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Environmental Economics Test 2

business cycles.
Recurring upswings and downswings in an economy’s real GDP over time are called
recession.
The phase of the business cycle in which real GDP declines is called a
trough.
The phase of the business cycle in which real GDP is at a minimum is called the
rising real output and falling unemployment rates.
In the expansion phase of the business cycle the economy will most likely experience
irregularly and unexpectedly.
Innovations such as the microchip and the Internet lead to business cycle variations because significant innovations occur
unemployed.
The United States’ economy is considered to be at full employment when about 4-5 percent of the labor force is
frictionally unemployed.
Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is
unemployed.
Official unemployment statistics understate unemployment because discouraged workers are not counted as
unemployment.
Part-time workers are counted as fully employed and therefore the official unemployment rate may understate the level of
The unemployment rate
the percentage of the labor force that is unemployed.
Structural unemployment
may involve a locational mismatch between unemployed workers and job openings.
Bureau of Labor Statistics.
The government agency responsible for collecting and reporting unemployment data is the
actual GDP and potential GDP.
The GDP gap measures the difference between
money.
During a period of hyperinflation people tend to hold goods rather than
Inflation
is undesirable because it arbitrarily redistributes real income and wealth.
Inflation
affects both the level and the distribution of income.
level of income.
The most important determinant of consumer spending is the
level of income.
The most important determinant of consumption and saving is the
level of disposable income.
The consumption schedule directly relates consumption to the
A decline
in disposable income decreases consumption by moving downward along a specific consumption schedule.
1.
APC + APS =
increase.
As disposable income increases, consumption and saving both
Dissaving
means that households are spending more than their current incomes.
Dissaving
occurs where consumption exceeds income.
the wealth effect.
In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as
investment demand schedule.
The relationship between the real interest rate and investment is shown by the
loan.
The real interest rate is the percentage increase in purchasing power that the lender receives on a
highly variable, capital goods are durable, and innovation occurs at an irregular pace.
Investment spending in the United States tends to be unstable because expected profits are
larger amount.
The multiplier effect means that an increase in investment can cause GDP to change by a
spending.
The multiplier is useful in determining the change in GDP resulting from a change in
GDP.
The practical significance of the multiplier is that it magnifies initial changes in spending into larger changes in
investment, net exports, and government spending.
The multiplier applies to
Council of Economic Advisers.
The group of three economists appointed by the President to provide fiscal policy recommendations is the
Congress to stabilize the economy.
Discretionary fiscal policy refers to intentional changes in taxes and government expenditures made by
domestic output, employment, and the price level.
Fiscal policy refers to the manipulation of government spending and taxes to stabilize
stabilization at the option of Congress.
Discretionary fiscal policy is so named because it involves specific changes in T and G undertaken expressly for
real GDP.
Expansionary fiscal policy is so named because it is designed to expand
price stability.
Contractionary fiscal policy is so named because it is aimed at reducing aggregate demand and thus achieving
inflation.
An economist who favors smaller government would recommend tax cuts during recession and reductions in government spending during

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