Quiz 2 - Sam Fonseca 10/1/2010 Quiz 2 1. In terms of...

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Sam Fonseca 10/1/2010 Quiz 2 1. In terms of macroeconomic equilibrium, sticky prices are prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded. For example, if the quantity demanded of a good with sticky prices were to drop, the quantity supplied would not immediately follow, so there would be more goods supplied into the market than consumers are willing to purchase at that price. 2. In the early 20 th century classical economists believed that the markets always cleared themselves and recessions were self-correcting. Output would fall, cause the demand for labor to shift to the left. They believed that when this happened, wages would decline, therefore firms would begin hiring again at the new lower wage rate. 3. Keynes believed that unemployment and economic slumps were caused by a drop in the aggregate demand for goods and services, rather than prices and wages as the classical economists believed. He believed that government could intervene on the markets and stimulate output and demand. For example, in order to help the American automobile industry recover, Keynes might suggest to give tax credits to people who buy American cars. This would increase the demand for the cars, without directly affecting their price. 4. Gross Domestic Product, GDP, is the total market values of all final goods and services produced within a given period by factors of production located within a country. Gross National Product, GNP, on the other hand, is the total market value of all final goods and
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This note was uploaded on 02/12/2012 for the course ECON 2301 taught by Professor Mcelroy during the Fall '09 term at University of Texas at Dallas, Richardson.

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Quiz 2 - Sam Fonseca 10/1/2010 Quiz 2 1. In terms of...

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