ECON 201 - Macroeconomics Unit #2

Using the research quoted in this article, compare the decline of the global economy in the first year of the Great Recession to the decline in the first year of the Great Depression.

"Globally we are tracking or even doing worse than the Great Depression."

Identify the Qdx, Qsx, and the quantity exchanged (the quantity bought and sold) during the shortage. How will the Px, Qdx, and Qsx change to reach equilibrium?

A shortage occurs when the quantity demanded, Qdx, is greater than the quantity supplied, Qsx, as a result of the price being too low. In a shortage, the quantity exchanged is the quantity supplied, Qsx. The price of a good will rise such that it will reach equilibrium.

What is the difference between an endogenous and an exogenous factor of supply?

An endogenous factor of supply is the change in quantity supplied as a result of a change in price while an exogenous factor is an outside factor that will change the quantity supplied at any given price

How do the terms increase in supple and decrease in supply relate to shifts in the supply curve?

An increase in supply is represented by a rightward shift in the supply curve while a decrease in supply is represented by a leftward shift in the supply curve

Demonstrate how an increase in the expected future price of a product affects both demand and supply curves, and the market equilibrium price.

An increase in the expected future price will cause an increase in demand and a decrease in supply. This will cause the equilibrium price to increase.

A decrease in supply would cause the a. Px to increase b. Px to decrease c. Pe to increase d. Pe to decrease

C

An increase in demand would cause the a. Px to increase b. Px to decrease c. Pe to increase d. Pe to decrease

C

The price of the product increasing would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

C

Identify the Qdx, Qsx, and the quantity exchanged (the quantity bought and sold) during the surplus. How will the Px, Qdx, and Qsx change to reach equilibrium?

A surplus occurs when the quantity supplied, Qsx, is greater than the quantity demanded, Qdx, as a result of the price being too high. In a surplus, the quantity exchanged is the quantity demanded, Qdx. The price of a good will fall such that it will reach equilibrium.

A decrease in demand would cause the a. Px to increase b. Px to decrease c. Pe to increase d. Pe to decrease

D

An increase in supply would cause the a. Px to increase b. Px to decrease c. Pe to increase d. Pe to decrease

D

The price of the product declining would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

D

Which of the following variables are all included in the LEI? a. first-time unemployment claims, the current inflation rate, and consumer expectations for business conditions. b. manufacturers' new orders for consumer goods, the current unemployment rate, and stock market prices. c. the current unemployment rate, the ISM index, and the money supply. d. building permits, manufacturers' new orders for capital goods, and the ISM index

D

What is the difference between supply and quantity supplied?

Supply is the amount of a product producers supply while quantity supplied is the amount the producers are willing to supply at any given price

What department or agency calculates GDP? Is this part of the federal government? How often is GDP data announced?

The Bureau of Economic Analysis calculates GDP. The Bureau of Economic Analysis is part of the federal government. GDP data is announced every three months.

When did the Great Depression begin? When did the economy reach the trough? How long did that downturn last in terms of months? When did the economy finally return to another peak?

The Great Depression began in August 1929 and the economy reached the trough in March 1933. The Great Depression lasted 43 months. The economy finally returned to another peak in May 1937.

What is the "leading economic index"? Using the most recent announcement, how has the LEI changed recently? How often is the LEI announced?

The Leading Economic Index is used to predict peaks and troughs in the business cycle. The LEI has increased 0.2 percent in April to 112.1, following a 0.3 percent increase in March and a 0.2 increase in February. The LEI is announced every month.

What department or agency calculates business cycles? What is the NBER? Is the NBER part of the federal government?

The National Bureau of Economic Research calculates business cycles. The NBER is part of the federal government.

Describe the recession of 2001. How long did it last? How deep was this recession?

The Recession of 2001 lasted 8 months. The Real GDP declined by .3%.

What determines the positive slope of the supply curve?

The amount the price increases as the quantity supplied increases

What group/organization calculates the LEI? Is this group part of the federal government?

The conference board calculates the LEI. The conference board is not part of the federal government.

