Question 1

A response lag is

Accepted Answer

A)  the time it takes to see if that there has been a shock to the economy. 
B)  the time it takes the Fed or Congress to change economic policy. 
C)  the time it takes for a new economic policy to affect behavior in the economy. 
D)  none of the above 
A)  the time it takes to see if that there has been a shock to the economy. 
B)  the time it takes the Fed or Congress to change economic policy. 
C)  the time it takes for a new economic policy to affect behavior in the economy. 
D)  none of the above

Question 2

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 the economy is currently at Point B and policy makers implement a policy which decreases the aggregate demand curve to AD1,

Accepted Answer

A)  the price level will rise. 
B)  the price level will fall. 
C)  GDP will rise. 
D)  the inflation rate will rise. 
A)  the price level will rise. 
B)  the price level will fall. 
C)  GDP will rise. 
D)  the inflation rate will rise.

Question 3

While targeting the deficit, which of the following is likely to occur after a positive aggregate demand shock?

Accepted Answer

A)  AD↑ ⇒ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↓ 
B)  AD↑ ⇒ Y↓ ⇒ T↓ ⇒ deficit↓ ⇒ G↓ ⇒ AD↓ ⇒ Y↓ 
C)  AD↓ ⇒ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↑ 
D)  AD↑ ⇒ Y↑ ⇒ T↑ ⇒ deficit↓ ⇒ G↑ ⇒ AD↑ ⇒ Y↑ 
A)  AD↑ ⇒ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↓ 
B)  AD↑ ⇒ Y↓ ⇒ T↓ ⇒ deficit↓ ⇒ G↓ ⇒ AD↓ ⇒ Y↓ 
C)  AD↓ ⇒ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↑ 
D)  AD↑ ⇒ Y↑ ⇒ T↑ ⇒ deficit↓ ⇒ G↑ ⇒ AD↑ ⇒ Y↑

Question 4

A stock bubble exists when the price of a stock is greater than the discounted value of its expected future dividends.

Accepted Answer

A) True 
 B)False

Question 5

The recognition lag is generally of equal duration for both fiscal policy and monetary policy.

Accepted Answer

A) True 
 B)False

Question 6

Economic policy may be inappropriate when it takes effect for all of the following reasons except

Accepted Answer

A)  recognition lags. 
B)  implementation lags. 
C)  response lags. 
D)  anticipation lags. 
A)  recognition lags. 
B)  implementation lags. 
C)  response lags. 
D)  anticipation lags.

Question 7

The government considers realized capital gains to be income.

Accepted Answer

A) True 
 B)False

Question 8

If interest rates are positive, which of the following has the lowest current value?

Accepted Answer

A)  $350 now 
B)  $350 a year from now 
C)  $350 two years from now 
D)  All of the above have the same current value. 
A)  $350 now 
B)  $350 a year from now 
C)  $350 two years from now 
D)  All of the above have the same current value.

Question 9

Which of the following financial institutions was not bailed out by the federal government during the financial crisis of 2008-2009?

Accepted Answer

A)  J.P. Morgan Chase 
B)  A.I.G. 
C)  Lehman Brothers 
D)  Goldman Sachs 
A)  J.P. Morgan Chase 
B)  A.I.G. 
C)  Lehman Brothers 
D)  Goldman Sachs

Question 10

The owners of a company are its

Accepted Answer

A)  bond holders. 
B)  employees. 
C)  stockholders. 
D)  A and C 
A)  bond holders. 
B)  employees. 
C)  stockholders. 
D)  A and C

Question 11

If the stock market crashes, consumption will fall.

Accepted Answer

A) True 
 B)False

Question 12

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 the economy is actually at Point G but policy makers think that it is still at Point E, this is an example of

Accepted Answer

A)  economic policies ineffectiveness. 
B)  response lag. 
C)  implementation lag. 
D)  recognition lag. 
A)  economic policies ineffectiveness. 
B)  response lag. 
C)  implementation lag. 
D)  recognition lag.

Question 13

When the owner of an asset sells it for more than she paid for it, she has a(n)

Accepted Answer

A)  unnatural profit. 
B)  tax-free profit. 
C)  asset accumulation. 
D)  realized capital gain. 
A)  unnatural profit. 
B)  tax-free profit. 
C)  asset accumulation. 
D)  realized capital gain.

