Deck 37: Structural Stagnation and Globalization

Question 1

According to the structural stagnation hypothesis, expansionary macro policy tends to lead to:

A)goods inflation.
B)goods deflation.
C)asset price inflation.
D)low exchange rates.

Answer 1

asset price inflation.

Question 2

According to the structural stagnation hypothesis, what is the long-run cause of the recent problems facing the United States?

A)Globalization
B)Too-low investment
C)Inflation
D)Unemployment

Answer 2

Globalization

Question 3

The U.S. economy is currently experiencing a standard business cycle.

Answer 3

False

Question 4

Solutions to structural stagnation require difficult supply-side structural changes to accompany any demand-side stimulus if they are to be successful in reducing unemployment significantly.

Question 5

The government can deal with the effects of the decline in wealth, without causing new problems down the road.

Question 6

What is the difference between the structural stagnation hypothesis and the secular stagnation theory?

A)Structural stagnation sees globalization as the cause of a stagnation, while secular stagnation sees too little investment as the cause.
B)Structural stagnation sees too little investment as the cause of a stagnation, while secular stagnation sees globalization as the cause.
C)Structural stagnation sees foreign countries moving down the value-added chain as the cause of a stagnation, while secular stagnation sees foreign countries moving up the value-added chain as the cause of a stagnation.
D)There is no difference, they both attribute stagnation to too little investment.

Question 7

A trade surplus results when the world supply curve is below the domestic economy's price level.

Question 8

The central difference between the standard theory and the structural stagnation hypothesis, when it comes to growth, is:

A)the level of inflation.
B)the trend growth rate.
C)the federal funds rate.
D)the natural rate of unemployment.

Question 9

If an economy has a trade deficit, shifting the domestic SAS curve down will shift the globally-constrained potential output to the right.

Question 10

Suppose an economy's trend growth rate is 3 percent and current output is $10 trillion. If the economy enters a recession where output declines by 5 percent in one year, by how much does output have to rise to return to its trend? Assume it takes two years for the economy to return to its trend.

A)$0.5 trillion
B)$0.6 trillion
C)$1.4 trillion
D)$1.7 trillion

Question 11

According to the structural stagnation hypothesis, structural stagnation has only short-run causes.

Question 12

The United States has done very poorly at the high end of the value-added chain.

Question 13

The globalized AS/AD model takes trade into account, while the standard AD/AS model does not.

Question 14

When the financial crisis occurred, policy makers were more concerned about the deficit than they were about addressing the financial crisis.

Question 15

According to structural stagnationists, expansionary monetary and fiscal policy has allowed the economy to address its structural problems and adjust in an expedient manner.

Question 16

To remain on its growth trend, an economy must grow more in an expansion than it fell during a recession.

Question 17

The economy recovered quickly from the 2007 recession and returned to its trend growth path.

Question 18

The housing market boom raised people's perceived wealth.

Question 19

The higher the reservation wage, the more likely one is to be unemployed.

Question 20

Structural problems associated with globalization are no longer a concern for policy makers or economists.

Question 21

The short-run cause of structural stagnation is tied to:

A)globalization.
B)the financial crisis aftermath.
C)the trade deficit.
D)exchange rates.

Question 22

The structural stagnation hypothesis provides a general explanation for why:

A)the economy is experiencing a weak recovery.
B)a bubble occurred in the housing market.
C)demand-side policies have been successful in the economic recovery in 2010-12.
D)the economy is experiencing such a strong recovery.

Question 23

Refer to the graph. The economy begins at a level of output of $20 billion and experiences a one year recession in which output declines by 4 percent. By what rate per year must the economy expand, after it has reached its trough, to return to its potential output by year 3?

A)About 3 percent
B)About 5 percent
C)About 8 percent
D)About 10 percent

Question 24

Structural stagnation cannot be treated as a normal business cycle because it:

A)only happens once every 30 years.
B)only occurs as result of hyperinflation.
C)is far less responsive to typical demand-side policies.
D)is far less responsive to supply-side policies.

Question 25

If an economy declined by 3 percent in one year, in order for the economy to return to trend growth within two years, it would have to increase at an annual rate that is

A)less than 3 percent.
B)equal to 3 percent.
C)greater than 3 percent.
D)unknown.

