Question 1

In recessions,as the price of assets falls,the owner's equity in these assets falls as well.

Accepted Answer

A) True 
 B)False

Question 2

Time bunching refers to the fact that the second and fourth quarters of a year are stronger than the other quarters,due to the increased economic activity in these periods.

Accepted Answer

A) True 
 B)False

Question 3

Intertemporal substitution can magnify the effects of a negative shock,thus leading to a recession.

Accepted Answer

A) True 
 B)False

Question 4

Time bunching is:

Accepted Answer

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

Question 5

The equity in your home refers to the market value of your:

Accepted Answer

A)  home. 
B)  home minus the price you paid. 
C)  home minus the amount you still owe on your mortgage. 
D)  home plus the cost of any improvements made. 
A)  home. 
B)  home minus the price you paid. 
C)  home minus the amount you still owe on your mortgage. 
D)  home plus the cost of any improvements made.

Question 6

Higher labor adjustment costs increase the effect of a real shock on real GDP growth.

Accepted Answer

A) True 
 B)False

Question 7

If it takes people more time to make employment decisions,then a given negative economic shock will cause a decline in economic growth:

Accepted Answer

A)  smaller in size and shorter in duration. 
B)  larger in size but shorter in duration. 
C)  smaller in size but longer in duration. 
D)  larger in size and longer in duration. 
A)  smaller in size and shorter in duration. 
B)  larger in size but shorter in duration. 
C)  smaller in size but longer in duration. 
D)  larger in size and longer in duration.

Question 8

Time bunching explains why:

Accepted Answer

A)  most people work between the hours of 8:00 AM and 5:00 PM. 
B)  cities develop. 
C)  some firms pay their workers overtime. 
D)  people choose to get married before they purchase a home together. 
A)  most people work between the hours of 8:00 AM and 5:00 PM. 
B)  cities develop. 
C)  some firms pay their workers overtime. 
D)  people choose to get married before they purchase a home together.

Question 9

Which of the following is NOT a transmission mechanism?

Accepted Answer

A)  intertemporal substitution 
B)  irreversible investments 
C)  time bunching 
D)  shifts in LRAS 
A)  intertemporal substitution 
B)  irreversible investments 
C)  time bunching 
D)  shifts in LRAS

Question 10

Uncertainty tends to amplify business cycles because:

Accepted Answer

A)  many investments are irreversible with large sunk costs;thus investors decrease investment during bad times and wait until they are more certain about the future direction of the economy. 
B)  fewer people tend to go to college during recessions because of the uncertainty in the job market and thus lower education leads to lower productivity. 
C)  investment tends to correlate with prices and therefore both prices and investment tend to rise during booms and decrease during recessions. 
D)  resource providers have less demand for their materials during recessions and thus less certain sales expectations. 
A)  many investments are irreversible with large sunk costs;thus investors decrease investment during bad times and wait until they are more certain about the future direction of the economy. 
B)  fewer people tend to go to college during recessions because of the uncertainty in the job market and thus lower education leads to lower productivity. 
C)  investment tends to correlate with prices and therefore both prices and investment tend to rise during booms and decrease during recessions. 
D)  resource providers have less demand for their materials during recessions and thus less certain sales expectations.

Question 11

Intertemporal substitution means that a person or a business is least likely to work hard when working hard brings the greatest return.

Accepted Answer

A) True 
 B)False

Question 12

The idea that some investments cannot be easily moved,adjusted,or reversed if conditions change is called:

Accepted Answer

A)  intertemporal substitution. 
B)  irreversible investment. 
C)  time bunching 
D)  collateral damage. 
A)  intertemporal substitution. 
B)  irreversible investment. 
C)  time bunching 
D)  collateral damage.

Question 13

When a negative shock arrives and the economy slows down in the current period:

Accepted Answer

A)  new technology is more likely to be invented. 
B)  worker productivity rises. 
C)  many people are less keen to work. 
D)  people tend to work harder. 
A)  new technology is more likely to be invented. 
B)  worker productivity rises. 
C)  many people are less keen to work. 
D)  people tend to work harder.

Question 14

Irreversible investments can be costly because they:

Accepted Answer

A)  are expensive. 
B)  involve a large number of workers. 
C)  involve sunk costs. 
D)  are intertemporal. 
A)  are expensive. 
B)  involve a large number of workers. 
C)  involve sunk costs. 
D)  are intertemporal.

Question 15

Intertemporal substitution tends to magnify:

Accepted Answer

A)  negative shocks only. 
B)  positive shocks only. 
C)  both negative and positive shocks. 
D)  neither negative nor positive shocks. 
A)  negative shocks only. 
B)  positive shocks only. 
C)  both negative and positive shocks. 
D)  neither negative nor positive shocks.

Question 16

Uncertainty magnifies negative shocks by:

Accepted Answer

A)  keeping resources in unproductive areas. 
B)  slowing the speed of transmission of the negative shocks. 
C)  providing clear investment signals. 
D)  increasing the number of irreversible investments. 
A)  keeping resources in unproductive areas. 
B)  slowing the speed of transmission of the negative shocks. 
C)  providing clear investment signals. 
D)  increasing the number of irreversible investments.

Question 17

Collateral shocks:

Accepted Answer

A)  force banks to hold more of their assets as cash. 
B)  typically shift employment from one industry to another. 
C)  force people to sell their homes. 
D)  slow the adjustment of the economy to business cycle fluctuations. 
A)  force banks to hold more of their assets as cash. 
B)  typically shift employment from one industry to another. 
C)  force people to sell their homes. 
D)  slow the adjustment of the economy to business cycle fluctuations.

Question 18

Which of the following is NOT a transmission mechanism of real shocks and aggregate demand shocks?

Accepted Answer

A)  reversible investment 
B)  intertemporal substitutions 
C)  collateral damage 
D)  time bunching 
A)  reversible investment 
B)  intertemporal substitutions 
C)  collateral damage 
D)  time bunching

Question 19

The allocation of consumption,work,and leisure across time to maximize well-being is called:

Accepted Answer

A)  cross-sectional substitution. 
B)  cross-sectional complement. 
C)  intertemporal substitution. 
D)  intertemporal complement. 
A)  cross-sectional substitution. 
B)  cross-sectional complement. 
C)  intertemporal substitution. 
D)  intertemporal complement.

Question 20

Which is NOT an example of a transmission mechanism?

Accepted Answer

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

Exam 14: Transmission and Amplification Mechanisms

In recessions,as the price of assets falls,the owner's equity in these assets falls as well.

Time bunching refers to the fact that the second and fourth quarters of a year are stronger than the other quarters,due to the increased economic activity in these periods.

Intertemporal substitution can magnify the effects of a negative shock,thus leading to a recession.

Time bunching is:

The equity in your home refers to the market value of your:

Higher labor adjustment costs increase the effect of a real shock on real GDP growth.

If it takes people more time to make employment decisions,then a given negative economic shock will cause a decline in economic growth:

Time bunching explains why:

Which of the following is NOT a transmission mechanism?

Uncertainty tends to amplify business cycles because:

Intertemporal substitution means that a person or a business is least likely to work hard when working hard brings the greatest return.

The idea that some investments cannot be easily moved,adjusted,or reversed if conditions change is called:

When a negative shock arrives and the economy slows down in the current period:

Irreversible investments can be costly because they:

Intertemporal substitution tends to magnify:

Uncertainty magnifies negative shocks by:

Collateral shocks:

Which of the following is NOT a transmission mechanism of real shocks and aggregate demand shocks?

The allocation of consumption,work,and leisure across time to maximize well-being is called:

Which is NOT an example of a transmission mechanism?

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