11. In our model, the affects of changes on wages are ambiguous because the income and substitution effects move in opposite directions. How do (many) macroeconomists deal with this ambiguity in terms of study- ing business cycle? How do economists resolve this ambiguity when studying long term economic development?

of O .Q 4 Directions: Label the Y Axis as GDP and the X Axis as Year (1915-1945). Draw a business cycle that increases from 1915-1920, slightly decreases from 1920-1922, increases from 1922-1930, decreases steeply from 1930-1940, and increases from 1940-1945. Once you have the graph, label one major event for each 5 year period on the graph that explains why it was going up or down. For example, where would you put WWI to explain why the economy was going up @ 140% ges DELL 3 39. or a Sign out

10. What has happened to potential GDP over time? What has happened to the potential GDP growth rate over time? How are the answers to these two questions different? Explain.   Before Graph

D) All óf the above. 2. The idea that the business cycle is recurrent means that the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies. Co-movement is A) the idea that the standard pattern of contraction-trough-expansion-peak occurs again and again in industrial economies. B) the tendency of many economic variables to move together in a predictable way over the business cycle. C) the idea that peaks and troughs of the business cycle occur at regular intervals. D) the tendency for declines in economic activity to be followed by further declines, and for growth in economic activity to be followed by more growth. 3. Which of the following macroeconomic variables is the most seasonally procyclical? A) Expenditure on services. C) Expenditure on durable goods. B) The unemployment rate. D) The real wage. 4. The difference between market demand and aggregate demand is that: A) Market demand applies to all individuals, and aggregate demand does…