Economics 201 Study questions Unit # 2

Chapter 8: The business cycle:

1) What is the business cycle? Explain what it means to say that the business cycle is “repeating” and “non-periodic”?

2) Describe the characteristics of the expansion phase of the cycle.

3) Describe the characteristics of the contraction phase of the cycle.

4) What is the difference between unemployment, underemployment, and disguised unemployment? How does recession affect each?

5) How are unemployment rates calculated and what do they measure?

6) What is the difference between cyclical, frictional and structural unemployment? What factors cause each?

7) What does it mean when we say that an economic system is operating at full employment? What does this imply about the unemployment rate?

8) What is inflation, how is it measured and what causes it? What problems does inflation cause for an economic system?

Chapter 9 and 10: The AD, AS model:

1) Describe the four aggregate markets in the AS, AD model.

2) What factors influence AD in the goods market?

3) How do price level changes affect AD in the goods market?

4) Develop an AD function.

5) Explain the three reasons for the relationship between AD and the price level for the AD function in the goods market.

6) How do changes in non-price level factors affect AD in the goods market?

7) What is difference between the long run and the short run?

8) What factors influence LRAS in the goods market? How do price level changes affect LRAS? What would cause LRAS to shift?

9) How do changes in the price level affect SRAS and what would cause SRAS to shift?

10)What is unique about the intersection of AD, LRAS, and SRAS in the goods market?

11)Describe equilibrium in the loanable funds market.

12)Use graphs to show what would happen if:

a) LRAS and SRAS increased with no change in AD.

b) SRAS increased with no change in AD.

c) LRAS and SRAS decreased with no change in AD.

d) SRAS decreased with no change in AD.