Ch 33-34

Question 1

A period of declining real incomes and rising unemployment

Answer 1

Recession

Question 2

A severe recession

Answer 2

Depression

Question 3

The model that most economists use to explain short-run fluctuations in the economic activity around its long-run trend

Answer 3

Model of aggregate demand and aggregate supply

Question 4

The curve that shows the quantity of goods and services that households, firms, the government and customers abroad want to buy at each price level

Answer 4

Aggregate-demand curve

Question 5

A curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

Answer 5

Aggregate-supply curve

Question 6

The production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

Answer 6

Natural rate of output

Question 7

A period of falling output and rising prices

Answer 7

Stagflation

Question 8

Keynes’s theory that the interest rate adjusts to bring money supply and money demand into balance

Answer 8

Theory of liquidity preference

Question 9

The setting of the level of government spending and taxation by government policy makers

Answer 9

Fiscal policy

Question 10

The additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending

Answer 10

Multiplier effect

Question 11

The offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending

Answer 11

Crowding-out effect

Question 12

Changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policy makers having to take any deliberate action.

Answer 12

Automatic stabilizers