Question 1

Which of the following chances has the biggest expected return?

Accepted Answer

A)  a 100% chance of getting $1,000 
B)  a 50% chance of winning $2,000 and a 50% chance of winning $0 
C)  a 50% chance of winning $2,000, 25% chance of winning $4,000 and a 25% chance of losing $4,000 
D)  All of the above have the same expected return. 
A)  a 100% chance of getting $1,000 
B)  a 50% chance of winning $2,000 and a 50% chance of winning $0 
C)  a 50% chance of winning $2,000, 25% chance of winning $4,000 and a 25% chance of losing $4,000 
D)  All of the above have the same expected return.

Question 2

To finance a capital expenditure a firm can,

Accepted Answer

A)  buy bonds. 
B)  engage in monetary policy. 
C)  sell stock in the company. 
D)  all of the above 
A)  buy bonds. 
B)  engage in monetary policy. 
C)  sell stock in the company. 
D)  all of the above

Question 3

Other things equal, ________ interest rates increase the government deficit because of ________ government interest payments.

Accepted Answer

A)  high; lower 
B)  high; higher 
C)  low; lower 
D)  low; higher 
A)  high; lower 
B)  high; higher 
C)  low; lower 
D)  low; higher

Question 4

An example of automatic stabilizers is

Accepted Answer

A)  government spending falling during an expansion. 
B)  government spending falling during a recession. 
C)  taxes falling in an expansion. 
D)  deficit targeting. 
A)  government spending falling during an expansion. 
B)  government spending falling during a recession. 
C)  taxes falling in an expansion. 
D)  deficit targeting.

Question 5

In general, monetary policy has a ________ response lag than fiscal policy and a ________ implementation lag.

Accepted Answer

A)  shorter; shorter 
B)  longer; longer 
C)  longer; shorter 
D)  shorter; longer 
A)  shorter; shorter 
B)  longer; longer 
C)  longer; shorter 
D)  shorter; longer

Question 6

A bond is a debt of the issuer.

Accepted Answer

A) True 
 B)False

Question 7

If the economy is in a boom, the implementation lag is generally shorter for fiscal policy than for monetary policy, but if the economy is in a slump, the implementation lag is generally shorter for monetary policy than for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 8

The time it takes policy makers to implement an economic policy to stimulate the economy is known as the reorganization lag.

Accepted Answer

A) True 
 B)False

Question 9

The collapse in housing prices from 2006-2009 contributed to the 2008-2009 recession.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the information provided in Figure 14.1 below to answer the questions that follow.   Figure 14.1
-Refer to Figure 14.1. Suppose it takes policy makers from time t2 to time t3 to see that the economy has started contracting. This is an example of

Accepted Answer

A)  a recognition lag. 
B)  an implementation lag. 
C)  a response lag. 
D)  a policy lag. 
A)  a recognition lag. 
B)  an implementation lag. 
C)  a response lag. 
D)  a policy lag.

Question 11

Time lags mean that

Accepted Answer

A)  fiscal policy is more effective than monetary policy. 
B)  economic policy may be inappropriate when it takes effect. 
C)  economic policy will be ineffective. 
D)  monetary policy is more effective than fiscal policy. 
A)  fiscal policy is more effective than monetary policy. 
B)  economic policy may be inappropriate when it takes effect. 
C)  economic policy will be ineffective. 
D)  monetary policy is more effective than fiscal policy.

Question 12

The economic impact of automatic stabilizers during inflationary periods is to

Accepted Answer

A)  accelerate inflationary pressures. 
B)  increase exports. 
C)  have no impact on inflation. 
D)  moderate inflationary pressures. 
A)  accelerate inflationary pressures. 
B)  increase exports. 
C)  have no impact on inflation. 
D)  moderate inflationary pressures.

Question 13

The implementation lag for monetary policy is

Accepted Answer

A)  shorter than the implementation lag for fiscal policy. 
B)  longer than the implementation lag for fiscal policy. 
C)  the same length a the implementation lag for fiscal policy. 
D)  the same length as the recognition lag for monetary policy. 
A)  shorter than the implementation lag for fiscal policy. 
B)  longer than the implementation lag for fiscal policy. 
C)  the same length a the implementation lag for fiscal policy. 
D)  the same length as the recognition lag for monetary policy.

Question 14

A bond represents part ownership in a company.

Accepted Answer

A) True 
 B)False

Question 15

When there is a stock market boom, stockholders have capital losses.

