Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781305176799
Author: Gwartney
Publisher: Cengage
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Chapter 10, Problem 4CQ
To determine
Identify the effect of pessimistic thought on the speed and strengthen the recovery.
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When an economy dips into a recession, consumers will often be relatively pessimistic about the future for an extended period time. How will this pesimism affect the speed and strength of the recovery?
What common rule of thumb do economists use to define a recession?
A decline of 5% in GDP
A decline of 10% in GDP
One quarter of negative GDP growth
Two quarters (six months)of negative GDP growth
How can shipping delays and shortages of intermediate goods cause a recession?
Why may these issues lead to a reduction in consumer spending? Consider how consumers change the timing of their purchases to reflect the market.
Chapter 10 Solutions
Macroeconomics: Private and Public Choice
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- Real GDP in Japan decreased 7.3% in the second quarter of 2014 and decreased 1.6% in the third quarter. Which of these statements is true? The GDP decrease could be explained by a fall in savings According to the popular definition, Japan is in a recession. According to the official definition of recession, Japan’s economy reached a peak in the second quarter.arrow_forwardWhen a recession begins and ends is determined by the Business Cycle Dating Committee (chaired by our textbook author Robert Hall) within the National Bureau of Economic Research (NBER). The NBER concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this current pandemic-driven episode in the nation as a recession. True Falsearrow_forwardThere are two theories regarding the cause of recessions. Between the two, which one contributes more to it? Explain thoroughly. Provide examples when necessary.arrow_forward
- Consumer spending fell significantly at the start of the pandemic by 13.6%, but increased by 5.6% in June. Economists are predicting that in the next few months consumer spending may be positive but at a much lower rate than 5.6% as additional money for unemployment is no longer available, unemployment remains high, and uncertainty of the future. Consumer spending is closely watched since it is a primary predictor of how quickly the economy will recover from the current recession. How do you expect consumer spending might change over the next few months? Why? How has your spending been changing? Are you expecting to make any big purchases in the near future?arrow_forwardSuppose you are given the following information about an economy: Short run Aggregate Supply: SRAS = Y = 5000r+ 14,400 Long run Aggregate Supply: Aggregate Demand: Investment Spending: Consumption Spending: Government Spending: Net Exports (eX – iM): LRAS = Y* = 25,000 AD = Y=C+I+G+NX_ I = 4000 – 250r C = 1000 +0.75(Y – T) G = 2000 NX = 500 Taxes – Transfers: T = 2400 Monetary Policy: Money Demand: Money Market equilibrium: Fisher equation: where i is the nominal interest rate (i.e. when the interest rate is 7%, it means i= 7) r = 2 n м 3 20,000- 2000i M$ = MD i = r+T e. Find the short run equilibrium level of real GDP (Y), and inflation rate (t), in the short run. What is the output gap in the economy? Is it an expansionary or recessionary gap?arrow_forwardAs you know, supply and demand shifts are caused by one of their determinants. Shifts in aggregate demand (AD) show the effect of events on price level and Real GDP. Any event that causes a change in consumer, business, or government spending or any change in net exports (C+l+G+Xn) will shift AD. Any event that causes a change in production costs or increases productivity will shift aggregate supply (AS). Decide if the following events are Micro, shifting supply or demand, or Macro, shifting AD or AS. Give the direction in which the graph shifts. Demand Situation Aggregate Supply Aggregate Demand Supply Sales of Atlanta Braves gear grows with the success of the team. 1. The President and Congress pass a trillion dollar stimulus bill to provide aid during recession. 2. 3. Salmonella outbreak in peanut processing plants threatens lunches for school children. 4. Pomegranates are shown to be cancer fighting superfoods. Value of U.S. dollars declines, exports increase. 5. Global oil prices…arrow_forward
- Which of the following economic environments would most likely be associated with a recession? Unemployment falling to 30-year low Unemployment increasing from 5% to 9% during the year New businesses opening in record numbers while new housing starts reach a 10-year high GDP growing at an annual rate of 4.2%arrow_forwardHow do changes in consumer spending patterns impact the accuracy of short-term economic forecasting models?arrow_forward"The oil price run - up of 2007 - 08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been very similar to those observed in earlier episodes, with significant effects om overall consumption spending and purchases of domestic automobiles in particular. The experience of 2007 - 08 should thus be added to this list of recessions to which oil prices appear to have made a material contribution". Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift.arrow_forward
- Using the information in the pictures below, Answer the following questions. The macroeconomic forecasts carried out by different entities are of upmost importance for the whole society and, of course, for the companies that operate in that economy. select two updated macroeconomic charts of some of the entities that monitor the economy and make forecasts. The objective is to compare different future forecasts of the entities to have a critical and well-formed view of the macroeconomic future in the USA. Based on the charts consulted, comment what is expected from the American economy in the next years in general terms. Are there differences in the forecasts? How do you think the state will act in the future based on the chart variables that inform us about its behavior? What will the behavior of families and companies be like?arrow_forwardWhich of the following could cause the US economy to go into a recession? a) a declining stock market and an increase in unemployment b) an increase in pessimism by consumers and businesses c) All of the choices are correct d) a decrease in Aggregate Demand e) None of the choices is correctarrow_forwardExplain the effects of propensities, expectations and multipliers in causing a recession.arrow_forward
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