Question 1

Intertemporal substitution tends to:

Accepted Answer

A)  reduce the impact of positive shocks and increase the impact of negative shocks. 
B)  reduce the impact of negative shocks and increase the impact of positive shocks. 
C)  reduce the impact of positive shocks and negative shocks. 
D)  increase the impact of positive and negative shocks. 
A)  reduce the impact of positive shocks and increase the impact of negative shocks. 
B)  reduce the impact of negative shocks and increase the impact of positive shocks. 
C)  reduce the impact of positive shocks and negative shocks. 
D)  increase the impact of positive and negative shocks.

Question 2

When the economy is in recession,we tend to see few people entering college.

Accepted Answer

A) True 
 B)False

Question 3

Labor adjustment costs always lead to rational choices.

Accepted Answer

A) True 
 B)False

Question 4

Many investments involve sunk costs.

Accepted Answer

A) True 
 B)False

Question 5

When there is high uncertainty,investors are more likely to hold off on potential investment projects that:

Accepted Answer

A)  are irreversible. 
B)  are reversible. 
C)  have many substitutes. 
D)  have low adjustment costs. 
A)  are irreversible. 
B)  are reversible. 
C)  have many substitutes. 
D)  have low adjustment costs.

Question 6

Using the concept of intertemporal substitution,explain why accountants tend to work nearly 80-hour workweeks during tax season,but then take multi-week vacations during the summer.

Accepted Answer

Intertemporal substitution says that peo

Question 7

The observation of high business activity in the Christmas season and low business activity immediately after Christmas is an example of:

Accepted Answer

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

Question 8

In what quarter of the year does GDP consistently spike downward in the United States?

Accepted Answer

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

Question 9

Because of intertemporal substitution,the effect of a negative economic shock on real GDP will:

Accepted Answer

A)  be larger than otherwise. 
B)  become a positive shock in the end. 
C)  disappear immediately. 
D)  occur only in the long run,but not during the short run. 
A)  be larger than otherwise. 
B)  become a positive shock in the end. 
C)  disappear immediately. 
D)  occur only in the long run,but not during the short run.

Question 10

Economic activities tend to cluster in time because:

Accepted Answer

A)  it pays to coordinate economic activities with those of others. 
B)  of the vertical LRAS curve. 
C)  of labor unions. 
D)  it is legally required. 
A)  it pays to coordinate economic activities with those of others. 
B)  of the vertical LRAS curve. 
C)  of labor unions. 
D)  it is legally required.

Question 11

Because of intertemporal substitution,an increase in government spending growth results in:

Accepted Answer

A)  a leftward shift of both the LRAS curve and the AD curve. 
B)  a leftward shift of the LRAS curve but a rightward shift of the AD curve. 
C)  a rightward shift of both the LRAS curve and the AD curve. 
D)  a rightward shift of the LRAS curve but a leftward shift of the AD curve. 
A)  a leftward shift of both the LRAS curve and the AD curve. 
B)  a leftward shift of the LRAS curve but a rightward shift of the AD curve. 
C)  a rightward shift of both the LRAS curve and the AD curve. 
D)  a rightward shift of the LRAS curve but a leftward shift of the AD curve.

Question 12

Firms are willing to supply greater numbers of goods when prices rise.This decision is very similar to the intertemporal substitution decision by a working individual to supply labor.

Accepted Answer

A) True 
 B)False

Question 13

Seasonally adjusted data would reduce the visibility of time bunching in economic activity.

Accepted Answer

A) True 
 B)False

Question 14

If rainfall is below average,farmers may:

Accepted Answer

A)  work harder and devote more capital to their fields. 
B)  work harder but devote less capital to their fields. 
C)  devote more capital to their fields but work less hard. 
D)  work less hard and devote less capital to their fields. 
A)  work harder and devote more capital to their fields. 
B)  work harder but devote less capital to their fields. 
C)  devote more capital to their fields but work less hard. 
D)  work less hard and devote less capital to their fields.

Question 15

During an economic boom,people are more likely to:

Accepted Answer

A)  retire early. 
B)  delay retirement. 
C)  leave retirement plans unchanged. 
D)  take a second job. 
A)  retire early. 
B)  delay retirement. 
C)  leave retirement plans unchanged. 
D)  take a second job.

Question 16

Equity refers to the:

Accepted Answer

A)  difference between the value of the asset and the amount of debt owed on the asset. 
B)  value of the asset. 
C)  value of the asset minus the purchase price. 
D)  taxable value of the asset. 
A)  difference between the value of the asset and the amount of debt owed on the asset. 
B)  value of the asset. 
C)  value of the asset minus the purchase price. 
D)  taxable value of the asset.

Question 17

People engage in intertemporal substitution because they:

Accepted Answer

A)  are required to work longer hours when economies are expanding. 
B)  are rational. 
C)  are trying to achieve consumption smoothing. 
D)  prefer fluctuations in their incomes. 
A)  are required to work longer hours when economies are expanding. 
B)  are rational. 
C)  are trying to achieve consumption smoothing. 
D)  prefer fluctuations in their incomes.

Question 18

Which is widely considered to be the most irreversible decision for a typical person?

Accepted Answer

A)  getting engaged with a loved one 
B)  buying a house 
C)  having a baby 
D)  buying a car 
A)  getting engaged with a loved one 
B)  buying a house 
C)  having a baby 
D)  buying a car

Question 19

Workers may display irrationality in labor adjustments to shocks if:

Accepted Answer

A)  union actions caused their pre-layoff wages to exceed market clearing wages. 
B)  they practice intertemporal substitution. 
C)  they voluntarily quit their jobs. 
D)  they find new jobs that are higher paying. 
A)  union actions caused their pre-layoff wages to exceed market clearing wages. 
B)  they practice intertemporal substitution. 
C)  they voluntarily quit their jobs. 
D)  they find new jobs that are higher paying.

Question 20

Which of the following is the best example of an irreversible investment?

Accepted Answer

A)  the decision to work an extra 2 hours per week 
B)  starting a new automobile line 
C)  a first date 
D)  hiring a new employee 
A)  the decision to work an extra 2 hours per week 
B)  starting a new automobile line 
C)  a first date 
D)  hiring a new employee

Exam 14: Transmission and Amplification Mechanisms

Intertemporal substitution tends to:

When the economy is in recession,we tend to see few people entering college.

Labor adjustment costs always lead to rational choices.

Many investments involve sunk costs.

When there is high uncertainty,investors are more likely to hold off on potential investment projects that:

Using the concept of intertemporal substitution,explain why accountants tend to work nearly 80-hour workweeks during tax season,but then take multi-week vacations during the summer.

The observation of high business activity in the Christmas season and low business activity immediately after Christmas is an example of:

In what quarter of the year does GDP consistently spike downward in the United States?

Because of intertemporal substitution,the effect of a negative economic shock on real GDP will:

Economic activities tend to cluster in time because:

Because of intertemporal substitution,an increase in government spending growth results in:

Firms are willing to supply greater numbers of goods when prices rise.This decision is very similar to the intertemporal substitution decision by a working individual to supply labor.

Seasonally adjusted data would reduce the visibility of time bunching in economic activity.

If rainfall is below average,farmers may:

During an economic boom,people are more likely to:

Equity refers to the:

People engage in intertemporal substitution because they:

Which is widely considered to be the most irreversible decision for a typical person?

Workers may display irrationality in labor adjustments to shocks if:

Which of the following is the best example of an irreversible investment?

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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