Keynes thought that the behavior of the economy in the short run was influenced by what he called "animal spirits." By this he meant that business people sometimes felt good about the economy, and carried out lots of investment, and at other times felt
bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.
Fluctuations in investment cause the aggregate demand curve to shift. If the aggregate demand curve shifts to the right, real GDP and the price level rise. If the aggregate demand curve shifts to the left, real GDP and the price level fall. So erratic movements in investment can cause fluctuations in output.
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The opportunity cost of owning a car is
A. the price of the car. B. filling the tank twice a week. C. the cost of getting your car inspected once a year. D. the vacation to Hawaii you had to give up in order to make your car payments.
Consider an economy that is greatly dependent on the U.S. economy for consumer goods and durables. Inflation will increase in the economy if:
A) the dollar appreciates vis-à-vis its own currency. B) the U.S. goes into a recession. C) the dollar depreciates vis-à-vis its own currency. D) the country adopts dollar as its official currency.
If a country is currently borrowing more from the rest of the world than it is lending to the rest of the world, the country is a
A) net borrower. B) debtor nation. C) net lender. D) creditor nation.
If the demand curve for bikes shifts leftward and the supply curve for bikes shifts rightward, the equilibrium
A) price of bikes definitely increases. B) price of bikes definitely decreases. C) quantity of bikes definitely increases. D) quantity of bikes definitely decreases.