Economic Indicators & Business Cycle unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1 Paper 2 Paper 3

Each paper is built from this unit’s 36 terms and is the same for everyone, so a teacher can assign “Unit 2, Paper 2” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.

Suggested time 37 min 34 points0/17 attempted

Underemployment

Frictional unemployment

Labor force

Structural unemployment

Excluded from GDP

Recessionary gap

Cyclical unemployment

Labor force participation rate

Who gains and loses from unexpected inflation

GDP per capita

Full employment output

Recession

Short answer 1. Define or explain: Natural rate of unemployment

3 pts

Short answer 2. Define or explain: GDP deflator

3 pts

Short answer 3. Define or explain: Business cycle

3 pts

Short answer 4. Define or explain: Discouraged worker

3 pts

Free response

10 pts

This course has no free-response prompt tagged to this unit, so one from elsewhere in the course is used. It is still worth writing — the skill transfers.

LONG FREE-RESPONSE. Assume the economy of Ardenia is open, has a flexible exchange rate, and is currently in a recession. The unemployment rate is 9 percent while the natural rate of unemployment is 5 percent. The marginal propensity to consume is 0.75, and the recessionary output gap is $600 billion.

Draw a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, and show the current short-run equilibrium relative to full-employment output.

Calculate the spending multiplier and the minimum increase in government purchases needed to close the recessionary gap, showing your work.

On your graph from part (a), show the effect of that increase in government purchases on aggregate demand and on the price level.

Assume the increase is financed entirely by government borrowing. Using a correctly labeled graph of the loanable funds market, show the effect on the real interest rate.

Given your answer in part (d), explain the effect on financial capital flows into Ardenia and on the international value of the Ardenian dollar.

Explain the resulting effect on Ardenian net exports.