Macro ch 5

The ultimate objective of macroeconomics is to
develop and test theories about how the overall economy works
Which of the following is not the proper subject matter for macroeconomics?
the price of corn
If firms expect greater demand for their products, invest in more capital and hire more labor,
their behavior may encourage the very prosperity that they expect
If all firms expect greater demand for their products or services, they will hire____ resources (e.g., labor and capital) and the economy will experience_____.
more; growth
Economic fluctuations (or business cycles)
are fluctuations in the level of economic activity, relative to a long-term growth trend
A recession is best defined as a period during which
employment, output, and income decline
The distinction between recessions and depressions is that recessions are
shorter and less severe than depressions
Economic fluctuations
in one developed nation are often linked to economic fluctuations in other developed economies
By a leading economic indicator, economists mean
an indicator of future economic activity
When economists refer to the economy’s price level, they mean
a general measure of prices of all goods and services
As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase will change. How will this be illustrated?
a movement upward along the aggregate demand curve
The aggregate supply curve indicates
the quantity of aggregate output that producers are willing and able to supply at each possible price level
When output _____, employment is expected to ______.
rises; rise
If the economy were initially in equilibrium and the aggregate demand curve shifted to the left,
employment would fall
An increase in the price level
means that inflation occurred
An increase in government spending, other things constant, would cause a
rightward shift of the aggregate demand curve
According to Keynes, if private-sector demand is insufficient to maintain full employment, the government should
shock the economy with an increase in aggregate demand
The Employment Act of 1946
imposed a responsibility on the federal government to foster full employment
Inflation is
a sustained increase in the price level
The word stagflation describes a situation in which a higher price level occurs simultaneously with
lower aggregate output
If the government owes $3,500 billion and then borrows $300 billion more this year,
the debt is $3,800 billion and the deficit is $300 billion
The aim of supply-side economics is to
lower taxes to increase the supply of resources
Gross world product is
the value of all final goods and services produced in the world during a given period
The largest and most complex economy in world history is
Between the Troubled Asset Relief Program and the American Recovery and Reinvestment Act, the Federal budget deficit

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