question
(Consider This) The U.S. recession that occurred in 2008 and 2009 represented a case where
A. government policy intervention effectively offset the negative demand shock and minimized the effects on output and employment.
B. prices were relatively sticky and most of the impact was on total output.
C. prices were relatively flexible, minimizing the impact on total output and employment.
D. prices were somewhat flexible, so the impact of the demand shock was felt about the same in terms of price and output changes.
A. government policy intervention effectively offset the negative demand shock and minimized the effects on output and employment.
B. prices were relatively sticky and most of the impact was on total output.
C. prices were relatively flexible, minimizing the impact on total output and employment.
D. prices were somewhat flexible, so the impact of the demand shock was felt about the same in terms of price and output changes.
answer
B. prices were relatively sticky and most of the impact was on total output.
question
For many decades prior to the Industrial Revolution, the standards of living in England and China
A. increased steadily.
B. declined substantially.
C. remained roughly constant.
D. increased many times over.
A. increased steadily.
B. declined substantially.
C. remained roughly constant.
D. increased many times over.
answer
C. remained roughly constant
question
Inventories held by firms
A. tend to reduce the severity of short-run fluctuations.
B. are the result of positive demand shocks.
C. tend to increase the severity of short-run fluctuations.
D. are held by businesses because they are a costless way of responding to demand shocks.
A. tend to reduce the severity of short-run fluctuations.
B. are the result of positive demand shocks.
C. tend to increase the severity of short-run fluctuations.
D. are held by businesses because they are a costless way of responding to demand shocks.
answer
A. tend to reduce the severity of short-run fluctuations.
question
Refer to the graphs. Suppose a firm is currently producing 500 computers per week and charging a price of $1,000. How will the firm respond to a positive demand shock if prices are inflexible?
A. The firm will cut production to 300 computers per week and charge a price of $600.
B. The firm will cut production to 300 computers per week and charge a price of $1,000.
C. The firm will continue to produce 500 computers per week and charge a price of $1,000.
D. The firm will increase production to 650 computers per week and charge a price of $1,000.
A. The firm will cut production to 300 computers per week and charge a price of $600.
B. The firm will cut production to 300 computers per week and charge a price of $1,000.
C. The firm will continue to produce 500 computers per week and charge a price of $1,000.
D. The firm will increase production to 650 computers per week and charge a price of $1,000.
answer
D. The firm will increase production to 650 computers per week and charge a price of $1,000.
question
Shocks to the economy occur
A. because most economic behavior is unpredictable.
B. when expectations are unmet.
C. whenever government implements fiscal or monetary policy.
D. whenever the price level changes.
A. because most economic behavior is unpredictable.
B. when expectations are unmet.
C. whenever government implements fiscal or monetary policy.
D. whenever the price level changes.
answer
B. when expectations are unmet
question
Shocks to the economy occur when
A. actual economic events do not match what people expected.
B. stock prices rise by more than 10 percent per year.
C. government takes a more active role in the economy.
D. prices are flexible.
A. actual economic events do not match what people expected.
B. stock prices rise by more than 10 percent per year.
C. government takes a more active role in the economy.
D. prices are flexible.
answer
A. actual economic events do not match what people expected.
question
The average number of months between price changes for gasoline is
A. 0.6.
B. 1.8.
C. 1.0.
D. 0.2.
A. 0.6.
B. 1.8.
C. 1.0.
D. 0.2.
answer
A. 0.6
question
The term "shock"
A. always refers to an unexpectedly bad event.
B. does not tell us whether what has happened is unexpectedly bad or unexpectedly good.
C. always refers to a decrease in real GDP and an increase in unemployment.
D. always refers to an increase in inflation.
A. always refers to an unexpectedly bad event.
B. does not tell us whether what has happened is unexpectedly bad or unexpectedly good.
C. always refers to a decrease in real GDP and an increase in unemployment.
D. always refers to an increase in inflation.
answer
B. does not tell us whether what has happened is unexpectedly bad or unexpectedly good.
question
There is a trade-off between
A. current production and future consumption.
B. consumption and spending.
C. saving and investment.
D. current consumption and future consumption.
A. current production and future consumption.
B. consumption and spending.
C. saving and investment.
D. current consumption and future consumption.
answer
D. current consumption and future consumption
question
When demand shocks lead to recessions, it is mainly due to
A. the inability of government policy to affect demand.
B. unexpected changes in the supply of goods and services.
C. price inflexibility.
D. government regulations that prevent firms from adjusting output in response to the shocks.
A. the inability of government policy to affect demand.
B. unexpected changes in the supply of goods and services.
C. price inflexibility.
D. government regulations that prevent firms from adjusting output in response to the shocks.
answer
C. price inflexibility
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