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Chapter 14
The precise dating of expansions, recessions and turning points in th business cycle is done by the
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Chapter 14
According to the National Bureau of Economic Research, since 1920 the approximate average length of a recession is
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Chapter 14 MacroEcon
Economic Growth (cont.)
| Chapter 14 | MacroEcon |
|---|---|
| The precise dating of expansions, recessions and turning points in th business cycle is done by the | National Bureau of Economic Research |
| According to the National Bureau of Economic Research, since 1920 the approximate average length of a recession is | 1 year |
| Measured by duration, the longest business cycle expansion occured during the | 1990's |
| The average length of recessions has been ___, while the average length of expansions has been ___. | 1 year; 4 years |
| Since 1920, the average peak to trough decline in real GDP during a recession has been about | 6 percent |
| During the Great Depression, real GDP fell by | 33 percent |
| A business cycle impulse is the | economic event that begins a business cycle fluctuation |
| T-or-F: Recessions are easily predictable | F |
| THe various business cycle theories agree that the crucial variable affected by shocks to the economy is | investment expenditure |
| Economists generally agree that | capital and investment play an important role in driving the business cycle |
| Which component of expenditure plays a central role in the business cycle? | Investment |
| At the start of a recession, investment typically | decreases because of low profits |
| In a recession, | investment is low and the capital stock grows slowly |
| Three truths about shocks to the economy are | In an expansion, investment speeds up. Investment in new capital slows during a recession. Diminishing returns to capital occurs during an expansion. |
| According to the ___ the business cycle is the result of shifts n the economy's AD curve. | The Keynesian, monetarist, and rational expectations theories |
| Business cycle events that arise solely from aggregate demand shifts are emphasized by the | Keynesian and monetarist theories |
| In the Keynesian business cycle theory, business cycles begin with changes in | business expectations about sales and profits. |
| Keynes used the term "animal spirits" to refer to the | business leaders |
| Which theory assumes that business cycles occur because of changes in expected future sales and profits? | Keynesian theory |
| In the Keynesian business cycle theory, the short-run aggregate supply curve is assumed to | be horizontal |
| What are two main elements of Keynesian business cycle theory? | Sticky wages and Horizontal short-run aggregate supply curve. |
| T-or-F: A decrease in expected sales can trigger a recession according to the Keynesian approach to the business cycle. | T |
| T-or-F: The Keynesain theory is a real business cycle model of the economy. | F |
| T-or-F: Unanticipated shocks to aggregate supply drive expansions and recessions according to the Keynesian approach to the business cycle. | F |
| According to the Keynesian business cycle theory, which componenet of aggregate demand is most volatile and hence the primary source of the business cycle? | Investment spending |
| According to the Keynesian theory of the business cycle, a(n) | decrease in profit expectations will decrease investment, real GDP and consumption expenditures |
| In Keynesian business cycle theory, the business cycle mechanism is the multiplier and a | horizontal short-run aggregate supply curve |
| Using the Keynesian model to describe the business cycle, the model predicts the | money wage rate increasing during an expansion |
| According to the Keynesian theory, an inflationary gap during which real GDP exceeds potential GDP will | self-correct through an increase in the money wage rate. |
| According to Keynes, the economy can get stuck in a recession because | wages are sticky downwards. |
| In Keynesian business cycle theory, the money wage rate is ___ in the downward direction and ___ in the upward direction. | rigid; flexible |
| In the Keynesian theory of the business cycle, the response of the money wage rate to change in aggregate demand is | asymmetrial so that wages are flexible on the upside and stick on the downside. |
| Based on the Keynesian thoery of the business cycle, if the economy is at its full-employment equilibrium and aggregate demand increases then | the price level rises but real GDP remains unchanged. |
| In the Keynesian theory of the business cycle, a decrease in investment demand leads in the short run to a | leftward shift in the AD curve but no immediate fall in the price level. |
| In the Keynesian theory of the business cycle, when the economy is in a recession | an increase in aggregate demand leads to a change in real GDP but no change occurs in the price level. |
| In monetarist business cycle theory, decreasing the growth rate of the quantity of money ___ and increasing the growth rate of the quantity of money ___. | causes the economy to enter a recession; causes the economy to enter an expansion |
| In a monetarist business cycle theory, decreases in money growth temporarily ___ real GDP because intrest rates ___. | decrease; rise |
| In monetarist business cycle theory, the money wage rate | adjusts over tiem to restore full employment |
| A key element of the new classical model of the business cycle is | rational expectations |
| An assumption of the new classical rational expectations theory of the business cycle is that the money wage rate is | renegotiated when economic conditions change |
| In the new classical rational expectations theory of the business cycle, an unanticipated increase in aggregate demand ___ the real wage rate and ___ employment. | decreases; increases |
| In the new Keynesian rational expectations theory of the business cycle, the money wage rate is | fixed for a time under long-term contracts |
| The business cycle impulse in the ___ theory is unexpected fluctuations in aggregate demand while in the ___ theory both unaticipated and anticipated fluctuations in aggregate demand are impulses. | new classica; new Keynesian |
| In the real business cycle theory, the impulse for a business cycle is | technological change |
| In real business cycle models, business cycles exist because | changes in technology |
| In the real business cycle theory, the aggregate supply curve is | vertical |
| "Intertemporal substitution" in labor supply describes shifts in labor supply in response to changes in | the real intrest rate |
| According to real business cycle theory, a fall in the real interest rate ___ current labor supply and ___ current employment. | decreases; decreases |
| If a real interest rate is 2% and workers expect real wages to be 4% higher next year, according to real business cycle theory, workers will work | less this year and more next year. |
| In real business cycle models, by itself a change in aggregate demand | affects only the price level |
| According to which theory of the business cycle do changes in the quantity of money never play a role in helping to explaining fluctuations in real variables? | real business cycle |
| Critics of the real business cycle model argue that | labor supply is only weakly related to the real interest rate |
| In the US during the 1990's, | fiscal policy was restrained and monetary policy was expansionary. |
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