Question: A recessionary gap is associated with a business-cycle expansion.

Answer: False

Question: What effect would a country’s lower price level relative to the price levels of its major trading partners have on its net exports?

Answer: Net exports would increase, since exports would increase and imports would decrease.

Question: If businesses believe that an economic expansion is around the corner, then businesses are likely to __________.

Answer: increase investment expenditures

Question: __________ would not predict an increase in consumption.

Answer: A rumor of company layoffs

Question: Suppose the U.S economy is initially in long-run equilibrium in the AS/AD model. If a recession strikes in China leading to a decrease in U.S. exports, which type of gap will occur within the U.S economy and why?

Answer: A recessionary gap will occur because AD will shift left as a result of falling net exports.

Question: The clearest driver of investment benefits is expectations for __________.

Answer: future profits

Question: A recent strengthening of the U.S. economy has led to an increase in the value of the U.S. dollar relative to other currencies, making U.S. products relatively more expensive. The result will be a decrease in U.S. net exports.

Answer: True

Question: ____________ is the most powerful determinant of how much an individual or household consumes.

Answer: Disposable income

Question: Which of the following are a characteristic of real GDP?

Answer: -It offers an accurate measure of the actual quantity of goods and services that a nation produces.

-It accounts for inflation.

-It often has a lower value than nominal GDP.

All the above

Question: Saving for retirement is an example of setting __________.

Answer: expected future income