Question 1

The fact that employment tends to be relatively high during the Christmas season and low during January is an example of:

Accepted Answer

A)  intertemporal substitution. 
B)  labor adjustment costs. 
C)  time bunching. 
D)  irreversible investments. 
A)  intertemporal substitution. 
B)  labor adjustment costs. 
C)  time bunching. 
D)  irreversible investments. C

Question 2

People who are evicted from their home during a foreclosure sometimes trash the place first.

Accepted Answer

A) True 
 B)False  True

Question 3

Because of intertemporal substitution,the supply of labor is likely to:

Accepted Answer

A)  decrease when the economy grows more rapidly. 
B)  increase when the economy grows more rapidly. 
C)  remain constant regardless of how fast the economy grows. 
D)  become unpredictable when a shock occurs in an economy. 
A)  decrease when the economy grows more rapidly. 
B)  increase when the economy grows more rapidly. 
C)  remain constant regardless of how fast the economy grows. 
D)  become unpredictable when a shock occurs in an economy. B

Question 4

Which of the following is NOT a transmission mechanism?

Accepted Answer

A)  time bunching 
B)  intertemporal substitution 
C)  reversible investments 
D)  labor adjustment costs 
A)  time bunching 
B)  intertemporal substitution 
C)  reversible investments 
D)  labor adjustment costs

Question 5

Explain how intertemporal substitution transmits and amplifies real shocks and aggregate demand shocks.

Accepted Answer

People or businesses are most likely to

Question 6

A reason why fourth-quarter economic fluctuations occur is:

Accepted Answer

A)  holiday spending. 
B)  spending on vacations. 
C)  spending on renovation projects. 
D)  post-holiday spending declines. 
A)  holiday spending. 
B)  spending on vacations. 
C)  spending on renovation projects. 
D)  post-holiday spending declines.

Question 7

The high cost of reversing job decisions can lead to unemployment,just as the costs of reversing investment can cause investors to invest more.

Accepted Answer

A) True 
 B)False

Question 8

In most advanced economies,economic activity is lowest in the:

Accepted Answer

A)  first quarter. 
B)  second quarter. 
C)  third quarter. 
D)  fourth quarter. 
A)  first quarter. 
B)  second quarter. 
C)  third quarter. 
D)  fourth quarter.

Question 9

Collateral shocks tend to amplify business cycles because:

Accepted Answer

A)  assets are typically worth more in booms than in recessions and the value of assets tends to be positively correlated to firms' ability to obtain investment funding. 
B)  the returns to work are higher in booms than in recessions,so people work more during booms and less during recessions. 
C)  the returns to investment are higher when others are investing as well;thus we see more investment during booms and less during recessions. 
D)  the uncertainty of recessions tends to increase people's job search time,while greater certainty decreases search time during booms. 
A)  assets are typically worth more in booms than in recessions and the value of assets tends to be positively correlated to firms' ability to obtain investment funding. 
B)  the returns to work are higher in booms than in recessions,so people work more during booms and less during recessions. 
C)  the returns to investment are higher when others are investing as well;thus we see more investment during booms and less during recessions. 
D)  the uncertainty of recessions tends to increase people's job search time,while greater certainty decreases search time during booms.

Question 10

If drought reduces farm output,farmers will probably:

Accepted Answer

A)  work harder to try to make up for the lost output. 
B)  work less hard and devote less capital to their fields. 
C)  work the same amount as they normally do. 
D)  celebrate. 
A)  work harder to try to make up for the lost output. 
B)  work less hard and devote less capital to their fields. 
C)  work the same amount as they normally do. 
D)  celebrate.

Question 11

Labor supply tends to:

Accepted Answer

A)  remain constant during recessions. 
B)  remain constant during booms. 
C)  increase during recessions. 
D)  increase during booms. 
A)  remain constant during recessions. 
B)  remain constant during booms. 
C)  increase during recessions. 
D)  increase during booms.

Question 12

Collateral damage occurs more frequently during:

Accepted Answer

A)  expansions when real assets need to be redeployed. 
B)  recessions when discouraged workers neglect the capital stock. 
C)  expansions when capital stock becomes outdated and useless. 
D)  recessions when capital stock loses value through market forces. 
A)  expansions when real assets need to be redeployed. 
B)  recessions when discouraged workers neglect the capital stock. 
C)  expansions when capital stock becomes outdated and useless. 
D)  recessions when capital stock loses value through market forces.

