MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
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Question
Chapter 9, Problem 2RQ
To determine
The immediate cause of large majority of cyclical changes.
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What are the important mechanisms that reverse the effects of a recession in a modern economy? (Check all that apply.)
A. Labor supply increases due to an increase in real wages.
B. The multipliers on wages and employment return to normal.
C. Labor demand increases due to expansionary government policies.
D. Labor demand increases due to market forces.
What market forces might cause the labor demand curve to shift back to the right? (Check all that apply.)
A. Technological advances encourage firms to expand their activities.
B. The banking system recuperates and businesses are again able to use credit to finance their activities.
C. Excess inventory has been sold off.
D. Wage rigidity decreases.
Which of the following is not one of the possible general sources of shocks that can cause business cycles?
Select one:
a. Open market operations to of businesses to increase their global competition.
b. Unexpected political events, such as peace treaties, new wars, or terrorist attacks, can create economic opportunities or strains.
c. When productivity unexpectedly increases, the economy booms; when productivity unexpectedly decreases, the economy recedes.
d. Irregular innovations may contribute to the variability of economic activity.
A number of macroeconomic variables decline during recessions. One of these variables is the GDP.
What other variables, besides real GDP, tend to decline during recessions? Given the definition of real GDP and its components, explain the declines in these economic variables which are to be expected.
Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cycles?
Chapter 9 Solutions
MACROECONOMICS W/CONNECT
Ch. 9 - Prob. 1DQCh. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Prob. 4DQCh. 9 - Prob. 5DQCh. 9 - Prob. 6DQCh. 9 - Prob. 7DQCh. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQ
Ch. 9 - Prob. 11DQCh. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - Prob. 3RQCh. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - Prob. 9RQCh. 9 - Prob. 10RQCh. 9 - Prob. 11RQCh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8P
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- According to the Austrian theory of the business cycle, the following is false A. A cluster of sudden errors by previously successful entrepreneurs is revealed by the recession B. Overall prices always fall during a recession C. An inflationary boom is inevitably followed by a recession D. The prices of consumer goods rise relative to the prices of capital goods during the recessionarrow_forwardIs fiscal policy, say an increase in government expenditures (G), effective according to the Real Business Cycle (RBC) theory? If it is, should it be used? Explain by using production function, labor market, goods market and asset market equilibrium tools.arrow_forwardWhich of the following is most commonly used to monitor short-run changes in economic activity?A. real GDP.B. interest rates.C. the inflation rate.D. value of the U.S. dollar in the foreign exchange market.arrow_forward
- Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? A) Unexpected political events such as wars. B) Changes in aggregate spending. C) Shocks caused by major innovations. D) Changes in resource availability. E) Changes in the price of a particular product like bottled water.arrow_forwardDue to temporary weather patterns, suppose production in the agricultural sector increases. a. Given the various shifters presented in the book/lecture notes, which curve(s) shifts first and why? Show the graph of the Goods and Services market, including the shift. b. What happened to the price level and RGDP in the short-run? c. Will this cause a temporary business cycle? Why or why not? Show any additional shifts in the graph above.arrow_forward“Households tend to increase their spending during a recession because they realize that more spending will cause firms to hire more workers and the problem of unemployment will be solved.” Do you agree or disagree? Explain.arrow_forward
- Which economic school relies most heavily on "sticky prices" to explain the effects of Aggregate Demand on GDP? A. Keynesian B. Monoetarist C. Rational Expectations D. Coordination Failurearrow_forwardAbsorption refers to A. the quantity of aggregate output that is absorbed into the domestic economy. B. the amount of government spending that is absorbed into the domestic economy. C. the amount of current period income that is used to purchase domestic aggregate output. D. the amount of transfer payments from the federal government that is absorbed into the domestic cconomy. E. the quantity of imports that is absorbed into the domestic economy. An important critique of real business cycle theory is that during a recession A. there is underutilization of labour and total factor productivity increases. B. there is underutilization of labour and underutilization of the aggregate capital stock. C. there is underutilization of labour and the real wage decreases. D. there is overutilization of labour and overutilization of the aggregate capital stock. E. there is overutilization of labour and the I wage is constantarrow_forwardWhat is the relationship between potential output and the natural rate of unemployment? a. If the economy currently has a frictional unemployment rate of 2 percent, structural unemployment of 2 percent, seasonal unemployment of 2 percent what is the natural rate of unemployment? Where is the economy operating relative to its potential GDP? b. What happens to the natural rate of unemployment and potential GDP if cyclical unemployment rises to 3 percent with other types of unemployment unchanged from part a? c. What happens to the natural rate of unemployment and potential GDP if structural unemployment falls to 1.5 percent with other types of unemployment unchanged from part a?arrow_forward
- Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cyclesarrow_forwardAn economy's potential level of output can be altered by changes in: a. aggregate demand. b. its stock of capital. c. the expected price level. d. the actual price level. e. real GDP.arrow_forwardSuppose you are an advisor to the Business Cycle Dating Committee. You are asked to look at macroeconomic data to evaluate whether the economy has entered a recession this year. Which data do you look at? How does the economy behave at the onset of a recession? Explain how unemployment changes over the business cycle. Why do these changes occur?arrow_forward
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