ASU ECON 211 COMPLETE REVIEW
PACKAGE QUESTIONS WITH EXPERT
ANSWERS
●● Depression
Answer: a severe period of falling incomes and rising unemployment ex.
Great Depression
●● The Business Cycle
Answer: the short-run fluctuations of the economy
●● Economic Fluctuations
Answer: -are irregular and unpredictable
-most macroeconomic variables measuring income, spending, or
production move in the same direction
●● When Output Falls, Unemployment Rises
Answer: when real GDP declines the rate of unemployment rises
because when firms produce fewer goods and services, they lay off
workers
●● Classical Dichotomy
Answer: -the separation of economic variables into real and nominal
,-monetary neutrality is the property that changes money supply and only
affects nominal variables, not real variables
-used for long-run description of the economy
●● Monetary Neutrality
Answer: *if the money supply doubles
-prices, wages and all dollar values double
-real output, employment, real interest rates, and real wages remain
unchanged
-money is unlikely to be neutral in the short run, but it is likely to be
neutral in the long run
●● Nominal Variables
Answer: -those variables measured in monetary units
-effected by changes in th emoney supply
●● Real Variables
Answer: those variables measured in physical units
●● Short-run Economy
Answer: -changes in nominal variables such as money and prices impact
real variables
-nominal and real variables are not independent
, -changes in money can temporarily move real GDP away from its long-
run trend
●● Model of Aggregate Supply and Aggregate Demand
Answer: -used to explain short-run economic fluctuations around the
economies long-run trend
-the price level (measured by the CPI/ GDP deflator) is graphed on the
vertical axis
-real GDP is graphed on the horizontal axis
-the price level and output adjust to balance aggregate supply and
demand
●● Aggregate-Supply Curve
Answer: shows the quantity of goods and services that firms are willing
to produce and sell at each price level
●● Aggregate-Supply Curve Short-Run
Answer: has an upward (positive) slope because a change in the price
level causes output to deviate from its long-run level for a short period
of time
●● Sticky-Wage Theory (1)
Answer: *suppose firms/workers agree on a nominal wage contract
based on the expected price level
PACKAGE QUESTIONS WITH EXPERT
ANSWERS
●● Depression
Answer: a severe period of falling incomes and rising unemployment ex.
Great Depression
●● The Business Cycle
Answer: the short-run fluctuations of the economy
●● Economic Fluctuations
Answer: -are irregular and unpredictable
-most macroeconomic variables measuring income, spending, or
production move in the same direction
●● When Output Falls, Unemployment Rises
Answer: when real GDP declines the rate of unemployment rises
because when firms produce fewer goods and services, they lay off
workers
●● Classical Dichotomy
Answer: -the separation of economic variables into real and nominal
,-monetary neutrality is the property that changes money supply and only
affects nominal variables, not real variables
-used for long-run description of the economy
●● Monetary Neutrality
Answer: *if the money supply doubles
-prices, wages and all dollar values double
-real output, employment, real interest rates, and real wages remain
unchanged
-money is unlikely to be neutral in the short run, but it is likely to be
neutral in the long run
●● Nominal Variables
Answer: -those variables measured in monetary units
-effected by changes in th emoney supply
●● Real Variables
Answer: those variables measured in physical units
●● Short-run Economy
Answer: -changes in nominal variables such as money and prices impact
real variables
-nominal and real variables are not independent
, -changes in money can temporarily move real GDP away from its long-
run trend
●● Model of Aggregate Supply and Aggregate Demand
Answer: -used to explain short-run economic fluctuations around the
economies long-run trend
-the price level (measured by the CPI/ GDP deflator) is graphed on the
vertical axis
-real GDP is graphed on the horizontal axis
-the price level and output adjust to balance aggregate supply and
demand
●● Aggregate-Supply Curve
Answer: shows the quantity of goods and services that firms are willing
to produce and sell at each price level
●● Aggregate-Supply Curve Short-Run
Answer: has an upward (positive) slope because a change in the price
level causes output to deviate from its long-run level for a short period
of time
●● Sticky-Wage Theory (1)
Answer: *suppose firms/workers agree on a nominal wage contract
based on the expected price level
