Deck 37: Structural Stagnation and Globalization

Question 1

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

Answer 1

True

Question 2

Structural stagnation requires difficult supply-side structural changes to accompany any demand-side stimulus if it is to be successful in reducing unemployment significantly.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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.

Question 9

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

Question 10

The housing market boom raised people's perceived wealth.

Question 11

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

Question 12

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.

Question 13

Compared to earlier recessions, in the 2008 downturn employment:

A)took longer to return to its pre-recession peak.
B)returned to its pre-recession peak in less time.
C)took about the same amount of time to return to its pre-recession peak.
D)Changes in employment cannot be compared across recessions because every recession is different.

Question 14

Suppose an economy's trend growth rate is 3% and current output is $10 trillion.If the economy enters a recession where output declines by 5% in one year, by how much does output have to rise to return the economy back 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 15

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

Question 16

What is the difference between the structural stagnation hypothesis and 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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 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 22

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 23

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 24

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.
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 25

The time it has taken for employment to return to its pre-recession level has:

A)stayed about the same.
B)fallen over time.
C)risen over time.
D)shown no trend.

Question 26

An explanation after the Great Depression 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 27

Which of the following statements is correct with regards to the business cycle?

A)Up to the 1980s the economy slowly got back to its previous level of employment.
B)After the 1980s economic recoveries took increasingly longer.
C)After the 1980s economic recoveries took a short period of time.
D)The 1990 recovery was slower than the 2001 recovery.

Question 28

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 three percent.
B)equal to three percent.
C)greater than three percent.
D)unknown.

Question 29

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 30

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 31

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 32

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 33

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

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

Question 34

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 35

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 36

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 theory.

Question 37

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 38

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 39

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 40

The standard macro policy is the assumption that the long-run trend growth rate is:

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

Question 41

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 42

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 43

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 44

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

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

Question 45

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 46

When did structural stagnation begin according to the hypothesis?

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

Question 47

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 48

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 49

In the graph shown, what could balance the trade deficit by reducing domestic consumption?

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

Question 50

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

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

Question 51

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 52

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 53

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 54

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 55

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 56

Adding globalization with large trade deficits to the standard AS/AD model shows:

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 57

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

A)WAS₀ and the United States had a large trade surplus.
B)WAS₁ and the United States had a small trade deficit.
C)WAS₂ and the United States had a small trade surplus.
D)WAS₃ and the United States had a large trade deficit.

Question 58

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 59

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

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

Question 60

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 61

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 62

In the globalized AS/AD model, what curve tells the amount of tradable goods that other countries in the world will supply to the 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 63

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 64

Which group most benefited from globalization?

A)International traders and those associated with them.
B)Workers in the "commodities" sector.
C)Workers in the non-tradable goods sector.
D)No one benefitted.

Question 65

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 66

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.

Question 67

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 68

In the graph shown, what is globally constrained potential output?

A)Y₂ -Y1.
B)Y₂ -Y0.
C)Y0.
D)Y1.

Question 69

The primary signal to policy makers that the economy has exceeded potential output is typically:

A)deflation.
B)stagflation.
C)inflation.
D)unemployment.

Question 70

In the graph shown, what represents the trade deficit?

A)Y₂ -Y1.
B)Y₂ -Y0.
C)Y0.
D)Y1.

Question 71

The most likely explanation for why the U.S.government was not worried about the growth in deficits caused by its expansionary policy was:

A)they wanted inflation to occur in order to wipe out the value of government debt.
B)they knew they could pass significant tax increases to manage the deficit.
C)they expected that the economy would grow out of the deficit.
D)they wanted to make the dollar exchange rate favorable compared to the Yuan.

Question 72

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 73

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 74

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 75

Suppose a young person asked you for job advice in a globalized economy.Which of the following sectors would you try to dissuade them most from entering?

A)Finance sector
B)Skilled profession in tradable sectors
C)Manufacturing sector
D)Commodities

Question 76

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

A)Raises domestic consumption because domestic producers 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 77

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 78

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 79

Which group has fared the worst in the globalization process?

A)International traders
B)Skilled workers in the nontradable sector
C)Workers involved in the manufacture of commodities
D)Government workers

Question 80

Which would help resolve structural stagnation?

A)Domestic exchange rates rise.
B)Domestic wages rise.
C)Productivity rises.
D)Productivity falls.