Question 1

Explain why collateral damage reduces bank lending.

Accepted Answer

The definition of collateral damage is a

Question 2

Intertemporal substitution is:

Accepted Answer

A)  the cost of shifting workers from declining sectors of the economy to the growing sectors. 
B)  the tendency for economic activities to be coordinated at common points in time. 
C)  the allocation of consumption,work,and leisure across time to maximize well-being. 
D)  a reduction in the value of collateral. 
A)  the cost of shifting workers from declining sectors of the economy to the growing sectors. 
B)  the tendency for economic activities to be coordinated at common points in time. 
C)  the allocation of consumption,work,and leisure across time to maximize well-being. 
D)  a reduction in the value of collateral.

Question 3

Intertemporal substitution refers to:

Accepted Answer

A)  the tendency to work more when the returns to work are higher. 
B)  the decision on how to allocate time between work and leisure. 
C)  the preference for households to smooth their consumption over time. 
D)  the decision to substitute one television show for another during the same time slot. 
A)  the tendency to work more when the returns to work are higher. 
B)  the decision on how to allocate time between work and leisure. 
C)  the preference for households to smooth their consumption over time. 
D)  the decision to substitute one television show for another during the same time slot.

Question 4

Which of the following scenarios explains why uncertainty can lead to increased volatility in economic fluctuations from investment?

Accepted Answer

A)  You are not sure whether your fiancé will retain his job in the uncertain economic environment,so you decide not to purchase a home with him. 
B)  Your firm starts laying off workers and you are not sure whether you will keep your job,so you reduce your spending by half. 
C)  Your friend warns you that your bank is about to collapse,so you withdraw your savings from that bank. 
D)  You anticipate a recession may be coming,so you reduce the number of hours you work. 
A)  You are not sure whether your fiancé will retain his job in the uncertain economic environment,so you decide not to purchase a home with him. 
B)  Your firm starts laying off workers and you are not sure whether you will keep your job,so you reduce your spending by half. 
C)  Your friend warns you that your bank is about to collapse,so you withdraw your savings from that bank. 
D)  You anticipate a recession may be coming,so you reduce the number of hours you work.

Question 5

How is the collateral damage caused by a negative shock to net worth similar to the effects of irreversible investments as a transmission mechanism?

Accepted Answer

Collateral damage following a shock to n

Question 6

How does the nature of irreversible investments affect the impact of a negative shock on the economy?

Accepted Answer

When investments are irreversible,they c

Question 7

Because of intertemporal substitution,real GDP growth tends to be:

Accepted Answer

A)  positively related to the employment-population ratio. 
B)  negatively related to the employment-population ratio. 
C)  unrelated to the employment-population ratio. 
D)  positively or negatively related to the employment-population ratio,depending on the stage of the business cycle. 
A)  positively related to the employment-population ratio. 
B)  negatively related to the employment-population ratio. 
C)  unrelated to the employment-population ratio. 
D)  positively or negatively related to the employment-population ratio,depending on the stage of the business cycle.

Question 8

Losing a job that pays especially well can result in a long period of unemployment because:

Accepted Answer

A)  it may take the worker a while to come to terms with the fact that he will be forced to take a pay cut. 
B)  high-paying jobs are easy to find. 
C)  workers are always purely rational in their employment decisions. 
D)  there are no adjustment costs for high-salary workers. 
A)  it may take the worker a while to come to terms with the fact that he will be forced to take a pay cut. 
B)  high-paying jobs are easy to find. 
C)  workers are always purely rational in their employment decisions. 
D)  there are no adjustment costs for high-salary workers.

Question 9

A thinly capitalized bank has:

Accepted Answer

A)  high capital value. 
B)  low capital value. 
C)  rising capital value. 
D)  falling capital value. 
A)  high capital value. 
B)  low capital value. 
C)  rising capital value. 
D)  falling capital value.

Question 10

If students decide to stay in college until a recession is over,they are practicing:

Accepted Answer

A)  intertemporal substitution. 
B)  time bunching. 
C)  labor adjustment costs. 
D)  replacement wages. 
A)  intertemporal substitution. 
B)  time bunching. 
C)  labor adjustment costs. 
D)  replacement wages.

