ECN 211 EXAM 3 ASU HILL QUESTIONS AND CORRECT ANSWERS

ECN 211 EXAM 3 ASU HILL
QUESTIONS AND CORRECT
ANSWERS
WhatA2isA2aA2recession?A2-A2Ans--
economicA2contraction;A2twoA2straightA2quartersA2ofA2negativeA2GDPA2growth

WhatA2isA2aA2boom?A2-A2Ans--
economicA2expansion;A2boomA2lengthA2doesA2notA2predictA2aA2recession

WhatA2areA2theA2characteristicsA2ofA2aA2goodA2economy?A2-A2Ans--
lotsA2ofA2jobA2openings,A2firmsA2areA2raisingA2wagesA2toA2attractA2workers,A2assetA2values
A2areA2rising,A2consumersA2borrowA2andA2spendA2moneyA2freely


WhatA2areA2theA2characteristicsA2ofA2aA2badA2economy?A2-A2Ans--
newA2jobA2openingsA2areA2scarce,A2firmsA2notA2seekingA2newA2employees,A2assetA2prices
A2fall,A2consumersA2tryA2toA2saveA2money


businessA2cycleA2-A2Ans--
AlternatingA2periodsA2ofA2economicA2expansionA2andA2economicA2recession

UnemploymentA2ratesA2inA2theA2businessA2cycle...A2-A2Ans--
areA2aA2laggingA2indicator;A2whenA2aA2recessionA2occurs,A2employmentA2mayA2stayA2lowA2
forA2awhile

WhyA2doA2economiesA2fluctuate?A2-A2Ans--aA2changeA2inA2supplyA2orA2demand

DemandA2sideA2recessionA2-A2Ans--
ChangesA2inA2willingnessA2ofA2consumersA2andA2firmsA2toA2spendA2causesA2fluctuationsA2
inA2GDP

SupplyA2sideA2recessionA2-A2Ans--
Rare,A2largeA2eventsA2likeA2earthquakes,A2plagues,A2wars,A2oilA2shocks

Say'sA2LawA2-A2Ans--
supplyA2createsA2itsA2ownA2demandA2(ifA2youA2buyA2somethingA2someoneA2willA2wantA2toA
2buyA2it)

, KeynesA2TheoryA2-A2Ans--
RecessionA2causedA2byA2businessA2andA2consumersA2hoardingA2cash;A2explainedA2theA2
GreatA2Depression

paradoxA2ofA2thriftA2-A2Ans--
IfA2everyoneA2savesA2atA2theA2sameA2time,A2incomeA2falls,A2soA2noA2oneA2saves

whyA2can'tA2pricesA2changeA2toA2restoreA2theA2economyA2toA2fullA2production?A2-A2Ans--
frictions

FrictionA2#1:SectorA2switchingA2-A2Ans--
SwitchingA2peopleA2fromA2slowingA2sectorsA2toA2risingA2sectorsA2takesA2timeA2andA2resour
ces

FrictionA2#2:A2TheA2liquidityA2trapA2-A2Ans--
SavingsA2increaseA2andA2investmentA2decreaseA2lowersA2equilibriumA2interestA2rateA2belo
wA2zero;A2fedA2canA2notA2makeA2theA2interestA2rateA2anyA2lower->A2:(

FrictionA2#3:A2DeflationaryA2cycleA2-A2Ans--SpendingA2fallsA2-->A2pricesA2fallA2--
>A2wagesA2fallA2-->A2repeat

FrictionA2#4:A2StickyA2pricesA2andA2wagesA2-A2Ans--Wages/
pricesA2stick,A2notA2allowingA2marketsA2toA2clear

SpendingA2isA2aggregatedA2intoA24A2categories:A2-A2Ans--consumption
investment
government
netA2exportsA2(usuallyA2negative)

WhenA2doA2youA2moveA2alongA2theA2aggregateA2demandA2curve?A2-A2Ans--
whenA2theA2priceA2levelA2changes

wealthA2effectA2-A2Ans--effectsA2priceA2level/
aggregateA2demand:A2AtA2lowerA2prices,A2consumersA2buyA2moreA2goodsA2andA2services

interestA2rateA2effectA2-A2Ans--effectsA2priceA2level/
aggregateA2demand:A2WhenA2pricesA2fall,A2peopleA2needA2lessA2cash.A2MoreA2savingA2lo
wersA2interestA2rates,A2increasingA2investmentA2spending;A2cheaperA2forA2consumersA2an
dA2investmentsA2toA2borrow

exchangeA2rateA2effectA2-A2Ans--effectsA2priceA2level/
aggregateA2demand:A2LowerA2pricesA2leadsA2toA2lowerA2interestA2rates.A2CapitalA2leaves,A
2loweringA2theA2exchangeA2rateA2andA2encouragingA2export