Macro assignment ch6

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Most short-run fluctuations are the result of what type of shocks?

Demand

Spending on new machinery, tools, and factories represents---- (one word) investment.

Economic

Select all that apply Which of the following are factors that increase short-run price stickiness?

-Consumers preferring stable prices -Firms' fear of price wars

Select all that apply Which are characteristics of a well-functioning financial system?

-It makes the most productive possible investments. -It encourages saving.

Select all that apply What are the two primary topics studied by macroeconomics?

-Long-run economic growth -Short-run fluctuations in output and employment

Select all that apply Which of the following will lead to better living standards and economic growth?

-Savings -Economic investment

Select all that apply What are the reasons that the Industrial Revolution is important to modern economic growth---that is, an increase in output per person?

-The emphasis on research and development -The introduction of automation -The growth of factory production

Select all that apply Which factors associated with the Industrial Revolution supported a new period of rapid and sustained economic growth?

-The use of automation -An emphasis on research and development -Constantly improving technologies

True or false: Flexible prices help to explain how unexpected changes in demand lead to the fluctuations in GDP and employment that occur over the course of the business cycle.

False reason=Sticky prices help to explain this.

Select all that apply Which of the following are true of the prices of many goods and services in the short run?

-They are inflexible. -They are "sticky." -They are slow to change.

Select all that apply Why do economists collect and analyze economic data?

-To understand how economies operate -To learn how to improve the performance of economies

----about the future are particularly important for firms to consider.

Forecasts

______ are the principal source of savings.

Households

What is savings?

Income minus consumption

The ______ Revolution was important to modern economic growth.

Industrial

What event began the rapid and sustained economic growth that continues as a modern phenomenon?

Industrial Revolution

Which one of the following is the best reason real GDP is an important measurement for an economy?

It is a monetary measure that allows for comparison of a nation's output across time.

If demand is unexpectedly high for a prolonged period of time, what will happen to unemployment?

It will fall.

Select all that apply Which of the following are examples of financial investment?

-bonds -stocks

A(n)---- demand shock refers to a situation in which demand turns out to be higher than expected. A(n) ---demand shock refers to a situation in which demand turns out to be lower than expected. (Enter one word in each blank.)

-positive -negative

Select all that apply Which of the following are the main statistics used by economists to assess the health of the economy?

-unemployment -inflation -real gross domestic product

Which good or service generally has the most flexible prices?.

Airline tickets

Which of the following refers to a situation in which demand turns out to be lower than expected?

Negative demand shock

Since the prices of many goods and services take months to change, what type of prices are these?

Sticky prices

Which model assumes perfectly inflexible prices and wages?

The aggregate expenditures model

Which of the following best defines unemployment?

The state of a person who cannot get a job but is actively seeking work

True or false: A fear of "price wars" is one factor that increases short-run price stickiness.

True =Reason: Firms may be afraid that by cutting its price, rivals might match the price cut, potentially leading to a "price war".

Suppose that demand for hot dogs decreases and prices are flexible. Firms that produce hot dogs will experience

a fall in prices, which will induce them to decrease production and reduce the number of workers.

Business cycle fluctuations typically arise because:

actual demand ends up being lower or higher than expected

Who are the main economic investors?

businesses

Savings is important for economic growth because it _____.

can be used to increase investment activities

The main role of financial systems is to:

channel funds from savings into investments

The term "economic investment" refers to ______.

creating capital goods that have costs today but provide benefits in the future

Macroeconomics deals with the short-run variations in economic growth that make up the business

cycle

In order to promote future economic growth, consumers must ______ consumption and ______ savings in order to pay for investments.

decrease; increase

A---- (one word) shock refers to unexpected changes in the demand for goods and services.

demand

Constantly rising inventories occur when _____ is/are unexpectedly low.

demand

Most short-run fluctuations are the result---- of shocks

demand

----shocks are unexpected changes in the consumption of goods and services. ----shocks are unexpected changes in the production of goods and services. (Enter one word in each blank.)

demand -supply

An event that unexpectedly shifts the demand curve is called a(n):

demand shock

To understand how economies operate and how their performance can be improved, economists collect and analyze

economic

To understand how economies operate and how their performance can be improved, economists collect and analyze--- data.

economic

Rising inventories usually indicate an ______.

economy that slows unexpectedly

Goods that are produced in a particular period but not sold in that period:

end up in inventories

When demand is unexpectedly high, inventories will _____ as the quantity demanded _______ the factory's optimal output.

fall; exceeds

Price stickiness moderates over time because:

firms that choose a fixed-price policy in the short run do not have to stick with that policy in the long run

----prices react within seconds to changing supply and demand while sticky prices sometimes take months to change.

flexible

If output prices were fully---- , output would remain constant and unemployment levels would not change.

flexible

Prices that adjust very quickly are:

flexible prices

As a result of shocks and things not going to plan there are

fluctuations in output and employment.

