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.

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.