of aggregate demand includes tx hikes and spending cuts
includes the most liquid forms of money;the narrowest definition of money supply;largely consists of transactions-account balances
one of the main functions of the bank is
creating money
if the banking system has a required reserve ratio of 25% then the money multiplier is
money multiplier=1/.25 = 4
when money serves as a mechanism for transforming current income into future purchases it is functioning as a
store of value
which of the following defines the money multip[lier
the term fractional reserve refers to
reserves being a fraction of total deposits
a firms variable cost
the level of output
which of the following are constraints on the ability of the banking system to create new money
willing borrowers;willing lenders;government regulation
the alternate measures of the money supply such as m1 m2 etc are all intended to reflect
variations in liquidity and accessibility of assets;whether deposits are domestic or international;how often depositors use the accounts
in the case of wide spread unemployment in the economy fiscal policy would call for the government running s=a budget
the policy tools
fiscal tax cuts changes in government spendingmonetary open market operations reserve requirements discount ratessupply side tax incentives for investment and saving deregulation education and training immigration trade policy
automatic stabilizer
federal expenditure or revenue item that automatically responds counter cyclically to changes in national income , unemployment benefits income taxes
fiscal year
the 12th month period used for accounting purposes : begins October 1 for federal government
when the economy suffers from both inflation and unemployment at the same time
modern Keynesian's acknowledge that monetary policy might help
increases in the money supply may lower interest rates and give investment spending a boost
believe the only response to a recession is patience
supply siders
-emphasize the need to improve production incentives.-urge cuts in marginal tax rates on investment and labor-find ways to reduce government regulation
four obstacles to policy success
goal conflicts ;measurement problems;design problems;implementation problems
in designing policy policy makers must depend on economic forecasts that is
informed guesses about what the economy will look like in the future

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