ECO 203/ PROBLEM SET 2

 
1. Which of the following transactions is included in GDP?
 
 a. you buy a used refrigerator, paying $100
  b. an unemployed worker receives a government check for $100
 c. Ford Motor Company builds 1,000 Lincolns at a cost of $10,000 each. 
 Unable to sell them, it holds them as inventories.
 d. you sell $300 of AT&T stock to your roommate
 
 
2. Stabilization policy is the name given to government economic programs
 designed to:
 
 a. prevent or shorten recessions
 b. counteract inflation
 c. stabilize prices
 d. all of the above
 e. none of the above
 
The aggregate supply and demand diagrams have become widely accepted as a
useful tool for analyzing the performance of the macroeconomy. In Figure below
are four diagrams that represent different developments in the macroeconomy. 
You are to choose the diagram that best represents the situations described
in questions 3 & 4.
 
 



 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
   
    
    
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3. Which graph illustrates the OPEC induced stagflation of
 1974-75?
 
 a. 1
 b. 2
 c. 3
 d. 4
 
4. Which graph illustrates the attempt by the government to
 eliminate the increase in prices that resulted from a reduction in AS
 through stabilization policy aimed at AD?
 
 a. 1
 b. 2
 c. 3
 d. 4
 
 
5. The most serious post-Second World War recession occurred when the
 unemployment rate reached 11 percent in:
 
 a. 1974
 b. 1970
 c. 1982
 d. 1953
 
6. According to the book, the government can use stabilization policies to
 shift the aggregate demand curve outward to reduce unemployment. A by-
 product of this will be:
 
 a. a lower level of output
 b. a shift in the aggregate supply curve
 c. a higher price level
 d. deflation
 
7. Upon examining time series data for the Great Depression, we find that
 both the price level and the real GDP fell during this period. This
 suggests that the primary cause of the Depression was an:
 
 a. inward shift in the aggregate supply curve
 b. outward shift in the aggregate supply curve
 c. inward shift in the aggregate demand curve
 d. outward shift in the aggregate demand curve

ECO 203