Question Details

By what percent did aggregate demand grow here 



1. ”Economists said that even after taking hurricane and strike distortions into account, industrial production data signaled that manufacturers were bracing for tougher conditions.” What must have happened in the industrial production data here? 
	an increase as producers built up inventories 
	a decrease because producers forecast lower demand 
	an increase because producers forecast higher demand 
	a decrease because of higher inventory due to the hurricane and strike 

2. ”Already, the electronics retailer Circuit City has filed for bankruptcy, and General Motors has said that it is in danger of running out of cash. If the consumer slump continues, there is a potential for a dangerous feedback loop, in which spending cuts and layoffs reinforce each other.” How do economists refer to this phenomenon? 
	an iterative process b) a circular story c) a multiplier process d) a vicious circle 

3. “But the stimulus package under discussion would bring no more than $150 billion in new government spending. The difference between a good year for consumer spending and a really bad one is about $400 billion.” What is the point being made here? 
	the multiplier process will save us 
	higher government spending creates more stimulus than an equal increase in consumption spending 
	the increase in government spending isn’t big enough 
	fiscal policy is useless 

4. ”These statistics indicate a combination of a significant upward revision to GDP growth, a downward revision of the output gap, and stronger-than-expected inflation data.” The output gap is the difference between 
	aggregate supply and aggregate demand 
29 

	potential output and current output 
	full employment and actual employment 
	tax requirements and tax receipts 

”So it looks like the U.S. economy is in the not-too-hot, not-too-cold sweet spot: it expanded at an estimated 3.4 percent annualized rate, and the core inflation measure eased to 1.8 percent. But check the details: A reduction in inventories in the quarter sliced 2.3 percentage points off the GDP growth number.” Hint: this is tricky - a reduction in inventories cannot take points off GDP growth because the GDP measure is adjusted for inventory change. The next two questions refer to this clip. 
5. What is happening here? 
	the economy is slowing down 
	aggregate demand exceeds aggregate supply 
	actual growth is 1.1 percent 
	actual growth is 5.7 percent 

6. By what percent did aggregate demand grow here ? 
a) 3.4 b) 5.7 c) 1.1 d) not enough information to tell



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