Contrast the economic performance of the American economy of 2001 with the economic performance of the 1996 to 2001 period. Use the appropriate aggregate demand and aggregate supply curves to distinguish the differing economic condition of the two periods.
What will be an ideal response?
The economic performance of the 1996 to 2000 period could be characterized as a fortuitous combination of increasing aggregate demand at the same time the aggregate supply curve was shifting out as well. This created both economic growth and a fairly stable price level. The American economy experienced both low inflation and decreasing rates of unemployment. The year 2001 represents a classic aggregate demand-caused recession. A decrease in investment spending caused a decrease in aggregate demand. This caused a decrease in output and employment while putting downward pressure on prices. The American economy suffered the usual effects of recession, proving that the United States is not immune from the normal vicissitudes of the business cycle and that the United States had not entered a “new paradigm.”
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A temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment) in the economy
A) lower; increase B) lower; decrease C) raise; increase D) raise; decrease
Consider two lottery winners, Tino who is 65 years old and Sasha who is 32 years old. Which of these two would be expected to have the larger income effect, all else equal?
A) Sasha B) Tino C) Both would have no income effect. D) Both would have equal income effects.
How would you interpret (1) an upward sloping curve and (2) a zero slope curve in a two variable diagram?
Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and current international transactions balance in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete
equilibrium. a. The real risk-free interest rate remains the same and current international transactions balance becomes more negative (or less positive). b. The real risk-free interest rate falls and current international transactions balance becomes more positive (or less positive). c. The real risk-free interest rate and current international transactions balance remain the same. d. The real risk-free interest rate rises and current international transactions balance remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.