F: Chapter 34

Question 1

recession

Answer 1

period of declining real incomes and rising unemployment

Question 2

depression

Answer 2

severe recession

Question 3

3 key facts about economic fluctuations

Answer 3

1. most macroeconomic variables fluctuate together
2. economic fluctuations are irregular and unpredictable
3. as output falls, unemployment rises

Question 4

aggregate-demand curve

Answer 4

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

Question 5

aggregate-supply curve

Answer 5

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

Question 6

why does the demand curve slope downward:

Answer 6

1. price level and consumption
2. price level and investment
3. price level and net exports

Question 7

Price level and consumption (demand curve)

Answer 7

a decrease in the price level makes consumers feel more wealthy, which in turn encourages them to spend more

Question 8

price level and investment (demand curve)

Answer 8

a lower price level in investment spending = demand goes up

Question 9

price level and net exports

Answer 9

when price level falls, interest rate falls, and real value of the euro falls and this depreciation stimulates european net exports and thereby increases the quantity of goods and services demanded in the economy

Question 10

why might the aggregate demand curve shift?

Answer 10

consumption, investment, government purchases, net exports

Question 11

Aggregate supply curve: long run and short run curve is..

Answer 11

long run: curve is vertical

short run: curve is upward sloping

Question 12

Shifts in the long run aggregate supply curve

Answer 12

labour, capital, natural resources, technological knowledge

Question 13

why does the aggregate supply curve in the short term slope upward?

Answer 13

1. sticky wage theory
2. sticky price theory
3. the misperceptions theory

Question 14

the sticky wage theory

Answer 14

wages are slow to adjust in the short run
- a lower price level makes employment and production less profitable so firms reduce the quantity of goods and services they supply

Question 15

the sticky price theory

Answer 15

prices of some goods and services adjust slowly in response to changing economic conditions

Question 16

the misperceptions theory

Answer 16

changes in the overall price level temporarily mislead suppliers about what is happening in the markets in which they sell their output

Question 17

Shifts in short run aggregate supply curve

Answer 17

labour, capital, natural resources, technology, expected price level

Question 18

shifts in supply demand

Answer 18

short run: shifts cause changes in output of goods and services
long run: shifts affect overall price level

Question 19

shirts to the left are a decrease of

Answer 19

1. output falls below the natural rate of employment
2. unemployment rises
3. the price level rises

Question 20

stagflation

Answer 20

a period of falling output and rising prices