Question 11

The construction of a home is an irreversible investment.

Accepted Answer

A) True 
 B)False

Question 12

Time bunching explains why more investment occurs during booms than during recessions.

Accepted Answer

A) True 
 B)False

Question 13

Intertemporal substitution explains why real GDP growth correlates positively with the employment-to-population ratio.

Accepted Answer

A) True 
 B)False

Question 14

Waiting to open a factory in a country that has just had a government coup exaggerates that economic shock due to:

Accepted Answer

A)  uncertainty. 
B)  labor adjustment costs. 
C)  time bunching. 
D)  flexible investing. 
A)  uncertainty. 
B)  labor adjustment costs. 
C)  time bunching. 
D)  flexible investing.

Question 15

When banks make loans to firms,which is LEAST likely to be of concern to them?

Accepted Answer

A)  the amount of cash on hand 
B)  the strength of the firms other assets 
C)  the size of a firm's net worth 
D)  a firm's intended use of the money 
A)  the amount of cash on hand 
B)  the strength of the firms other assets 
C)  the size of a firm's net worth 
D)  a firm's intended use of the money

Question 16

Employment decisions:

Accepted Answer

A)  are best made by flipping a coin. 
B)  can be costly to reverse. 
C)  don't have a big effect on people's lives. 
D)  are easy to undo. 
A)  are best made by flipping a coin. 
B)  can be costly to reverse. 
C)  don't have a big effect on people's lives. 
D)  are easy to undo.

Question 17

Most economic activities bunch or cluster in time because:

Accepted Answer

A)  that is how social activities proceed. 
B)  most people have the same biological clock. 
C)  it reduces the possible obstacle of coordinating things among others. 
D)  it pays to coordinate your economic actions with those of others. 
A)  that is how social activities proceed. 
B)  most people have the same biological clock. 
C)  it reduces the possible obstacle of coordinating things among others. 
D)  it pays to coordinate your economic actions with those of others.

Question 18

Labor adjustment costs help amplify the initial negative shock by:

Accepted Answer

A)  keeping the unemployment rate high. 
B)  discouraging irreversible investments. 
C)  sending inflation higher. 
D)  blocking employment search efforts. 
A)  keeping the unemployment rate high. 
B)  discouraging irreversible investments. 
C)  sending inflation higher. 
D)  blocking employment search efforts.

Question 19

Which would create labor adjustment costs?

Accepted Answer

A)  a major recession 
B)  higher gas prices that hurt SUV manufacturers but create a boom in the hybrid industry 
C)  a cultural shift that influences more students to attend college 
D)  an increase in the number of foreign workers entering the country 
A)  a major recession 
B)  higher gas prices that hurt SUV manufacturers but create a boom in the hybrid industry 
C)  a cultural shift that influences more students to attend college 
D)  an increase in the number of foreign workers entering the country

Question 20

Uncertainly might keep resources in less productive uses.

Accepted Answer

A) True 
 B)False

Exam 14: Transmission and Amplification Mechanisms

Explain why collateral damage reduces bank lending.

Intertemporal substitution is:

Intertemporal substitution refers to:

Which of the following scenarios explains why uncertainty can lead to increased volatility in economic fluctuations from investment?

How is the collateral damage caused by a negative shock to net worth similar to the effects of irreversible investments as a transmission mechanism?

How does the nature of irreversible investments affect the impact of a negative shock on the economy?

Because of intertemporal substitution,real GDP growth tends to be:

Losing a job that pays especially well can result in a long period of unemployment because:

A thinly capitalized bank has:

If students decide to stay in college until a recession is over,they are practicing:

The construction of a home is an irreversible investment.

Time bunching explains why more investment occurs during booms than during recessions.

Intertemporal substitution explains why real GDP growth correlates positively with the employment-to-population ratio.

Waiting to open a factory in a country that has just had a government coup exaggerates that economic shock due to:

When banks make loans to firms,which is LEAST likely to be of concern to them?

Employment decisions:

Most economic activities bunch or cluster in time because:

Labor adjustment costs help amplify the initial negative shock by:

Which would create labor adjustment costs?

Uncertainly might keep resources in less productive uses.

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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