2700 2600 2500 2400 955 1956 1957 YEAR Source Currentdollar

2700 2600 2500 2400 955 1956 1957 YEAR Source: \"Current-dollar and Real GDP, Bureau of Economics Analysis, last modifnied May 1, 13, accessed May 15, 13, http://www.bea.gov/national/xis/gdplev.xls. Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short-run fluctuations in real aop are often reterred to as True or False: Short-term fluctuations in real GDP are irregular and unpredictable True False bly occurred as the U.S. economy experienced declining real GDP in 1957? Check all that apply. Total real income declined. The unemployment rate increased. aCorporate profits declined. Car sales increased. Save &

Solution

Qn:1)Real GDP trends upward overtime, but experiences ups and downs in the short run. These short-run fluctuations in real GDP are often reffered to as .....................

Ans: Business Cycle.

Qn:2) Which of the following probably occured as the US economy experienced declining real GDP in 1957

Ans: 1)Total real income declined 2) Unemployment rate increased 3) Corporate Profits declined

Qn:3) For example, an increase in money supply, a Nominal variable , will cause the price level, a Nominal variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce a Real variable. The notion that an increase in quantity of money will impact the price level but not the output level is known as Monetary Neutrality.

Qn: 4) As the price level rises, the cost of borrowing money will rise, causing the quantity of output demanded to fall. This phenomenon is known as the interest rate effect.

Additionally, as te price level rises, the impact on the domestic interest rate will cause the real value of the dollar to rise in the foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore decline, and the number of foreign products purchased by domestic consumers as firms (imports) will increase. Net exports will therefore decline, causing the quantity of domestic output demanded to fall. This phenomenon is known as the exchange rate effect.