Economic Growth (cont.)
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| The precise dating of expansions, recessions and turning points in th business cycle is done by the | National Bureau of Economic Research
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| According to the National Bureau of Economic Research, since 1920 the approximate average length of a recession is | 1 year
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| Measured by duration, the longest business cycle expansion occured during the | 1990's
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| The average length of recessions has been ___, while the average length of expansions has been ___. | 1 year; 4 years
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| Since 1920, the average peak to trough decline in real GDP during a recession has been about | 6 percent
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| During the Great Depression, real GDP fell by | 33 percent
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| A business cycle impulse is the | economic event that begins a business cycle fluctuation
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| T-or-F: Recessions are easily predictable | F
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| THe various business cycle theories agree that the crucial variable affected by shocks to the economy is | investment expenditure
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| Economists generally agree that | capital and investment play an important role in driving the business cycle
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| Which component of expenditure plays a central role in the business cycle? | Investment
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| At the start of a recession, investment typically | decreases because of low profits
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| In a recession, | investment is low and the capital stock grows slowly
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| 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.
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| According to the ___ the business cycle is the result of shifts n the economy's AD curve. | The Keynesian, monetarist, and rational expectations theories
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| Business cycle events that arise solely from aggregate demand shifts are emphasized by the | Keynesian and monetarist theories
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| In the Keynesian business cycle theory, business cycles begin with changes in | business expectations about sales and profits.
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| Keynes used the term "animal spirits" to refer to the | business leaders
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| Which theory assumes that business cycles occur because of changes in expected future sales and profits? | Keynesian theory
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| In the Keynesian business cycle theory, the short-run aggregate supply curve is assumed to | be horizontal
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| What are two main elements of Keynesian business cycle theory? | Sticky wages and Horizontal short-run aggregate supply curve.
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| T-or-F: A decrease in expected sales can trigger a recession according to the Keynesian approach to the business cycle. | T
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| T-or-F: The Keynesain theory is a real business cycle model of the economy. | F
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| T-or-F: Unanticipated shocks to aggregate supply drive expansions and recessions according to the Keynesian approach to the business cycle. | F
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| 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
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| According to the Keynesian theory of the business cycle, a(n) | decrease in profit expectations will decrease investment, real GDP and consumption expenditures
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| In Keynesian business cycle theory, the business cycle mechanism is the multiplier and a | horizontal short-run aggregate supply curve
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| Using the Keynesian model to describe the business cycle, the model predicts the | money wage rate increasing during an expansion
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| 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.
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| According to Keynes, the economy can get stuck in a recession because | wages are sticky downwards.
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| In Keynesian business cycle theory, the money wage rate is ___ in the downward direction and ___ in the upward direction. | rigid; flexible
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| 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.
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| 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.
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| 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.
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| 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.
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| 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
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| In a monetarist business cycle theory, decreases in money growth temporarily ___ real GDP because intrest rates ___. | decrease; rise
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| In monetarist business cycle theory, the money wage rate | adjusts over tiem to restore full employment
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| A key element of the new classical model of the business cycle is | rational expectations
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| 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
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| 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
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| In the new Keynesian rational expectations theory of the business cycle, the money wage rate is | fixed for a time under long-term contracts
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| 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
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| In the real business cycle theory, the impulse for a business cycle is | technological change
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| In real business cycle models, business cycles exist because | changes in technology
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| In the real business cycle theory, the aggregate supply curve is | vertical
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| "Intertemporal substitution" in labor supply describes shifts in labor supply in response to changes in | the real intrest rate
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| According to real business cycle theory, a fall in the real interest rate ___ current labor supply and ___ current employment. | decreases; decreases
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| 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.
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| In real business cycle models, by itself a change in aggregate demand | affects only the price level
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| 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
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| Critics of the real business cycle model argue that | labor supply is only weakly related to the real interest rate
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| In the US during the 1990's, | fiscal policy was restrained and monetary policy was expansionary.
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