Question 1

The more uncertain the world appears:

Accepted Answer

A)  the harder it is for investors to receive definite signals about where to invest their resources. 
B)  the easier it is for investors to receive definite signals about where to invest their resources. 
C)  the lower the expected return necessary to justify an investment. 
D)  the lower the payoff to waiting. 
A)  the harder it is for investors to receive definite signals about where to invest their resources. 
B)  the easier it is for investors to receive definite signals about where to invest their resources. 
C)  the lower the expected return necessary to justify an investment. 
D)  the lower the payoff to waiting.

Question 2

Collateral shocks make borrowing:

Accepted Answer

A)  more difficult. 
B)  less difficult. 
C)  neither more or less difficult. 
D)  less expensive. 
A)  more difficult. 
B)  less difficult. 
C)  neither more or less difficult. 
D)  less expensive.

Question 3

Individuals who are "underwater" in their home are more likely to take good care of their home.

Accepted Answer

A) True 
 B)False

Question 4

Which investment project is most irreversible?

Accepted Answer

A)  the construction of an open office space that can be used for different businesses 
B)  the construction of a bank branch location that can be later converted into an insurance company office 
C)  the purchase of a Japanese restaurant that can be easily converted into a bistro 
D)  the construction of a chemical plant that manufactures only a specific type of paint 
A)  the construction of an open office space that can be used for different businesses 
B)  the construction of a bank branch location that can be later converted into an insurance company office 
C)  the purchase of a Japanese restaurant that can be easily converted into a bistro 
D)  the construction of a chemical plant that manufactures only a specific type of paint

Question 5

Which of the following best describes a valuable asset used to secure a loan from a lender?

Accepted Answer

A)  collateral 
B)  security 
C)  tender offer 
D)  tangible good 
A)  collateral 
B)  security 
C)  tender offer 
D)  tangible good

Question 6

Once some economic activity is moving in the upward or downward direction,other parts of the economy tend to:

Accepted Answer

A)  deviate from that momentum in order to alleviate the upward or downward pressure of the trend. 
B)  follow that momentum in order to gain the advantages of time bunching. 
C)  stay put in order to regain the next opportunities. 
D)  jump high and reach higher level of gains. 
A)  deviate from that momentum in order to alleviate the upward or downward pressure of the trend. 
B)  follow that momentum in order to gain the advantages of time bunching. 
C)  stay put in order to regain the next opportunities. 
D)  jump high and reach higher level of gains.

Question 7

A medium-sized negative shock:

Accepted Answer

A)  always produces a medium-sized economic downturn. 
B)  will not have a great impact on GDP. 
C)  can cause a large economic downturn. 
D)  will always cause a large economic downturn. 
A)  always produces a medium-sized economic downturn. 
B)  will not have a great impact on GDP. 
C)  can cause a large economic downturn. 
D)  will always cause a large economic downturn.

Question 8

A transmission mechanism:

Accepted Answer

A)  mitigates shocks by spreading them across time and through sectors of the economy. 
B)  amplifies shocks by spreading them across time and through sectors of the economy. 
C)  causes shocks to have an equal impact across time and sectors of the economy. 
D)  turns negative shocks into positive shocks over time. 
A)  mitigates shocks by spreading them across time and through sectors of the economy. 
B)  amplifies shocks by spreading them across time and through sectors of the economy. 
C)  causes shocks to have an equal impact across time and sectors of the economy. 
D)  turns negative shocks into positive shocks over time.

Question 9

Many investments are irreversible because they involve:

Accepted Answer

A)  labor costs. 
B)  international costs. 
C)  construction costs. 
D)  sunk costs. 
A)  labor costs. 
B)  international costs. 
C)  construction costs. 
D)  sunk costs.

Question 10

Economic forces that can amplify shocks across time and sectors of the economy are called:

Accepted Answer

A)  business cycles. 
B)  cyclical recessions. 
C)  shock magnifiers. 
D)  transmission mechanisms. 
A)  business cycles. 
B)  cyclical recessions. 
C)  shock magnifiers. 
D)  transmission mechanisms.

Question 11

Which of the following is NOT true of irreversible investments?

