Purdue ECON 252 Final Exam Questions and Answers Already Passed

Purdue ECON 252 Final Exam Questions and Answers Already Passed Properties of economic fluctuations 1) Co-movement in economic aggregates 2) Limited predictability 3) Persistence in the rate of growth The Great Depression of 1929‒1933 illustrates the three key properties of economic fluctuations Aggregate A whole formed by combining several (typically different) elements Marginal product of labor When output price rises, the labor demand curve shifts to the right - more labor is demanded at each wage When output price falls, less labor is demanded at each wage Technological change causes the MPL function to change, generally to in- crease at each level of L Flexible (floating) exchange rate The government does not intervene in the foreign exchange market Fixed (rigid) exchange rate The government fixes a value and intervenes to maintain that value Managed exchange rate A system between the flexible and fixed exchange rates Under the managed exchange rate system, the exchange rate is predominantly determined in the foreign exchange market by supply of and demand for a currency The government intervenes only occasionally to influence the exchange rate when it considers it to be necessary Nominal exchange rate the price of another (foreign) country's currency in units of one (domestic) country's currency Units of domestic currency/1 Unit of foreign currency 1/e When a nominal exchange rate rises, we say that the domestic currency is appreciating When a nominal exchange rate falls, we say that the domestic currency is depreciating Nominal wage The rate of pay employees are compensated If you're paid $15.00 per hour, your nominal wage is $15.00 per hour Nominal vs. Real The nominal value of a good is its value in terms of money The real value of a good is its value in terms of some other good, service, or bundle of goods Real wage -EX) Wage in terms of the cost of living Downward nominal wage rigidity Companies would rather fire people than reduce wages Even when economic theory would suggest that employers would reduce wages, they usually won't Wages, unemployment, inflation, prices, cost of living, cost of houses, and the stock market during recessions Wages decrease Unemployment increases Inflation decreases Prices decrease Cost of living decreases Cost of