Exam 2 Review

Investment happens when:

• current income is greater than current spending.

• current consumption is greater than current output.

• resources are devoted toward increasing current output.

• resources are devoted toward increasing future output.

Which among the following countries had the highest GDP per person in 2020?

• Switzerland

• United States

• Japan

• China

If prices of goods and services were inflexible, then:

• a negative demand shock would lead to increased real GDP in the short run.

• a positive demand shock would lead to increased real GDP in the short run.

• a negative demand shock would have no short-run effect on real GDP.

• there would be no short-run demand shocks.

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP?

• Nominal GDP doubles.

• Nominal GDP is halved.

• Nominal GDP doesn't change.

• There is not enough information to determine what happens to nominal GDP.

In the very short run, firms tend to respond to demand shocks by changing their prices.

• True

• False

If nominal GDP is rising faster than real GDP, then inflation must be occurring.

• True

• False

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

• Nominal and real GDP would both rise

• Nominal and real GDP would both be unchanged

• Real GDP would rise, but nominal GDP would be unchanged

• Nominal GDP would rise, but real GDP would be unchanged (Correct Answer)

The term 'economic investment' refers to money spent purchasing newly created capital goods such as factories and wireless networks.

• True

• False

Which of the following statements is true?

• Short-run economic fluctuations are made worse because prices are flexible.

• Short-run economic fluctuations would be less severe if prices were inflexible.

• If prices were fully inflexible, there would be no short-run economic fluctuations.

• If prices were fully flexible, there would be no short-run economic fluctuations.

High rates of unemployment are undesirable because they

• always lead to a decline in nominal GDP.

• are associated with higher levels of crime and illness.

• cannot be reduced through government policy.

• are associated with increases in the price level.