Business Cycles and Economic Fluctuations Quiz

A recession is a period of declining real incomes and rising unemployment, while a depression is a severe recession with a significant decline in economic activity

The wealth effect, interest rate effect, and exchange rate effect

Changes in input prices, productivity, and expectations

The theory that the interest rate adjusts to bring money supply and money demand into balance

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

The fraction of extra income that a household consumes rather than saves

It leads to a decrease in government revenue

Family breakdown

Decreased demand for luxury goods

A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Transfer payments

Real GDP is adjusted for inflation, while nominal GDP is not

All of the above

The average rate of unemployment around which the unemployment rate fluctuates

Unemployment that results from a lack of available jobs in some labor markets

To increase the quantity of labor demanded

The percentage of the adult population that is in the labor force

Endogenous variables are determined within the model, while exogenous variables are determined outside the model

Positive statements describe how the world is, while normative statements describe how the world should be

Microeconomics studies individual agents like households and firms, while macroeconomics studies the economy as a whole

The theory that higher wages lead to higher worker productivity and better health

Unemployment that results from workers being unable to easily move from one occupation to another

The process by which unions and firms agree on the terms of employment

The value of the goods and services that the unemployed individual could have produced

Inputs and output have an inverse relationship

The marginal product of an input declines as the quantity of the input increases

Labor productivity increases as factors of production per worker increase

To estimate the effects of compounding on growth rates

The total income in the economy that remains after paying for consumption and government purchases

A certificate of indebtedness

A surplus is where government tax revenue is greater than spending, while a deficit is where government tax revenue is less than spending

Increased potential for unemployed individuals to turn to alcohol and illegal drugs as a means of escape

Human capital refers to the skills acquired through education and training, while natural resources are inputs provided by nature such as land and minerals.

Capital accounts for only around a third of the contribution to output.

The 'resource curse' refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth, and government policy can help by removing barriers to savings and investment, correcting market failures, and improving institutions.

An increase in the savings rate can increase investment and the capital-output ratio, leading to higher economic growth.

Long-term bonds have a higher interest rate than short-term bonds

To allow holders of long-term bonds to sell them before maturity

S = Y - T - C

A measure of the overall prices of the goods and services bought by a typical consumer

Real interest rate is corrected for inflation, while nominal interest rate is not

It overstates the increase in the cost of living from one year to the next, assuming a fixed basket of goods

When the quality of goods rise from one year to the next, the effective value of a euro rises