From 1995 until the start of the recession in 2007, the U.S. economy grew at the same rate as the economy of Japan. comes at the expense of reduced current consumption. Negative demand shocks have a more significant impact on output and employment when prices are flexible. The term "recession" describes a situation where. Why are economists concerned about inflation? Which of the following is an example of economic investment? True or False. When demand shocks lead to recessions, it is mainly due to: Which of the following results from firms holding inventories? Economists would: not consider this to be an economic investment because no new capital is created through the purchase. Which of the following is most closely related to recessions? Which of the following results from firms holding inventories? Refer to the graphs. (Last Word) Which of the following explanations argues that the Great Recession resulted from asset-price bubbles caused by euphoria and debt-fueled speculation? The so-called Austrian Explanation involves the following factors, except. How will the firm respond to a positive demand shock if prices are inflexible? For which of the following goods are services are prices most sticky? promote economic growth by helping to direct household saving to businesses that want to invest. In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation? Which of the following best represents a negative demand shock when prices are inflexible? Nominal GDP measures a nation's output in current year prices. 3. Refer to the figures. If consumers become pessimistic, the economy is likely to experience a, Occur when one firm lowers its price and rival firms react by lowering their prices. This would suggest that airline ticket prices are, In situations of sticky prices and negative demand shocks, we would expect firms to, build up inventories before reducing production, current consumption and future consumption, If an economy has fully flexible prices and demand unexpectedly increases, you would expect that the economy's real GDP would tend to. A restaurant owner buys a freezer to store ingredients for the restaurant meals. Demand shocks occur with greater frequency. For which of the following goods and services are prices most sticky? In 2008-2009, the U.S. economy lost 8 million jobs and saw the unemployment rate rise from 4.6 percent to as high as 10.1 percent. We can expect that, in the future, If prices of goods and services quickly adjusted to demand shocks, then, Firms would find it easier to produce at their optimal output rates. Explanations about what caused the Great Recession differ sharply among economists. Which of the following is the best example of investment as defined by economists? higher crime rates as the unemployed seek to replace lost income. Firms can maintain production levels and adjust inventories in response to demand shocks. Which of the following best explains why prices tend to be inflexible even when demand changes? Which of the following statements is true? Kara's also maintains an inventory of 20 scratching posts. For an economy to increase investment, it must: refer to unexpected changes in the desires of households and businesses to buy goods and services. Kara's also maintains an inventory of 20 scratching posts. Firms can maintain production levels and adjust inventories in response to demand shocks. Firms can maintain production levels and adjust inventories in response to demand shocks. Firms' inventories will increase, causing them to cut production. Which of the following results from firms holding inventories? refer to unexpected changes in the desires of households and businesses to buy goods and services. A dramatic increase in energy prices increased production costs for firms in the economy, Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost) level of 30 scratching posts per week. At a price of $2,000 per television, Techno determines that its optimal output is 3,000 television sets per week. The term "recession" describes a situation where: value of final goods and services produced within the borders of a country, corrected for price changes. the quantity of resources available to the economy. The economy is much more susceptible to business cycle fluctuations. promote economic growth by helping to direct household saving to businesses that want to invest. he quantity of resources available to the economy. Higher rates of unemployment are linked with: higher crime rates as the unemployed seek to replace lost income. Real GDP increases while nominal GDP decreases, At the core of understanding economic growth is the idea that to raise living standards over time, an economy must. Shocks occur when actual events do not match expectations. Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices? Unemployment describes the condition where: a person cannot get a job but is willing to work and is actively seeking work. Occurs when current spending is less than current incomes. (Consider This) Which of the following is an example of economic investment? Refer to the figures. A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession. Suppose that inventories are rising. The business cycle reflects both short-run fluctuations in output and long-run economic growth. value of final goods and services produced within the borders of a country, corrected for price changes. Suppose a firm is currently producing 500 computers per week and charging a price of $1,000. Why are high rates of unemployment of concern to economists? Which of the following would an economist consider to be investment? In year one, 10,000 MP3 players are produce and sold at a price of $100 each. Real GDP measures the change in the price level over time. Based on this information, we can conclude that Harry's production of large pepperoni pizzas, increased nominal GDP from last year, but real GDP was unaffected. Firms can maintain production levels and adjust inventories in response to demand shocks. Refer to the figures. Suppose that prices are sticky in the short-run. Firms can maintain production levels and adjust inventories in response to demand shocks. If prices are "sticky" in the short run, then, The economy will respond to demand shocks primarily through changes in output and employment. Prices tend to be sticky in the short run but become more flexible over time. This would suggest that airline ticket prices are: Increasing investment in the present means forgoing future consumption. In situations of sticky prices and negative demand shocks we would expect firms to: build up inventories before reducing production. Which of the following results from firms holding inventories? Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels. Financial institutions reward savers with the following, except. By ordering in large numbers, a firm can reduce the cost it incurs. Inflation lowers the standard of living for people whose income does not increase as fast as the price level. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money). Refer to the graphs. Which of the following results from firms holding inventories? Firms can maintain production levels and adjust inventories in response to demand shocks. Based on this information we can conclude that Harry's production of large pepperoni pizzas: increased nominal GDP from last year, but real GDP was unaffected. Which of the following results from firms holding inventories? (Consider This) The U.S. recession that occurred in 2008 and 2009 represented a case where: prices were relatively sticky and most of the impact was on total output. Which of the following would an economist consider to be investment? Workers' wages may be rising faster than the overall price level. Any person without a job is considered to be unemployed. In situations of sticky prices and negative demand shocks, we would expect firms to: build up inventories instead of reducing production. The amount of investment is ultimately limited by the amount of, If prices of goods and services were free to quickly adjust, then, A negative demand shock would have no short-run effect on unemployment, Refer to the figure. If a family's income increases by 5 percent at the same time that inflation is 3.5 percent, then the, Family will need to spend more in order to maintain its standard of living, Decisions about saving and investment are, Complicated by the fact that the future is uncertain, The Great Recession of 2007-09 illustrated the situation where a negative demand shock occurred and, the economy's overall price level was "sticky.". occur when sellers face unexpected changes in the availability and/or prices of key inputs. There is lost output that could have been produced if the unemployed had been working. In the very short run, firms tend to respond to demand shocks by changing their prices. If prices are inflexible, then a negative demand shock will lead to, unexpected changes in the demand for goods and services, Because prices are sticky, a positive demand shock will lead to, prices are sticky in the short run, but flexible over time, will increase if there is an increase in the level of output. an increase in the overall level of prices. measures the value of final output produced within a nation in one year, using current prices. Which of the following results from firms holding inventories? Firms can maintain production levels and adjust inventories in response to demand shocks. (Consider This) What is the difference between financial investment and economic investment? (Consider This) If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment. The two topics of primary concern in macroeconomics are: short-run fluctuations in output and employment and long-run economic growth. Consider This) Which of the following is an example of economic investment? Firms can maintain production levels and adjust inventories in response to demand shocks. Which of the following events would most likely result in higher unemployment? Suppose that an economy's output does not change from one year to the next, but the price level doubles.