The defining feature of business cycles is that they
A) are inherently bad.
B) represent the underlying trend of real GDP in the economy.
C) are fluctuations about trend in real GDP.
D) measure prospects for future growth in the economy.
C
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Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane)
If the wage rate paid to the pilots increases relative to the rental rate of capital for the airplanes, then: A) the optimal capital-labor ratio should increase. B) the optimal capital-labor ratio should decrease. C) the optimal capital-labor ratio remains the same. D) We do not have enough information to answer this question.
As the price level rises,
a. the exchange rate falls, so net exports fall. b. the exchange rate falls, so net exports rise. c. the exchange rate rises, so net exports fall. d. the exchange rate rises, so net exports rise.
The Federal Reserve can succeed in reducing unemployment by increasing the money supply to stimulate spending. In which of the following scenarios would it most likely refrain from implementing that policy?
a. when there is a significant slowdown in the economy and the Federal Reserve does not want to cause a shock b. when the economy is close to full capacity and the Federal Reserve does not wish to risk causing inflation c. when unemployment is in the double digits and firms are resistant to hiring more workers d. when consumers seem resistant to spending because so many of them are out of work
The Japanese economy has been consistently weak throughout the 1990s. This has caused a slight deflation, illustrating the
A. negligible cost of eliminating inflation. B. very slow operation of the economy’s self-correcting mechanism. C. tendency of inflation to accelerate during recessions. D. rapidity with which inflation can be stopped.