What is the business cycle and why does it occur?
What will be an ideal response?
The business cycle is alternating periods of economic expansions and recessions. The business cycle occurs due to the combined effects of economic shocks and nominal price and wage stickiness. Shocks alter the consumption and investment decisions of households and firms, given current nominal prices and wages. With sticky prices and wages, shocks cause output to fluctuate, altering real GDP.
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The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone). The current price is 35ยข per minute. If the price were to increase by ten cents per minute, consumer surplus would
A) fall to $820. B) fall by $84. C) fall by $58. D) fall to $369.
Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126 . Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?
a. 5.1 percent b. 3.1 percent c. 2.1 percent d. 2.4 percent
Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as:
A. the normal effect of a price change. B. a decrease in the demand for apples. C. the substitution effect of a price change. D. the income effect of a price change.
What does a balance of trade deficit imply?
a. exports of goods and services exceed imports of goods and services b. imports of goods and services exceed exports of goods and services c. investment income received from abroad exceeds investment income paid to foreigners d. investment income paid to foreigners exceeds investment income received from abroad e. investment by foreigners exceeds domestic investment in other countries