Question Details

China could be the savior of the American economy by 



1. “There is growing optimism that the economy is heading for recovery, based on a slowing decline in inventories.” A slowing decline in inventories creates optimism because it results from 
a)	higher aggregate demand or lower aggregate supply 
b)	higher aggregate demand or higher aggregate supply 
c)	lower aggregate demand or lower aggregate supply 
d)	lower aggregate demand or higher aggregate supply 

2. “The economy is already running a negative output gap of 6%.” A negative output gap is a situation in which full employment aggregate supply is 27 

a)	bigger than aggregate demand 
b)	smaller than aggregate demand 
c)	bigger than aggregate supply 
d)	smaller than aggregate supply 

3. “Movement out of the 2008-9 recession will be slowed because the big deficits used to stimulate the economy will increase the public debt dramatically.” A larger public debt will slow the recovery because 
a)	the interest rate will fall, lowering corporate investment spending 
b)	people will save to smooth consumption in anticipation of higher taxes 
c)	the government will be unable to maintain its higher level of spending 
d)	none of the above 

4. “Hammered by the 2008 downturn, Americans have boosted the U.S. savings rate from zero to 5 percent in the past year. They have a long way to go to match China, however, where the current savings rate is in excess of 30 percent!” What is the most likely cause of the increase in the U.S. saving rate? 
a)	competition with China 
b)	higher investment in the U.S. 
c)	a higher U.S. interest rate 
d)	fear of unemployment and anticipation of higher future taxes 

5. “The hero of every major recovery since the end of the Second World War, the American shopper is ratcheting down spending amid the brutal housing and financial crisis. As the mighty American consumer saves, the U.S. is looking to China as it economic savior.” China could be the savior of the American economy by 
a)	financing the U.S. government deficit 
b)	financing U.S. investment spending 
c)	buying American exports 
d)	sending foreign aid 



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