Question 14

A Constitutional amendment requiring that the federal government budget be balanced annually would have

Accepted Answer

A)  an automatic stabilizing impact upon the economy. 
B)  an automatic destabilizing impact upon the economy. 
C)  overall neutral impact upon the economy. 
D)  overall positive impact upon the economy during any stage of a business cycle. 
A)  an automatic stabilizing impact upon the economy. 
B)  an automatic destabilizing impact upon the economy. 
C)  overall neutral impact upon the economy. 
D)  overall positive impact upon the economy during any stage of a business cycle.

Question 15

A person who wishes to avoid risk would pick which of the following choices?

Accepted Answer

A)  a 100% of getting $4,000 
B)  a 50% chance of winning $8,000 or a 50% chance of winning $0 
C)  a 50% chance of getting $8,000, 25% chance of getting $16,000 and a 25% chance of losing $16,000 
D)  All of the above are equal to a person who wishes to avoid risk. 
A)  a 100% of getting $4,000 
B)  a 50% chance of winning $8,000 or a 50% chance of winning $0 
C)  a 50% chance of getting $8,000, 25% chance of getting $16,000 and a 25% chance of losing $16,000 
D)  All of the above are equal to a person who wishes to avoid risk.

Question 16

An example of automatic stabilizers is

Accepted Answer

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

Question 17

The implementation lag for fiscal policy tends to be much longer than for monetary policy because fiscal policy requires

Accepted Answer

A)  changes in required reserves. 
B)  changes in open-market operations. 
C)  changes in congressional-approved spending and tax programs. 
D)  changes in exports and imports. 
A)  changes in required reserves. 
B)  changes in open-market operations. 
C)  changes in congressional-approved spending and tax programs. 
D)  changes in exports and imports.

Question 18

A share of stock

Accepted Answer

A)  is a fractional ownership of the firm. 
B)  gives the owner with other owners the right to pick the management of the company. 
C)  does not promise a fixed annual payment. 
D)  all of the above 
A)  is a fractional ownership of the firm. 
B)  gives the owner with other owners the right to pick the management of the company. 
C)  does not promise a fixed annual payment. 
D)  all of the above

Question 19

If the U.S. Treasury is forced to sell bills and bonds to foreigners to finance deficits, this may ________ the price of bonds and ________ the interest rates on the bonds.

Accepted Answer

A)  drive down; drive down 
B)  drive down; drive up 
C)  drive up; drive down 
D)  drive up; drive up 
A)  drive down; drive down 
B)  drive down; drive up 
C)  drive up; drive down 
D)  drive up; drive up

Question 20

The general trend in the S&P 500 stock index since 1948 has been

Accepted Answer

A)  flat. 
B)  increasing. 
C)  decreasing 
D)  there has been no trend but it has been very volatile. 
A)  flat. 
B)  increasing. 
C)  decreasing 
D)  there has been no trend but it has been very volatile.

Exam 14: Financial Crises, Stabilization, and Deficits

A response lag is

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 the economy is currently at Point B and policy makers implement a policy which decreases the aggregate demand curve to AD1,

While targeting the deficit, which of the following is likely to occur after a positive aggregate demand shock?

A stock bubble exists when the price of a stock is greater than the discounted value of its expected future dividends.

The recognition lag is generally of equal duration for both fiscal policy and monetary policy.

Economic policy may be inappropriate when it takes effect for all of the following reasons except

The government considers realized capital gains to be income.

If interest rates are positive, which of the following has the lowest current value?

Which of the following financial institutions was not bailed out by the federal government during the financial crisis of 2008-2009?

The owners of a company are its

If the stock market crashes, consumption will fall.

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 the economy is actually at Point G but policy makers think that it is still at Point E, this is an example of

When the owner of an asset sells it for more than she paid for it, she has a(n)

A Constitutional amendment requiring that the federal government budget be balanced annually would have

A person who wishes to avoid risk would pick which of the following choices?

An example of automatic stabilizers is

The implementation lag for fiscal policy tends to be much longer than for monetary policy because fiscal policy requires

A share of stock

If the U.S. Treasury is forced to sell bills and bonds to foreigners to finance deficits, this may ________ the price of bonds and ________ the interest rates on the bonds.

The general trend in the S&P 500 stock index since 1948 has been

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

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 the economy is currently at Point B and policy makers implement a policy which decreases the aggregate demand curve to AD₁,

If the U.S. Treasury is forced to sell bills and bonds to foreigners to finance deficits, this may the price of bonds and the interest rates on the bonds.