Question 26

In order for the economy to return to its growth rate, the rate at which the economy expands must be:

A)equal to the trend rate.
B)less than the trend rate.
C)greater than the trend rate.
D)equal to the rate of inflation.

Question 27

Refer to the graph. Economic output in year 0 is $20 billion. What is potential output in year 1?

A)$20 billion
B)$20.4 billion
C)$20.8 billion
D)$21.2 billion

Question 28

If the structural stagnation hypothesis is correct, demand-side government policy has been far too expansionary since the mid:

A)2000s.
B)1980s.
C)1990s.
D)1970s.

Question 29

Refer to the graph. The economy begins at a level of output of $20 billion and experiences a one-year recession in which output declines by 4 percent. What is output in year 1?

A)$800 million
B)$800 billion
C)$19.2 million
D)$19.2 billion

Question 30

What does the structural stagnation hypothesis say about how soon the economy will return to its trend growth?

A)The economy has already returned to its previous trend growth rate.
B)The economy will return to its previous trend growth rate soon.
C)It will be a long time before the economy returns to its previous trend growth rate.
D)The economy will never return to its previous trend growth rate.

Question 31

Refer to the graph shown. Economic output in year 0 is $50 billion. What is potential output in year 3?

A)$47.0 billion
B)$50 billion
C)$54.6 billion
D)$56.3 billion

Question 32

Refer to the graph. Economic output in year 0 is $20 billion. What is potential output in year 2?

A)$20 billion
B)$20.4 billion
C)$20.8 billion
D)$21.2 billion

Question 33

Refer to the graph. The economy begins at a level of output of $20 billion and experiences a one year recession in which output declines by 4 percent. By what rate must the economy expand to return to potential output by year 2?

A)About 4 percent
B)About 6 percent
C)About 8 percent
D)About 10 percent

Question 34

Refer to the graph. Economic output in year 0 is $20 billion. What is potential output in year 3?

A)$20 billion
B)$20.4 billion
C)$20.8 billion
D)$21.2 billion

Question 35

The hypothesis about the macro economy that sees the recent problems of the U.S. economy directly related to the structural problems caused by globalization is referred to as the ________ hypothesis.

A)low investment
B)secular stagnation
C)structural stagnation
D)comparative stagnation

Question 36

Structural stagnation is used to describe a:

A)downturn, followed by a period of slow growth that is not expected to speed up anytime soon without major structural changes in the economy.
B)downturn, followed by a period of slow growth that is not expected to speed up anytime soon without major political changes in the economy.
C)downturn, followed by a period of slow growth that is not expected to speed up anytime soon without major legal changes in the economy.
D)downturn, followed by a period of slow growth that is not expected to speed up anytime soon without major cyclical changes in the economy.

Question 37

Refer to the graph shown. The economy begins at a level of output of $50 billion and experiences a one year recession in which output declines by 3 percent. What is output in year 1?

A)$1.50 billion
B)$15 billion
C)$48.5 million
D)$51.5 billion

Question 38

Refer to the graph shown. Economic output in year 0 is $50 billion. What is potential output in year 2?

A)$50 billion
B)$51.5 billion
C)$53.0 billion
D)$54.6 billion

Question 39

Refer to the graph shown. The economy begins at a level of output of $50 billion and experiences a one-year recession in which output declines by 3 percent. By what rate must the economy expand to return to potential output by year 2?

A)About 3 percent
B)About 4 percent
C)About 6 percent
D)About 9 percent

Question 40

Under the standard macro policy, the long-run trend growth rate is assumed to be:

A)1 to 2 percent.
B)5 to 6 percent.
C)3 to 3.5 percent.
D)0 to 1 percent.

Question 41

Looking at the globalized AS/AD model, the economy can exceed potential output, without generating accelerating goods inflation, because:

A)the world price level puts a cap on the domestic price level.
B)the domestic price level always exceeds the world price level.
C)the world price level always exceeds the domestic price level.
D)the LRAS curve is no longer vertical.

Question 42

Structural stagnation focuses on ________ in terms of understanding why the economy experiences slow growth.

A)low investment
B)low consumption
C)low government spending
D)globalization

Question 43

Which of the following statements best describes the figure shown?

