The economy is in a recession when businesses begin to expect future sales and profits to increase. The Keynesian theory of the business cycle predicts that the aggregate demand will _______, real GDP will ___________, and as wages _________, the price level will _______.

increase; increase; remain sticky; rise
increase; increase; rise; rise
decrease; decrease; fall; fall
decrease; decrease; remain sticky; remain the same

The rational expectations theories predict that an expansion will occur when _________________.

a larger than anticipated increase in short-run aggregate supply occurs
a larger than anticipated increase in long-run aggregate supply occurs
a smaller than anticipated increase in short-run aggregate supply occurs
a larger than anticipated increase in aggregate demand occurs

In rational expectations theories, a business cycle is generated as real GDP fluctuates _________________. But in real business cycle theory, a business cycle is generated as real GDP fluctuates ________________.

along the short-run aggregate supply curve; with potential GDP
with potential GDP; along the short-run aggregate supply curve
with short-run aggregate supply; with short-run aggregate supply
with short-run aggregate supply; with long-run aggregate supply

The monetarist business cycle is generated as follows: The Fed changes the growth rate of the money supply then ________________.

investment changes, the real interest rate changes, productivity changes, and employment changes in the opposite direction
there are swings of the long-run aggregate supply curve and swings in real GDP
aggregate demand changes, real GDP changes, the wage rate changes, and real GDP changes in the opposite direction
aggregate demand changes, the price level changes, the wage rate changes, and the price level changes in the opposite direction

In real business cycle theory, a decrease in productivity leads to all of the following events except ______________.

a decrease in investment demand
a fall in the interest rate
a decrease in the demand for labor
a rise in the real wage rate

Real business cycle theory predicts that a productivity shock that increases investment will _______________.

increase investment and increase real wage rates
decrease employment and increase investment
decrease the real wage rate and increase the real interest rate
increase the real interest rate and decrease employment

The table gives data regarding the economy of Photon. In 1995, Photon was at full employment. Real business cycle theory explains the data as follows: Between 1995 and 1996, the aggregate demand _________.

increases and long-run aggregate supply decreases
decreases and long-run aggregate supply increases
and long-run aggregate supply both increase
and short-run aggregate supply both increase

The table gives data regarding the economy of Photon. In 1995, Photon was at full employment. New Keynesian theory of the business cycle explains the data as follows: Between 1995 and 1996, the aggregate demand _______________.

and short-run aggregate supply increased by the same amount
did not change and the short-run aggregate supply increased
and the long-run aggregate supply both increased
increased unexpectedly

When aggregate demand fluctuates, the _______ theory of the business cycle will predict a business cycle with the biggest swings in real GDP.

Keynesian
monetarist
real business cycle
new classical

The figure shows the economy of Big Wave in long-run equilibrium at points a and d. A recession occurs in which Big Wave moves to points c and e. This recession can be explained by ___________.

the new classical theory as a decrease in aggregate demand that exceeded the anticipated decrease in aggregate demand
the new Keynesian theory as an unanticipated decrease in aggregate demand when the money wage rate remained the same
Keynesian theory as decrease in aggregate demand when the money wage remained the same
the real business cycle theory as a decrease in labor productivity

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