Solution Manual for Economics by Michael Parkin Exam with correct Answers

Economics by Michael Parkin Exam Solution Manual | Complete Solutions Updated business cycles - answer - regular increases (expansion) and decreases (recession) in real GDP business fluctuations - answer - irregular increases and decreases in real GDP Largest sector of the US economy is - answer - Consumer The strength of the US economy depends on Consumer Sector Consumer spending is equivalent to about 70% of GDP Main Idea 13.1 A - answer - Business cycles are marked by alternating periods of expansion and recession recession - answer - decline in real GDP lasting at least two quarters peak - answer - point in time when real GDP stops expanding and begins to decline trough - answer - point in time when real GDP stops declining and begins to expand expansion - answer - period of uninterrupted growth of real GDP trend line - answer - growth path the economy would follow if it were not interrupted by alternating periods of recession and recovery depression - answer - a type of recession with: 1. large numbers of unemployed people, 2. declining real incomes, 3. overcapacity in manufacturing plants, and 4. general economic hardship Phases of the business cycle are - answer - recession (begins at peak and ends at trough) expansion (begins at trough and ends at peak) Business cycle phases - answer - recession (begins at peak and ends at trough) expansion (begins at trough and ends at peak) Business cycle causes - answer - 1. changes in investment spending 2. innovation and imitation 3. monetary policy decisions 4. external shocks Business cycle Changes in Investment spending examples - answer - business investing in capital goods means expansion businesses cutting capital investments or laying off people means recession Business cycle Innovation and Imitation examples - answer - costs go down and profits increase in innovation, so there is expansion when all companies are imitating the innovator, there is recession Business cycle Monetary Policy Decisions examples - answer - when interest rates are low and loans are easy to get, there is expansion when interest rates rise and loans are harder to get, there is recession Business cycle External Shocks examples - answer - wars, unexpected high oil prices, or a disturbance in one area of the economy can create a recession Main Idea 13.1 B - answer - Business cycles have become more moderate (or less severe) since the Great Depression in the 1930s. As a country, we know what to do (especially with monetary policy) to avoid depressions. depression scrip - answer - currency issued by towns, chambers or commerce, or other civic bodies during the Great Depression of the 1930s Main Idea 13.1 C - answer - Economists use statistics and models to predict business cycles (expansion and recession). Main Idea 13.2 A - answer - Several price indexes are used to measure inflation. Consumer price index (CPI) is most popular because the consumer sector drives our economy. Main Idea 13.2 C - answer - Inflation can reduce purchasing power, distort spending, and affect the distribution of income. Main Idea 13.2 B - answer - Causes of inflation include strong demand, rising costs, and wage-price spirals, along with a growing supply of money. Main Idea 13.3 A - answer - The government takes monthly surveys to measure the unemployment rate. Main Idea 13.3 B - answer - Unemployment is often caused by circumstances outside an individual's control and is therefore very difficult to remedy. Main Idea 13.3 C - answer - Unemployment can cause uncertainty, political instability, and social problems. Great Depression - answer - started with stock market crash on 10/29/29 Black Tuesday GDP declined almost 50% in 4 years unemployment increased 800% wages dropped, banks closed, money supply fell ended in 1939 when US entered WWII and GDP = 1929 level Great Depression causes - answer - gap in distribution of income (very wealthy didn't spend money, very poor didn't have money to spend) easy c