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1. Key facts about economic fluctuations The graph included below approximates United States business cycles between quarter one of 1953 and quarter three of 1957.

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1. Key facts about economic fluctuations The graph included below approximates United States business cycles between quarter one of 1953 and quarter three of 1957. The shaded region denotes periods of six or more consecutive months of declining real gross domestic product (real GDP). 2700 2600 2500 REAL GDP (Billions of dollars) 2400 2300 1954 1955 1957 1953 1956 YEAR Source: "Current-dollar and Real GDP," Bureau of Economics Analysis, last modified May 1, 13, accessed May 15, 13, http://www.bea.govational/xls/gdplev.xls.Notice that real GDP trends upward over time but experiences ups and downs in the short run. A period of declining real GDP, such as the blueshaded period in 1953, is known as V . True or False: Shortterm uctuations in real GDP are irregular and unpredictable. CI True 0 False which of the following probably occurred as the U.S. economy;r experienced increasing real GDP in 1954? Check all that apply. Home sales declined. Consumer spending increased. llll Industrial production declined. C The unemployment rate declined. Notice that real GDP trends upward over time but experiences ups and downs in the short mn. A period of declining real GDP, such as the blueshaded period in 1953, is Known as V . an expansion True or False: Shortterm fl IP are irregular and unpredictable. a business cycle O Tme a recession 0 False which of the following probablyI occurred as the U.S. economy.r experienced increasing real GDP in 1954? Check all that apply. Home sales declined. Consumer spending increased. Industrial production declined. l: l: l: C The unemployment rate declined. 2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a V variable, will cause the price level, a v variable, to increase but I.vill have no long-run effect on the quantity of goods and services the economy can produce, a V variable. The distinction between real variables and nominal variables is known as v . However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's shortrun uctuations around the longrun output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. AS VERTICALAXIS AD HDRIZO NTAL AXIS HORIZONTAL AXIS The aggregate curve shows the quantity of output that households, firms, the government, and foreign customers want to buy at each price level. The vertical axis of the aggregate demand and aggregate supply model measures the overall2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no long-run effect on the quantity of goods and economy can produce, a V variable. The distinction between real variables and nominal variables is known as v However, in the short run, most economists belie l and nominal variables are intertwined. Economists use the model of aggregate demand 2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independentlyr of one another. For example, an increase in the moneyr supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and services the economy can produce, a V e distinction between real van'ables . _ . real and nominal variables Is known as V . nominal I I However, in the short run, most economists believe that real and nominal variables are intertwined. ' use the model of aggregate demand 2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independentlyf of one another. For example, an increase in the money supply. a V variable, will cause the price level. a V variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a V variable. The distinction between real variables and nominal variables is known as V . real ed. Economists use the model of aggregate demand .- I u - nut level. The following graph shows an incomplete However, in the short run, most economists believe that real and nominal variables a and aggregate supplyr to examine the economy's short-run uctuations around the lo 2. Explaining short-run economic fluctuations A majority of economists believe that in the long runr real economic variables and nominal economic variables behave independentlyr of one another. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and services the economy can produce, a V variable. The distinction between real variables and nominal variables is known as V . the quantity theory However, in the short run, most ec -nd nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine t price neutrality ctuations around the longrun output level. The following graph shows an incomplete short-run aggregate demand (AD) } diagramit needs appropriate labels for the axes and curves. In the questions that the classical dichotomy follow you will identify some of the The aggregate curve shows the quantity of output that households, firms, the government, and foreign customers want to buy at each price level. demand The vertical axi supply gregate demand and aggregate supply model measures the overallprice level demand The aggregate curve shows the quantity of output that households, firms, the g quantity of output sign customers want to buy at each price level. supply The vertical axis of the aggregate demand and aggregate supply model measures the overall

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