Question 13

Banks typically lend to firms that have:

Accepted Answer

A)  positive net worth. 
B)  negative net worth. 
C)  zero net worth. 
D)  unstable net worth. 
A)  positive net worth. 
B)  negative net worth. 
C)  zero net worth. 
D)  unstable net worth.

Question 14

Intertemporal substitution refers only to the substitution between work and leisure.

Accepted Answer

A) True 
 B)False

Question 15

Labor adjustment costs refer to the costs of:

Accepted Answer

A)  moving workers from declining industries to growth industries. 
B)  firing unproductive workers. 
C)  pay raises for productive workers. 
D)  hiring and training workers. 
A)  moving workers from declining industries to growth industries. 
B)  firing unproductive workers. 
C)  pay raises for productive workers. 
D)  hiring and training workers.

Question 16

When a U.S.air conditioner factory relocates to Mexico,the U.S.community experiences an initial negative shock plus:

Accepted Answer

A)  time bunching. 
B)  intertemporal substitutions. 
C)  irreversible investment uncertainty. 
D)  labor adjustment costs. 
A)  time bunching. 
B)  intertemporal substitutions. 
C)  irreversible investment uncertainty. 
D)  labor adjustment costs.

Question 17

During a recession,the value of a homeowner's house falls significantly below the amount of debt associated with the home.Which of these entities is harmed as a result?

Accepted Answer

A)  the homeowner only 
B)  the homeowner's bank 
C)  the homeowner's neighbors 
D)  the homeowner,the homeowner's bank,and the homeowner's neighbors 
A)  the homeowner only 
B)  the homeowner's bank 
C)  the homeowner's neighbors 
D)  the homeowner,the homeowner's bank,and the homeowner's neighbors

Question 18

Labor adjustment costs tend to be higher when:

Accepted Answer

A)  market wages rise. 
B)  the declining industries are unionized. 
C)  moving costs are low. 
D)  the unemployment rate is low. 
A)  market wages rise. 
B)  the declining industries are unionized. 
C)  moving costs are low. 
D)  the unemployment rate is low.

Question 19

The idea that a person or business is most likely to work hard when doing so brings the greatest return is called:

Accepted Answer

A)  intertemporal substitution. 
B)  irreversible investment. 
C)  labor adjustment cost. 
D)  time bunching. 
A)  intertemporal substitution. 
B)  irreversible investment. 
C)  labor adjustment cost. 
D)  time bunching.

Question 20

What is taking place when an economy experiences quick changes that have large effects on productivity?

Accepted Answer

A)  economic shocks 
B)  geographic capital fluctuations 
C)  decreases in aggregate demand 
D)  time bunching 
A)  economic shocks 
B)  geographic capital fluctuations 
C)  decreases in aggregate demand 
D)  time bunching

Exam 14: Transmission and Amplification Mechanisms

The fact that employment tends to be relatively high during the Christmas season and low during January is an example of:

People who are evicted from their home during a foreclosure sometimes trash the place first.

Because of intertemporal substitution,the supply of labor is likely to:

Which of the following is NOT a transmission mechanism?

Explain how intertemporal substitution transmits and amplifies real shocks and aggregate demand shocks.

A reason why fourth-quarter economic fluctuations occur is:

The high cost of reversing job decisions can lead to unemployment,just as the costs of reversing investment can cause investors to invest more.

In most advanced economies,economic activity is lowest in the:

Collateral shocks tend to amplify business cycles because:

If drought reduces farm output,farmers will probably:

Labor supply tends to:

Collateral damage occurs more frequently during:

Banks typically lend to firms that have:

Intertemporal substitution refers only to the substitution between work and leisure.

Labor adjustment costs refer to the costs of:

When a U.S.air conditioner factory relocates to Mexico,the U.S.community experiences an initial negative shock plus:

During a recession,the value of a homeowner's house falls significantly below the amount of debt associated with the home.Which of these entities is harmed as a result?

Labor adjustment costs tend to be higher when:

The idea that a person or business is most likely to work hard when doing so brings the greatest return is called:

What is taking place when an economy experiences quick changes that have large effects on productivity?

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