A)The world price level equals the domestic price level.
B)The economy is operating below potential because of globalization.
C)Domestic aggregate supply is less than domestic aggregate demand.
D)Potential output is constrained by globalization.

Question 44

The globalized AS/AD curve is the standard AS/AD model with an added:

A)world demand curve.
B)domestic supply curve.
C)world supply curve.
D)long-run aggregate supply curve.

Question 45

Refer to the graph shown. According to the globalized AS/AD model, which world aggregate supply curve best represents the 2000s?

A)WAS₀, and the United States had a large trade surplus.
B)WAS_1, and the United States had a small trade deficit.
C)WAS_2, and the United States had a small trade surplus.
D)WAS_3, and the United States had a large trade deficit.

Question 46

In the figure shown,

A)there is a trade deficit because of globalization.
B)there is a trade surplus, because actual output equals potential output.
C)there is a trade balance, because the world price level equals the domestic price level.
D)the country isn't exporting or importing because world and domestic prices are equal.

Question 47

If foreign producers can supply an infinite amount of tradable goods at the world price, this would imply that the world supply curve is:

A)horizontal.
B)downward-sloping.
C)vertical.
D)upward-sloping.

Question 48

According to the structural stagnation theory,

A)U.S. economic growth will return to the world average growth rate, but by that time, the U.S. share of world output will have declined.
B)U.S. economic growth will return to the world average growth rate, and its current share of world output will remain unchanged.
C)U.S. economic growth will never return to the world average growth rate, because foreign economies have so far to catch up.
D)After a period of slower growth, U.S. economic growth will exceed world growth.

Question 49

After the Great Depression, an explanation for why output growth would stop is called:

A)the structural stagnation hypothesis.
B)secular stagnation theory.
C)the frictional stagnation hypothesis.
D)the slow growth model.

Question 50

In the figure shown, domestic production

A)exceeds global constrained potential output.
B)is less than exports less imports.
C)exceeds global constrained prices.
D)equals domestic consumption.

Question 51

According to the globalized AS/AD model, expansionary monetary policy shifts the AD curve to the right and:

A)increases goods inflation.
B)has no effect on goods inflation.
C)shifts potential output to the right.
D)shifts potential output to the left.

Question 52

How is the globalized AS/AD model different from the standard AS/AD model?

A)It has an added world demand curve.
B)The AD curve is upward sloping.
C)It has an added world supply curve.
D)The AS curve is downward sloping.

Question 53

If the structural stagnation hypothesis is true, what happened to the economy in the early 2000s that made it prone to a financial crisis?

A)Too-expansionary demand-side policies
B)Too-expansionary supply-side policies
C)Increased trade restrictions
D)Slowing technological advance

Question 54

Which of the lines represent the structural stagnation's assumption about trend growth?

A)3 percent trend
B)Actual
C)2.25 percent trend
D)It is not represented

Question 55

In the globalized AS/AD model, the world supply curve is:

A)horizontal.
B)downward-sloping.
C)vertical.
D)upward-sloping.

Question 56

The central difference between the structural stagnation hypothesis and the secular stagnation theory is that:

A)structural stagnation applied in the 1940s, and secular stagnation applies today.
B)structural stagnation focuses on declining investment, while secular stagnation focuses on globalization.
C)structural stagnation focuses on globalization, while secular stagnation focuses on declining investment.
D)structural stagnation is a hypothesis, while secular stagnation is a theory.

Question 57

The globalized AS/AD model relates:

A)to tradable goods only.
B)directly to both tradable and non-tradable goods.
C)to tradable services only.
D)directly to tradable and indirectly to non-tradable goods.

Question 58

According to the hypothesis, when did structural stagnation begin?

A)The mid-1960s
B)The mid-1970s
C)The mid-1980s
D)The mid-1990s

Question 59

A theory in which advanced countries stop growing because investment opportunities would be eliminated is referred to as:

A)structural stagnation.
B)frictional stagnation.
C)reservation stagnation
D)secular stagnation.

Question 60

Adding globalization and large trade deficits to the standard AS/AD model creates:

A)reduced domestic production and consumption.
B)increased domestic production and consumption.
C)increased domestic production and reduced consumption.
D)decreased domestic production and increased consumption.