An example of a good that has flexible prices is

gasoline.

If demand falls for many goods for an extended period of time, firms will be forced to cut production as inventories ______; GDP will ______; and unemployment will ______.

grow; fall; rise

Many firms that do not change their prices immediately after a change in demand will eventually do so primarily to ______.

help equalize supply with demand

The principal source of savings is:--

households

The savings of _____ make their way into the banking system and become the investment funds of ______.

households; firms

Inventories are useful because they can ______.

increase or decrease in periods when demand is unexpectedly high or low

If a family's income does not increase as fast as the prices of the goods and services that it consumes, its standard of living will decline. This scenario describes the problems with ______.

inflation

Real GDP, unemployment, and---- are the main statistics used by economists to assess the health of the economy.

inflation

The aggregate expenditures model assumes perfectly _______ prices while the aggregate demand-aggregate supply model allows for ______ prices.

inflexible; flexible

The short run in macroeconomics is the period in which:

input prices do not change at all or very much

If the demand for a good becomes unexpectedly low, the _____ of the good will increase.

inventory

Companies are able to keep outputs of a product at an optimal level, even when the level of demand rises and falls, by maintaining a(n) ----of the product.

inventory or stock

Output that has been produced but not yet sold is called----

inventory, investment, or stock

Firms try to predict future trends so that they can ______.

invest only in projects that are likely to succeed

Decisions about savings and investments are complicated because the amount of economic ______ is ultimately limited by the amount of ______.

investment; savings

Actions by businesses today that incur current costs and provide benefits in the future are called:

investments

The distinction between an increase in output versus an increase in output per person can be made when discussing ______.

modern economic growth

Economic investment represents spending on ______.

newly created capital goods

Financial intermediaries are ______.

organizations that receive funds from savers and then channel those funds to investors

Modern economic growth is best measured as an increase in ______.

output per person

In the short run, as a result of inflexible prices, economies are forced to respond to demand shocks primarily through changes in ______ and ______.

output; employment

Before the 1700s, output per person did not increase because the---- increased at a rate similar to that of the output of goods and services.

population

In the short-run, the---- of many goods and services are sticky or inflexible and unable to rapidly change. (Remember to type only one word in the blank.)

price

In the short run:

prices are sticky

If prices are fully flexible and can adjust freely to unexpected changes in demand, then the economy will

produce its optimal capacity because the quantity demanded will equal the quantity supplied.

----GDP or adjusted GDP is an important measure of output because it allows valid comparisons between different years.

real

The biggest problem with inflation is that ______. Multiple choice question.

real income may fall as nominal wages do not keep up with price changes

Suppose the demand for cars rises and prices are flexible. Firms that produce cars will experience:

rising prices, an increase in production, and an increase in employment

A well-functioning financial system helps to promote ______.

savings

A well-functioning financial system properly directs _____ into the most productive possible investments.

savings

In simple terms, any income that is not consumed is---

savings

One of the ways that government can raise living standards over time is by encouraging ______.

savings and investment

One way that the government can encourage economic growth is by encouraging:

savings and investment

A situation in which firms expect one thing to happen, but then something else happens is commonly referred to in economics as a ______.

shock

An unanticipated event that changes the demand or supply of goods and services either positively or negatively is called an economic---- . (Use one word for the blank)

shock

After a demand shock, prices are completely inflexible, or stuck, only in the very---- run.

short

Because output prices are ----, the economy is forced to respond in the short run to demand shocks primarily through changes in output and employment.

sticky

The prices of many goods are ----, or slow to change.

sticky

Prices that do not adjust rapidly to maintain equality between quantity supplied and quantity demanded are known as _______.

sticky prices

Which of the following helps to explain how unexpected changes in demand lead to fluctuations in GDP and employment?

sticky prices

Prices that are inflexible in the very short run are referred to as ______; while prices in the long run are referred to as ______.

sticky; flexible

a----shock refers to unexpected changes in the supply of goods and services. (Use one word for the blank)

supply

Unexpected changes that affect the production of goods and services are called

supply shocks

Because companies make major efforts to predict trends to decide how to invest in their business, macroeconomics ______.

takes into account expectations about the future

Flexible prices are prices:

that adjust feely through the forces of supply and demand

The effect of inflexible prices is:

the economy is forced to respond in the short run through changes in output and employment rather than changes in prices

Before the beginning of the Industrial Revolution, total output of the Roman and Chinese economies increased at ______ their population growth.

the same rate as

Expectations have a large effect on economic growth, since increased---- (one word) leads to less current investment and, subsequently, less future consumption.

uncertainty

A person who cannot get a job despite being willing to work and actively seeking work is considered .

unemployed

A supply shock is an:

unexpected change in the production of goods and services


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