Accepted Answer

A)  When investors wait to see what happens,that means resources are sitting idle rather than being productive. 
B)  Uncertainty usually slows investment and keeps resources in less productive uses. 
C)  Once an investment opportunity is identified,the execution should follow immediately. 
D)  If new information casts suspicion on a potential investment,the truth is typically sought out before proceeding. 
A)  When investors wait to see what happens,that means resources are sitting idle rather than being productive. 
B)  Uncertainty usually slows investment and keeps resources in less productive uses. 
C)  Once an investment opportunity is identified,the execution should follow immediately. 
D)  If new information casts suspicion on a potential investment,the truth is typically sought out before proceeding.

Question 12

Labor adjustment costs lead to:

Accepted Answer

A)  intertemporal substitution. 
B)  time bunching. 
C)  higher unemployment. 
D)  higher employment. 
A)  intertemporal substitution. 
B)  time bunching. 
C)  higher unemployment. 
D)  higher employment.

Question 13

Which of the following does NOT contribute to the high cost of reversing job decisions?

Accepted Answer

A)  unemployment 
B)  underemployment 
C)  full-productivity employment 
D)  part-time or casual work 
A)  unemployment 
B)  underemployment 
C)  full-productivity employment 
D)  part-time or casual work

Question 14

For a given increase in government spending growth,intertemporal substitution is more widespread when the impact of AD growth on:

Accepted Answer

A)  both inflation and real GDP growth is stronger. 
B)  both inflation and real GDP growth is weaker. 
C)  inflation is stronger and the impact of the AD growth on real GDP growth is weaker. 
D)  inflation is weaker and the impact of AD growth on real GDP growth is stronger. 
A)  both inflation and real GDP growth is stronger. 
B)  both inflation and real GDP growth is weaker. 
C)  inflation is stronger and the impact of the AD growth on real GDP growth is weaker. 
D)  inflation is weaker and the impact of AD growth on real GDP growth is stronger.

Question 15

A collateral shock can either increase or decrease the value of collateral,it depends on the circumstances.

Accepted Answer

A) True 
 B)False

Question 16

Intertemporal substitution causes a positive productivity shock to:

Accepted Answer

A)  make the LRAS curve less steep. 
B)  make the LRAS curve steeper. 
C)  shift the LRAS curve farther to the right. 
D)  shift the LRAS curve farther to the left. 
A)  make the LRAS curve less steep. 
B)  make the LRAS curve steeper. 
C)  shift the LRAS curve farther to the right. 
D)  shift the LRAS curve farther to the left.

Question 17

Labor adjustment costs tend to amplify business cycles because:

Accepted Answer

A)  assets are typically worth more in booms than in recessions. 
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. 
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 18

People engage in intertemporal substitution because they:

Accepted Answer

A)  wish to reduce the overall number of hours they work. 
B)  seek to maximize their well-being. 
C)  are irrational. 
D)  always prefer leisure to work. 
A)  wish to reduce the overall number of hours they work. 
B)  seek to maximize their well-being. 
C)  are irrational. 
D)  always prefer leisure to work.

Question 19

Explain what a collateral shock is,and provide an example of how it fills the role of a transmission mechanism.

Accepted Answer

A collateral shock occurs when for some

Question 20

Uncertainty can cause investors to wait for strong and certain signals that will give them assurance of a profitable outcome.

Accepted Answer

A) True 
 B)False

Exam 14: Transmission and Amplification Mechanisms

The more uncertain the world appears:

Collateral shocks make borrowing:

Individuals who are "underwater" in their home are more likely to take good care of their home.

Which investment project is most irreversible?

Which of the following best describes a valuable asset used to secure a loan from a lender?

Once some economic activity is moving in the upward or downward direction,other parts of the economy tend to:

A medium-sized negative shock:

A transmission mechanism:

Many investments are irreversible because they involve:

Economic forces that can amplify shocks across time and sectors of the economy are called:

Which of the following is NOT true of irreversible investments?

Labor adjustment costs lead to:

Which of the following does NOT contribute to the high cost of reversing job decisions?

For a given increase in government spending growth,intertemporal substitution is more widespread when the impact of AD growth on:

A collateral shock can either increase or decrease the value of collateral,it depends on the circumstances.

Intertemporal substitution causes a positive productivity shock to:

Labor adjustment costs tend to amplify business cycles because:

People engage in intertemporal substitution because they:

Explain what a collateral shock is,and provide an example of how it fills the role of a transmission mechanism.

Uncertainty can cause investors to wait for strong and certain signals that will give them assurance of a profitable outcome.

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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