What was the drop in real GDP during the Great Depression? What was the nation's unemployment rate before the Great Depression began? What was the nation's unemployment rate when it reached the trough?

The drop in Real GDP during the Great Depression was 27%. The nation's unemployment rate before the Great Depression began was 3% and the nation's unemployment rate when it reached the trough was 25%.

What was the increase in real GDP for 2018? Using the most recent announcement from the BEA, how has real GDP changed recently? Using that data, where is the U.S. economy in terms of a business cycle?

The increase in Real GDP for 2018 is 2.9%. The Real GDP has increased by 3.2% in the first quarter of 2019. The U.S. Economy is in the recovery/expansion phase of the business cycle

Describe the most recent recession. When did it begin (month/year)? When did it end (month/year)? What was the cause of this recession? How deep was this recession? Why was this recession called the "Great Recession"?

The most recent recession began in December 2007 and ended in June 2009. This recession was caused by Financial Services. The Real GDP declined by 5.1%/ This was called the Great Recession because it lasted longer than normal and saw a greater decline than normal recessions.

Name and describe the four phases of the business cycle. Are all business cycles similar in length and severity?

The peak is the point at which an economy turns from expansion to recession. The recession is the period of economic downturn where output and employment are falling. The trough is the point where the economy turns from recession to expansion. The expansion is the period of economic upturn when output and employment are rising. The expansion is much larger and much longer than the recession.

Describe the recession of 1990-1991. How long did it last? How deep was this recession? What was different about this recession from previous downturns?

The recession fo 1990-1991 lasted 8 months. The Real GDP declined by 1.4%. Even white collar workers were afraid of losing their jobs.

What was the standard view of how to handle an economic downturn at the beginning of the Great Depression?

The slump should be slowed to run its course

What are the two definitions of a recession? Describe the traditional/old definition and the modern/new definition. Why was the old definition replaced? Explain.

The traditional/old definition of depression is at least two consecutive quarters of declining Ream GDP. The modern/new definition of recession is a significant decline in economic activity: Production, employment, and income. The old definition was replaced to account for declines due to unreal circumstances.

Compare the trend of world industrial output after the first year of the Great Recession to world industrial output after the first year of the Great Depression.

The world industrial output increased after the first year of the Great Depression and the world industrial output decreased after the first year of the Great Depression.

State the law of supply verbally

There exists a positive or direct relationship between the price of a good and the quantity supplied of a good, ceteris paribus

When do we move along the supply curve? When do we shift the supply curve?

We move along the supply goos when the quantity supplied changes as a result of the change in price while we shift the supply curve when the quantity supplied of a good or service changes at any given price

What is supply?

refers to the number of units of a good or service business firms in an industry are willing and able to offer for sale at various prices over a given period of time

Input prices declining would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

A

Technology advancing would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

A

The marker having a shortage would cause the a. Px to increase b. Px to decrease c. Pe to increase d. Pe to decrease

A

The number of producers increasing would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

A

The supply curve would shift to the left if: a. the number of producers declined. b. income declined in this market, and the product is a normal good. c. there was a decrease in the prices of inputs used to produce this good. d. the price of the product decreased.

A

If we see a market where both the Pe and Qe decrease, we can conclude there was a/an in this market. a. increase in demand b. decrease in demand c. increase in supply d. decrease in supply

B

Producers expecting the future price to increase would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

B

The market having a surplus would cause the a. Px to increase b. Px to decrease c. Pe to increase d. Pe to decrease

B

The price of a substitute in production increasing would cause an a. increase in supply b. decrease in supply c. increase in quantity supplied d. decrease in quantity supplied

B

When there is a shortage in a market: a. the Qsx will decline in the future. b. the quantity exchanged during the shortage is the Qsx. c. the Qsx is greater than the Qdx. d. the Qdx will increase in the future.

B

Define Gross Domestic Product. What is the difference between nominal GDP and real GDP? Which of the two measures shows a year's production expressed in that year's prices? Which of the two has been adjusted for inflation?

Gross Domestic Product is the total value of all final goods and services produced in the economy during a given period. Nominal GDP is the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced while Real GDP is adjusted for inflation.