Question 61

In the early 2000s, policy makers were able to:

A)run contractionary policy without causing deflation.
B)run expansionary policy without causing inflation.
C)run contractionary policy without causing a rise in unemployment.
D)impose tariffs on foreign goods without causing retaliation by foreign countries.

Question 62

In the graph shown, what would shift the WAS curve from WAS₀ to WAS₁?

A)The country's exchange rate appreciates.
B)Domestic reservation wages fall.
C)Input prices fall.
D)Government runs contractionary policy.

Question 63

In the graph shown, an upward shift in the WAS curve:

A)raises domestic consumption, because domestic producers will produce more.
B)lowers the trade deficit, because domestic producers are more competitive.
C)lowers domestic production, because domestic consumption has fallen.
D)raises globalized potential output, because U.S. producers are less competitive.

Question 64

Based on what we know about the globalized AS/AD model, the standard model does not include an analysis of:

A)investment.
B)government spending in the United States.
C)net exports.
D)consumption.

Question 65

In the graph shown, which of the world supply curves create a trade surplus?

A)WAS₀
B)WAS₁
C)WAS₂
D)None create surpluses.

Question 66

In the graph shown, the country has:

A)a trade surplus.
B)a budget deficit.
C)a trade deficit.
D)neither a trade deficit nor trade surplus; exports are equal to imports.

Question 67

In the graph shown, which of the world supply curves is associated with a trade balance?

A)WAS₀
B)WAS₁
C)WAS₂
D)None create surpluses.

Question 68

In the graph shown, which of the world supply curves create a trade deficit?

A)WAS₀
B)WAS₁
C)WAS₂
D)None create deficits.

Question 69

According to the structural stagnation model, an increasing trade deficit translates into ________ unemployment and ________ globally-constrained potential output.

A)lower; higher
B)lower; lower
C)higher; higher
D)higher; lower

Question 70

In the globalized AS/AD model, what curve indicates the amount of tradable goods that other countries will supply to a country at a given price level and exchange rate?

A)World demand curve
B)Domestic supply curve
C)World supply curve
D)Domestic demand curve

Question 71

In the graph shown, what would eliminate a trade deficit if there were one?

A)The exchange rate appreciates.
B)Domestic reservation wages rise.
C)Foreign wages rise relative to domestic wages.
D)Government runs expansionary policy.

Question 72

According to the structural stagnation hypothesis, the expansionary policy carried out by the government led to the illusion that the policies were:

A)leading to long-term economic health.
B)effective in reducing the trade deficit.
C)improving U.S comparative advantages.
D)causing goods inflation.

Question 73

In the graph shown, the globally constrained potential output is:

A)to the right of the LAS curve shown.
B)to the left of the LAS curve shown.
C)the same as the LAS curve shown.
D)the LAS curve shown, but horizontal.

Question 74

The gap between a country's potential output and its consumption is most directly related to its:

A)budget deficit.
B)trade deficit.
C)exchange rate.
D)comparative advantage.

Question 75

In the graph shown, what could balance the trade deficit (reduce domestic consumption)?

A)Contractionary monetary policy
B)Lower domestic wages
C)A hurricane that damages domestic manufacturing plants
D)Expansionary fiscal policy

Question 76

In the globalized model, the eventual equivalency of domestic and world prices follows from the:

A)law of demand.
B)law of supply.
C)law of comparative advantage.
D)law of one price.

Question 77

In the graph shown, a shift in the AD curve to the right:

A)raises domestic consumption.
B)lowers domestic consumption.
C)lowers globally constrained potential output.
D)causes goods inflation.

Question 78

In the graph shown, a downward shift in the SAS curve:

A)raises domestic consumption, because domestic producers produce more.
B)raises the trade deficit, because domestic producers are more competitive.
C)raises domestic production, because input prices have fallen.
D)lowers globalized potential output, because domestic producers are more competitive.

Question 79

Refer to the graph shown. What will reduce the trade deficit?

A)The AD curve shifts to the left.
B)The SAS curve shifts down.
C)The WAS curve shifts up.
D)All the answers are correct.

Question 80

Looking at the graph shown, the structural adjustments necessary to bring the economy back to domestic and international equilibrium include:

A)an increase in the U.S. exchange rate.
B)an increase in the U.S. wages and costs of production.
C)an increase in aggregate demand.
D)a fall in the U.S. exchange rate.