1. Which of the following statements is consistent with what happened during the Great Recession?

Aggregate demand and long-run aggregate supply decreased, causing unemployment to rise to 10%.

Aggregate demand and short-run aggregate supply increased, causing potential GDP to decrease.

Housing prices fell during the Great Recession, causing a decrease in consumer wealth. This decrease in wealth led to a decrease in aggregate supply and a decrease in potential GDP.

Consumer sentiment fell prior to and during the Great Recession, leading to a decline in expected income that decreased the aggregate supply curve.

2. Which of the following statements is consistent with what happened during the Great Depression?

The Great Depression had an unemployment rate greater than the Great Recession that was largely due to a decrease in aggregate supply.

The unemployment rate was over 25% at the height of the Great Depression. This spike in unemployment was caused by the large decrease in aggregate demand.

It took four years for potential GDP to return to its pre-Depression level after the Great Depression.

Faulty macroeconomic policies were not a part of the cause of the Great Depression.

3. According to classical economics, a decrease in aggregate demand causes the price level to _____________ in the long run. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. These changes occur because of _____________.

increase; decrease; government intervention

increase; decrease; price flexibility

decrease; increase; government intervention

decrease; increase; price flexibility

4. According to Keynesian economists, prices tend to be ______________. As a result, Keynesian economists focus on _____________ changes and aggregate ____________.

flexible; long-run; demand

flexible; short-run; supply

sticky; short-run; demand

sticky; long-run; supply

5. How many months did the Great Recession last?

1.5

6

18

48

6. Identify whether the following statement is more likely to come from a classical economist or a Keynesian economist.

“The recent decline in consumer confidence will likely spell disaster for the economy.”

Keynesian

classical

7. Identify whether the following statement is more likely to come from a classical economist or a Keynesian economist.

“There is no reason to believe that most prices will take more than several months to adjust in either direction.”

Keynesian

Classical