Econ 102 SI10/22/07CH 9&10 ReviewMain Points- The classical model explains that in the long run the economy will always clear- In a Recession Real GDP is decreasing and Unemployment rate is rising- AE= C+ Ip + G + NX- A change in either spending or Ip , or G or NX will cause a more than significant change in Output because of the multiplier effect.Exercise1. Over time full employment level in the USA has risen steadily. True or False2. The classical model predicts that Real GDP will always be a. Risingb. Fallingc. Constantd. Equal to its full-employment level3. Whish of the following could explain a leftward shit of the demand for labor curvea. Firms are unable to sell all the output they produceb. Workers have become less productivec. Workers have become more productived. Both a and b4. Which of the falling is the main weakness of the classical modela. It assumes that labor supply curve s verticalb. It assumes the labor market clearsc. It assumes the labor demand curve is horizontal5. What is true of both expansions and recessionsa. The poorer than normal match between workers and their jobsb. The labor markets clearsc. The economy operates at its potential output6. Use the following table to find marginal propensity to consume Disposable Income 0 150 300 450Consumption Spending50 162.5 275 387.57. Use the following table to find autonomous consumptionDisposable Income1000 1200 1400 1600Consumption spending850 1000 1150 12008. Which of the following will cause consumption function to shift downwardsa. A decrease in taxesb. A decrease in interest ratesc. Consumers become pessimistic about the future9. The slope of the consumption function is also known as.........10. If MPC is 0.8 and disposable income shrinks by 100 million. Consumption would
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