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Introducing Concepts - Savings and Investment quiz

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Termini in questo insieme (15)

  • What is the definition of savings in macroeconomics?
    Savings is consuming less than what is produced in the current period, allowing for future consumption.
  • How does economic investment differ from financial investment?
    Economic investment involves using current resources to increase future output, while financial investment refers to buying assets like stocks, bonds, or mutual funds.
  • What are examples of economic investment?
    Examples include building factories, purchasing machinery, and investing in research and development.
  • Why do firms make economic investments?
    Firms invest to increase their future production capacity and potential profits.
  • How do expectations about the future affect a firm's investment decisions?
    Optimistic expectations lead to more investment, while pessimistic expectations result in less investment.
  • What is a demand shock?
    A demand shock is an unexpected change in the level of demand compared to what was anticipated.
  • What is a supply shock?
    A supply shock is an unexpected change in the level of supply, often due to unforeseen events affecting production.
  • What happens to output and unemployment when prices are flexible and demand changes?
    With flexible prices, output remains stable and unemployment does not change, as firms adjust prices to sell all their output.
  • What are sticky prices?
    Sticky prices are prices that do not change easily in response to changes in demand or supply.
  • What is the effect of sticky prices when demand is lower than expected?
    Firms accumulate unsold inventory, which can eventually lead to reduced output and increased unemployment.
  • How does a firm respond to higher-than-expected demand when prices are sticky?
    There will be a shortage, as the firm cannot increase the price and cannot meet all the demand with its current output.
  • What is the main advantage of flexible prices for firms?
    Flexible prices allow firms to sell all their output by adjusting prices according to demand, avoiding inventory buildup.
  • What happens if a firm continuously produces more than it sells due to sticky prices?
    The firm will accumulate inventory, eventually reduce production, and may lay off workers.
  • Why might a firm choose not to invest if it has pessimistic expectations about the future?
    If a firm expects poor future conditions, it will avoid investing to prevent potential losses from unused capacity.
  • How do demand and supply shocks impact the economy?
    They can cause significant changes in price levels, inventory, output, and employment, depending on how firms and markets respond.