During the recession of 2007-2009, the U.S. economy was experiencing a decrease in home prices and consumer wealth, a credit crisis in the financial markets, and declining consumer and business confidence
What components of aggregate demand were affected and what was the impact on real output? What were the policy options?
The decrease in home prices and consumer wealth will adversely affect consumption spending as well as residential fixed investment spending. The credit crisis will also hurt consumption and investment spending as the households and firms find it difficult to obtain lines of credit. Finally, the decline in consumer and business confidence will lower consumption and investment spending further. Thus, aggregate demand will decrease, lowering real output. The policy prescription is one of expansionary monetary and fiscal policies to stimulate the economy.
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If you look at the financial page listings for futures contracts and find that futures prices on Treasury bonds are falling over a particular time period, futures market investors must expect that
A) Treasury bond prices will be higher in the future. B) Treasury bond yields will be higher in the future. C) Treasury bond yields will be lower in the future. D) futures prices will rise again at the end of the period.
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $3. (iii) Total revenue equals $900
a. (i) only b. (iii) only c. (i) and (ii) only d. (i), (ii), and (iii)
In any economy functioning at potential GDP, there are occasions when the short-term aggregate supply curve unexpectedly shifts, causing inflationary pressures. Which of the following is considered to be a common cause of this type of shift?
A. overoptimistic lending by banks B. sudden rise in input prices C. a surge of export sales D. a wave of government spending
Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, the price of food will
A. fall in Alpha and rise in Beta. B. fall in both countries. C. rise in both countries. D. rise in Alpha and fall in Beta.