According to the Real Business Cycle Theory, an Increase in the Price

question 217

Multiple Choice

According to the real business cycle theory, an increase in the price of a resource (such as oil) , that decreases the demand for loanable funds will ________ employment and ________ real GDP.

• A) increase; increase
• B) increase; decrease
• C) decrease; increase
• D) decrease; decrease

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Definitions:

Recession

A period of temporary economic decline during which trade and industrial activities are reduced, generally identified by a fall in GDP in two successive quarters.

TARP Bailout

The Troubled Asset Relief Program, a U.S. government program created in 2008 to purchase toxic assets and inject capital into banks to stabilize the financial system.

Deposit Multiplier

The ratio of the amount of deposits created by banks to the amount of new reserves.

Reserve Ratio

The fraction of depositors' balances banks must have on hand as cash, a regulatory requirement designed to ensure banks' liquidity and stability.