What determines the position of the supply curve?

How much producers are willing to supply at any given price

What are the ten specific variables that are used in this index? How would a change in each indicator predict an increase in future real GDP? ...a decrease in future real GDP?

If the average weekly hours in manufacturing increase, the Real GDP will likely increase. If the average weekly initial claims for unemployment insurance decrease, the Real GDP will likely increase. If manufacturers new orders for consumer goods and materials increase, the Real GDP will likely increase. If the ISM index of new orders increase, the Real GDP will likely increase. If manufacturers new orders for non defense capital goods excluding aircraft orders increase, Real GDP will likely increase. If Building Permits for new private housing units increase, Real GDP will likely increase. If Stock Prices for 500 common stocks increase, Real GDP will likely increase. If the Leading Credit Index decreases, Real GDP will likely increase. If the Interest Rate Spread Increases, Real GDP will likely increase. If the Average Consumer Expectations for Business Conditions increase, Real GDP will likely increase.

Given a fixed supply curve in a market, what will be the impact of a decrease in demand (or a leftward shift in demand)? How will the Pe and Qe change?

If there is a decrease in demand, the equilibrium price, Pe, and the equilibrium quantity, Qe, will both decrease

Given a fixed demand curve in a market, what will be the impact of an decrease in supply (or a leftward shift in supply)? How will the Pe and Qe change?

If there is an decrease in supply, the equilibrium price, Pe, will increase while the equilibrium quantity, Qe, will decrease

Given a fixed supply curve in a market, what will be the impact of an increase in demand (or a rightward shift in demand)? How will the Pe and Qe change?

If there is an increase demand, the equilibrium price, Pe, and the equilibrium quantity, Qe, will both increase

Given a fixed demand curve in a market, what will be the impact of an increase in supply (or a rightward shift in supply)? How will the Pe and Qe change?

If there is an increase in supply, the equilibrium price, Pe, will decrease while the equilibrium quantity, Qe, will increase

What is the difference between increase in supply and increase in quantity supplied? What is the difference between decrease in supply and decrease in quantity supplied?

Increase in supply is producers producing a larger quantity of a good than before at any given price while increase in quantity supplied is producers producing a larger quantity of a good at a higher price. Decrease in supply is producers producing a smaller quantity of a good than before at any given price while decrease in quantity supplied is producers producing a smaller quantity of a good at a lower price.

In contrast, how did countries react to the beginning of the Great Recession?

Interest rates were slashed and governments used temporary increases in spending and reduction in taxes.

What is market equilibrium? Find the Pe and Qe. What do we know about the Qdx and Qsx at the equilibrium price, Pe?

Market Equilibrium is the price, Pe, where the quantity demanded of x, Qdx, equals the quantity supplied of x, Qsx, and that quantity is Qe

Do most economists believe countries handled the Great Recession correctly, or do they believe countries should have let the world economy continue to decline?

Most economists believe that countries handled the Great Recession correctly.

list the five determinants of supply. Explain how a change in each determinant of supply will cause the supply curve to shift to the right or shift to the left.

Number of producers. If there is an increase in the number of producers, the supply curve will shift to the right. If there is a decrease in the number of producers, the supply curve will shift to the left. Technology. If there is an increase in technology, the supply curve will shift to the right. If there is a decrease in technology, the supply curve will shift to the left. Input Prices. If there is a decrease in input prices, the supply curve will shift to the right. if there is an increase in input prices, the supply curve will shift to the right. Price of a Substitute. If the price of a substitute decreases, the supply curve will shift to the right. If the price of a substitute increases, the supply curve will shift to the left. Expected future price. If the future price is expected to decrease, the supply curve will shift to the right. if the future price is expected to increase, the supply curve will shift to the left.

What is the one endogenous factor of supply?

Price

What did economists in the 1930s mean when they described the economy as "self-regulating"?

Problems such as unemployment are resolved without government intervention, through the working of the invisible hand.

How did some countries respond to the beginning of the Great Depression? What actions did these countries take that made the depression worse?

Raised interest rates in the face of the slump, while government cut spending and raised taxes.