Accepted Answer

A) True 
 B)False

Question 16

The implementation lag of stabilization policy represents

Accepted Answer

A)  the time that is necessary to put the desired policy into effect once economists and policy makers recognize the need. 
B)  the time needed for the economy to adjust to new conditions after new policies are introduced. 
C)  the time needed for the Federal Reserve to meet. 
D)  the time that is needed for policy makers to recognize the need to do something. 
A)  the time that is necessary to put the desired policy into effect once economists and policy makers recognize the need. 
B)  the time needed for the economy to adjust to new conditions after new policies are introduced. 
C)  the time needed for the Federal Reserve to meet. 
D)  the time that is needed for policy makers to recognize the need to do something.

Question 17

Refer to the information provided in Figure 14.2 below to answer the questions that follow.   Figure 14.2
-Refer to Figure 14.2. If economic policy causes aggregate demand curve shifts from AD2 to AD1, then

Accepted Answer

A)  output decreases to Y0 and the price level decreases to P0. 
B)  output decreases to less than Y1. 
C)  the price level decreases lower than P0 and output decreases to Y0. 
D)  none of the above 
A)  output decreases to Y0 and the price level decreases to P0. 
B)  output decreases to less than Y1. 
C)  the price level decreases lower than P0 and output decreases to Y0. 
D)  none of the above

Question 18

Decreasing taxes during a recession is an example of

Accepted Answer

A)  an automatic destabilizer. 
B)  an automatic stabilizer. 
C)  discretionary economic policy. 
D)  policy lags. 
A)  an automatic destabilizer. 
B)  an automatic stabilizer. 
C)  discretionary economic policy. 
D)  policy lags.

Question 19

The ________ lag for fiscal policy requires changes in congressional-approved spending and tax programs.

Accepted Answer

A)  reorganization 
B)  response 
C)  implementation 
D)  recognition 
A)  reorganization 
B)  response 
C)  implementation 
D)  recognition

Question 20

Refer to the information provided in Figure 14.1 below to answer the questions that follow.   Figure 14.1
-Refer to Figure 14.1. If policy makers decide to on a policy at Point t5 but it does not affect the economy until period t7, then the policy choice is likely to be

Accepted Answer

A)  ineffective. 
B)  optimal. 
C)  inappropriate. 
D)  none of the above 
A)  ineffective. 
B)  optimal. 
C)  inappropriate. 
D)  none of the above

Exam 14: Financial Crises, Stabilization, and Deficits

Which of the following chances has the biggest expected return?

To finance a capital expenditure a firm can,

Other things equal, ________ interest rates increase the government deficit because of ________ government interest payments.

An example of automatic stabilizers is

In general, monetary policy has a ________ response lag than fiscal policy and a ________ implementation lag.

A bond is a debt of the issuer.

If the economy is in a boom, the implementation lag is generally shorter for fiscal policy than for monetary policy, but if the economy is in a slump, the implementation lag is generally shorter for monetary policy than for fiscal policy.

The time it takes policy makers to implement an economic policy to stimulate the economy is known as the reorganization lag.

The collapse in housing prices from 2006-2009 contributed to the 2008-2009 recession.

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1 -Refer to Figure 14.1. Suppose it takes policy makers from time t2 to time t3 to see that the economy has started contracting. This is an example of

Time lags mean that

The economic impact of automatic stabilizers during inflationary periods is to

The implementation lag for monetary policy is

A bond represents part ownership in a company.

When there is a stock market boom, stockholders have capital losses.

The implementation lag of stabilization policy represents

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2 -Refer to Figure 14.2. If economic policy causes aggregate demand curve shifts from AD2 to AD1, then

Decreasing taxes during a recession is an example of

The ________ lag for fiscal policy requires changes in congressional-approved spending and tax programs.

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1 -Refer to Figure 14.1. If policy makers decide to on a policy at Point t5 but it does not affect the economy until period t7, then the policy choice is likely to be

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Other things equal, interest rates increase the government deficit because of government interest payments.

In general, monetary policy has a response lag than fiscal policy and a implementation lag.

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1 -Refer to Figure 14.1. Suppose it takes policy makers from time t₂ to time t₃ to see that the economy has started contracting. This is an example of

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2 -Refer to Figure 14.2. If economic policy causes aggregate demand curve shifts from AD₂ to AD₁, then

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1 -Refer to Figure 14.1. If policy makers decide to on a policy at Point t₅ but it does not affect the economy until period t₇, then the policy choice is likely to be