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Macro Ch9 Online Questions

Macro Ch9 Online Questions - explain booms and recessions...

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Chapter 9 Review Questions 1. How does a recession differ from an expansion ? Describe the typical behavior of GDP and the unemployment rate during each of these periods. 2. Why can’t a recession be explained in terms of a reduction in labor demand? In terms of a reduction in labor supply? 3. In an economy with just two people, economic fluctuations would be unlikely to occur. Why? What is the key difference in the real-world economy that makes economic fluctuations more likely? 4. “During the last half-century economic fluctuations in the United States have been caused entirely by changes in military spending.” True or false? Explain. 5. Suppose the economy is disturbed by a decrease in spending. Describe how this leads to a recession. How would an increase in spending lead to a boom? ANSWERS TO EVEN-NUMBERED ONLINE REVIEW QUESTIONS 2. While the labor demand curve can shift, it is unlikely to shift rapidly enough to
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Unformatted text preview: explain booms and recessions. The demand for labor is determined largely by how productive labor is, and this is slow to change. Similarly, the labor supply curve—which arises from the preferences of millions of families about working in the market—is unlikely to shift suddenly enough to explain recessions. Further, in recessions, an unusually large number of people are looking for work. But this observation is not consistent with a leftward shift in the labor supply curve, which would mean that fewer people want to work. 4. A quick glance at Table 1 in the chapter shows that this statement is false. While some economic fluctuations are caused by changes in military spending, others have been caused by changes in business investment, new home construction, and spending on cars and other energy-related products....
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