Chapter 6 Homework

A well-functioning financial system helps to promote economic ____ and ____.

Growth Stability

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

Inflation

____ occurs when there is a rising aggregate price level.

Inflation

Firms try to predict future trends so that they can ____ only in projects that are likely to succeed.

Invest

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

Sticky prices

Which of the following are true of the prices of many goods and services in the short run? (3)

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

A greater amount of GDP is preferred because it means that ____ have greater consumption possibilities.

Consumers

Which of the following are factors that increase short-run price stickiness? ____ preferring stable and predictable prices. Firms' fear of price wars.

Consumers

If prices are inflexible, which of the following will result in growing inventories? An unexpected ____ in demand.

Decrease

The end result of inflation is a ____ in the purchasing power of money.

Decrease

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.

Demand Supply

What type of data do economists collect and analyze in order to understand how economics operate?

Economic

The term ____ ____ refers to creating capital goods that have costs today but provide benefits in the future.

Economic investment

What are the reasons that the Industrial Revolution is important to modern economic growth? Introduction of automation made production more ____ Increases in research and development led to more ____ and innovation Introduction of factory production led to ____ rates of output

Efficient Technology Increased

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

Expectations

The biggest problem with inflation is that real income may ____ as nominal wages do not keep up with price changes.

Fall

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

Financial intermediaries

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

Flexible

A positive demand shock leads to ____ prices and ____ employment.

Higher Higher

The principal source of savings is:

Households

Discourages people from holding cash Raises the cost of making cash-required purchases and sales Can result in an increase in barter transactions

Inflation

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

Inflexible

____ are useful because they can increase or decrease in periods when demand is unexpectedly high or low.

Inventories

If demand is unexpectedly low, the ____ of goods will increase.

Inventory

Output that has been produced but not yet sold is called ____.

Inventory

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

Business cycle fluctuations typically arise because actual demand ends up being ____ or ____ than expected.

Lower Higher

The current market prices multiplied by current total output

Nominal GDP

The difference in growth rates among countries can best be explained by varying economic ____.

Policies

Before the 1700s, output per person did not increase because the ____ increased by a similar amount as the output of goods and services.

Population

A ____ demand shock refers to a situation in which demand turns out to be higher than expected. A ____ demand shock refers to a situation in which demand turns out to be lower than expected.

Positive Negative

Unlike nominal GDP, real GDP is adjusted for ____ level changes.

Price

Purchasing ____ ____ adjusts for the fact that prices are much lower in some countries than others.

Price parity

____ ____ 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.

Price stickiness

If output ____ were fully flexible, output would remain constant and unemployment levels would not change.

Prices

The ____ of many goods and services are sticky or inflexible and unable to rapidly change.

Prices

Which of the following represents the three consequences of a decline in demand in the short run with inflexible prices? No change in ____ A ___ in output A surge in ____

Prices Decline Unemployment

The value of all final goods and services produced within a country during a given period of time, adjusted for inflation

Real GDP

Modern economic growth is best measured as an increase in:

Real output per person

In simple terms, any income that is not consumed is ____.

Saved

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

Savings

An unanticipated event that changes the demand or supply of goods and services either positively or negatively is called an economic ____.

Shock

Rising inventories usually indicate an unexpectedly ____ economy.

Slowing

Which model assumes perfectly inflexible prices and wages?

The aggregate expenditures model

With modern economic growth: Society can produce a ____ variety of goods. Society can ____ more goods per person. Society can produce ____ quality of goods.

Wider Consume Higher