Question 1

The amount of a stock's dividend cannot change from year to year once the dividend has been paid out for the first time.

Accepted Answer

A) True 
 B)False

Question 2

If a share of stock is correctly valued today, a ________ in the stock market is when you purchase a stock because you expect other people will be willing to pay more for the stock in the future.

Accepted Answer

A)  balloon 
B)  hiccup 
C)  bubble 
D)  floatation 
A)  balloon 
B)  hiccup 
C)  bubble 
D)  floatation

Question 3

If interest rates are ________, one dollar today is worth more than one dollar one year from now.

Accepted Answer

A)  positive 
B)  negative 
C)  zero 
D)  all of the above are correct 
A)  positive 
B)  negative 
C)  zero 
D)  all of the above are correct

Question 4

The goal of stabilization policy is to smooth out fluctuations in GDP.

Accepted Answer

A) True 
 B)False

Question 5

The implementation lag for fiscal policy is

Accepted Answer

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

Question 6

A boom in the stock market affects the economy because

Accepted Answer

A)  firms invest more as demand grows. 
B)  consumers consume less with their money tied up in assets. 
C)  the stock market causes the money supply to rise. 
D)  interest rates fall. 
A)  firms invest more as demand grows. 
B)  consumers consume less with their money tied up in assets. 
C)  the stock market causes the money supply to rise. 
D)  interest rates fall.

Question 7

If the stock market booms, consumption will rise.

Accepted Answer

A) True 
 B)False

Question 8

Rising stock prices increase investment because

Accepted Answer

A)  the rising prices increase firm profits and make investment out of retained earnings easier. 
B)  firms can raise more money per share of stock sold. 
C)  rising stock prices guarantee an increased level of retained earnings. 
D)  interest rates are lower. 
A)  the rising prices increase firm profits and make investment out of retained earnings easier. 
B)  firms can raise more money per share of stock sold. 
C)  rising stock prices guarantee an increased level of retained earnings. 
D)  interest rates are lower.

Question 9

Revenue and expenditure items in the federal budget that automatically change with the economy in such a way as to make GDP less stable are known as

Accepted Answer

A)  line-item shocks. 
B)  crowding-out imbalancers. 
C)  automatic destabilizing policies. 
D)  eradication enhancers. 
A)  line-item shocks. 
B)  crowding-out imbalancers. 
C)  automatic destabilizing policies. 
D)  eradication enhancers.

Question 10

An index based on the 500 largest firms traded in the three biggest stock markets is the

Accepted Answer

A)  NASDAQ. 
B)  Dow Jones Industrial Average. 
C)  Standard and Poor's 500 index. 
D)  Blue Chip index. 
A)  NASDAQ. 
B)  Dow Jones Industrial Average. 
C)  Standard and Poor's 500 index. 
D)  Blue Chip index.

Question 11

The time it takes the Fed or Congress to change economic policy is

Accepted Answer

A)  a recognition lag. 
B)  an implementation lag. 
C)  a response lag. 
D)  none of the above 
A)  a recognition lag. 
B)  an implementation lag. 
C)  a response lag. 
D)  none of the above

Question 12

The multiplier means that the response to monetary policy is completed immediately.

Accepted Answer

A) True 
 B)False

Question 13

If the federal government ________ during the financial crisis of 2008-2009, the fall in overall stock prices would likely have been larger.

Accepted Answer

A)  had bailed out the large financial institutions 
B)  had not allowed the large financial institutions to declare bankruptcy 
C)  had not bailed out the large financial institutions 
D)  had allowed the sale of the large financial institutions to foreign investors 
A)  had bailed out the large financial institutions 
B)  had not allowed the large financial institutions to declare bankruptcy 
C)  had not bailed out the large financial institutions 
D)  had allowed the sale of the large financial institutions to foreign investors

Question 14

Government spending rising 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 15

Related to the Economics in Practice on p. 270: The fact that recessions can be hard to forecast means that the

Accepted Answer

A)  recognition lag is usually short. 
B)  recognition lag can be long. 
C)  implementation lag is usually short. 
D)  response lag is nonexistent. 
A)  recognition lag is usually short. 
B)  recognition lag can be long. 
C)  implementation lag is usually short. 
D)  response lag is nonexistent.

Question 16

A stock market boom increases wealth and thus consumption.

Accepted Answer

A) True 
 B)False

Question 17

The budget deficit decreases during economic booms and increases during recessions.

Accepted Answer

A) True 
 B)False

Question 18

If the Fed buys U.S. Treasury bills and bonds to finance deficits, this means that the government is financing the deficit by printing money, which will eventually lead to

Accepted Answer

A)  excess aggregate supply. 
B)  excess aggregate demand. 
C)  deflation. 
D)  an appreciation of the dollar. 
A)  excess aggregate supply. 
B)  excess aggregate demand. 
C)  deflation. 
D)  an appreciation of the dollar.

Question 19

Time lags are delays in the economy's response to stabilization policies. For a particular stabilization policy, which of the following represents the correct order in which these time lags occur?

Accepted Answer

A)  implementation lag → response lag →recognition lag 
B)  response lag → implementation lag →recognition lag 
C)  recognition lag → implementation lag →response lag 
D)  implementation lag → recognition lag →response lag 
A)  implementation lag → response lag →recognition lag 
B)  response lag → implementation lag →recognition lag 
C)  recognition lag → implementation lag →response lag 
D)  implementation lag → recognition lag →response lag

Question 20

The time it takes a change in economic policy to induce people and firms to change their behavior is the implementation lag.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Crises, Stabilization, and Deficits

The amount of a stock's dividend cannot change from year to year once the dividend has been paid out for the first time.

If a share of stock is correctly valued today, a ________ in the stock market is when you purchase a stock because you expect other people will be willing to pay more for the stock in the future.

If interest rates are ________, one dollar today is worth more than one dollar one year from now.

The goal of stabilization policy is to smooth out fluctuations in GDP.

The implementation lag for fiscal policy is

A boom in the stock market affects the economy because

If the stock market booms, consumption will rise.

Rising stock prices increase investment because

Revenue and expenditure items in the federal budget that automatically change with the economy in such a way as to make GDP less stable are known as

An index based on the 500 largest firms traded in the three biggest stock markets is the

The time it takes the Fed or Congress to change economic policy is

The multiplier means that the response to monetary policy is completed immediately.

If the federal government ________ during the financial crisis of 2008-2009, the fall in overall stock prices would likely have been larger.

Government spending rising during a recession is an example of

Related to the Economics in Practice on p. 270: The fact that recessions can be hard to forecast means that the

A stock market boom increases wealth and thus consumption.

The budget deficit decreases during economic booms and increases during recessions.

If the Fed buys U.S. Treasury bills and bonds to finance deficits, this means that the government is financing the deficit by printing money, which will eventually lead to

Time lags are delays in the economy's response to stabilization policies. For a particular stabilization policy, which of the following represents the correct order in which these time lags occur?

The time it takes a change in economic policy to induce people and firms to change their behavior is the implementation lag.

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

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