Chapter 6: Q2. (page 129)
True or False. The term economic investment includes purchases of stocks, bonds, and real estate.
The statement “the term economic investment includes purchases of stocks, bonds, and real estate” is false.
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Do prices tend to become more flexible or less flexible as time passes? Explain.
Catalog companies are committed to selling at the prices printed in their catalogs. If a catalog company finds its inventory of sweaters rising, what does that tell you about the demand for sweaters? Was it unexpectedly high, unexpectedly low, or as expected? If the company could change the price of sweaters, would it raise the price, lower the price, or keep the price the same? Given that the company cannot change the price of sweaters, however, consider the number of sweaters it orders each month from the company that manufactures the sweaters. If inventories become very high, will the catalog company increase orders, decrease orders, or keep orders the same? Given what the catalog company does with its orders, what is likely to happen to employment and output at the sweater manufacturer?
Why, in general, do shocks force people to make changes? Give at least two examples from your own experience.
If an economy has sticky prices and demand unexpectedly increases, you would expect the economy’s real GDP to
increase.
decrease.
remain the same.
An increase in _______ GDP guarantees that more goods and services are being produced by an economy.
nominal
real
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