Question 1

When a firm sells stock in the company, it

Accepted Answer

A)  is increasing its debt load. 
B)  is divesting itself of net worth. 
C)  can finance a capital expenditure. 
D)  all of the above 
A)  is increasing its debt load. 
B)  is divesting itself of net worth. 
C)  can finance a capital expenditure. 
D)  all of the above

Question 2

The time it takes policy makers to see that the economy is going into a recession or an inflation is known as the recognition lag.

Accepted Answer

A) True 
 B)False

Question 3

During periods of high growth and inflationary pressures, the Federal Reserve will likely

Accepted Answer

A)  decrease the money supply to increase interest rates. 
B)  increase the money supply to decrease interest rates. 
C)  increase the money supply to increase interest rates. 
D)  decrease the money supply to decrease interest rates. 
A)  decrease the money supply to increase interest rates. 
B)  increase the money supply to decrease interest rates. 
C)  increase the money supply to increase interest rates. 
D)  decrease the money supply to decrease interest rates.

Question 4

A positive demand shock increases consumer and investment spending and tends to decrease the budget deficit.

Accepted Answer

A) True 
 B)False

Question 5

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 take an action at time t2, the impact on the economy will not be at time t2 because

Accepted Answer

A)  economic policies are ineffective. 
B)  of the response lag. 
C)  of the implementation lag. 
D)  of the recognition lag. 
A)  economic policies are ineffective. 
B)  of the response lag. 
C)  of the implementation lag. 
D)  of the recognition lag.

Question 6

If the federal government ________ during the financial crisis of 2008-2009, the negative wealth effect 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 7

When the ratio of a housing price index to the GDP deflator is rising, this means that housing prices are rising faster than the overall price level.

Accepted Answer

A) True 
 B)False

Question 8

Deficit targeting acts as an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 9

An example of automatic stabilizers is

Accepted Answer

A)  government spending falling in a recession. 
B)  taxes falling in a recession. 
C)  deficit targeting. 
D)  all of the above 
A)  government spending falling in a recession. 
B)  taxes falling in a recession. 
C)  deficit targeting. 
D)  all of the above

Question 10

An index based on 30 actively traded large companies on the New York Stock Exchange is the

Accepted Answer

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

Question 11

Discretionary government policy ensures the stabilization of the economy.

Accepted Answer

A) True 
 B)False

Question 12

If the Fed buys U.S. Treasury bills and bonds to finance deficits, this means that the government is financing the deficit by

Accepted Answer

A)  lowering inflation. 
B)  raising interest rates. 
C)  selling capital. 
D)  printing money. 
A)  lowering inflation. 
B)  raising interest rates. 
C)  selling capital. 
D)  printing money.

Question 13

The Dow-Jones Industrial Average index is all of the following except

Accepted Answer

A)  an index based on 30 actively traded large companies on the New York Stock Exchange. 
B)  the most widely followed U.S. stock index. 
C)  the oldest U.S. stock index. 
D)  representative of the U.S. economy. 
A)  an index based on 30 actively traded large companies on the New York Stock Exchange. 
B)  the most widely followed U.S. stock index. 
C)  the oldest U.S. stock index. 
D)  representative of the U.S. economy.

Question 14

Related to the Economics in Practice on p. 270: The severity of the 2008-2009 recession was being predicted by policy makers and economists

Accepted Answer

A)  by late 2006. 
B)  in late 2007. 
C)  in early 2008. 
D)  in early 2009. 
A)  by late 2006. 
B)  in late 2007. 
C)  in early 2008. 
D)  in early 2009.

Question 15

The ________ lag of stabilization policy represents the time that it takes for policy makers to recognize a change in the economy.

Accepted Answer

A)  implementation 
B)  business cycle 
C)  response 
D)  recognition 
A)  implementation 
B)  business cycle 
C)  response 
D)  recognition

Question 16

Which of the following chances has the biggest expected return?

Accepted Answer

A)  a 50% chance of winning $1,600 and a 50% chance of winning $0 
B)  a 100% chance of getting $800 
C)  a 50% chance of winning $1,600, 25% chance of winning $3,200 and a 25% chance of losing $3,200 
D)  All of the above have the same expected return. 
A)  a 50% chance of winning $1,600 and a 50% chance of winning $0 
B)  a 100% chance of getting $800 
C)  a 50% chance of winning $1,600, 25% chance of winning $3,200 and a 25% chance of losing $3,200 
D)  All of the above have the same expected return.

Question 17

Which of the following chances has the biggest expected return?

Accepted Answer

A)  a 60% chance of winning $2,400 and a 40% chance of winning $0 
B)  a 100% chance of getting $1,200 
C)  a 50% chance of winning $1,200, 20% chance of winning $2,400 and a 30% chance of losing $2,400 
D)  All of the above have the same expected return. 
A)  a 60% chance of winning $2,400 and a 40% chance of winning $0 
B)  a 100% chance of getting $1,200 
C)  a 50% chance of winning $1,200, 20% chance of winning $2,400 and a 30% chance of losing $2,400 
D)  All of the above have the same expected return.

Question 18

The economic impact of ________ during expansionary periods is to moderate growth.

Accepted Answer

A)  implementation lags 
B)  positive demand shocks 
C)  automatic stabilizers 
D)  tax cuts 
A)  implementation lags 
B)  positive demand shocks 
C)  automatic stabilizers 
D)  tax cuts

Question 19

When there is a stock market crash

Accepted Answer

A)  wealth and consumption rise. 
B)  wealth rises and consumption falls. 
C)  wealth falls and consumption rises. 
D)  wealth and consumption fall. 
A)  wealth and consumption rise. 
B)  wealth rises and consumption falls. 
C)  wealth falls and consumption rises. 
D)  wealth and consumption fall.

Question 20

A stock is part ownership in the company.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Crises, Stabilization, and Deficits

When a firm sells stock in the company, it

The time it takes policy makers to see that the economy is going into a recession or an inflation is known as the recognition lag.

During periods of high growth and inflationary pressures, the Federal Reserve will likely

A positive demand shock increases consumer and investment spending and tends to decrease the budget deficit.

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 take an action at time t2, the impact on the economy will not be at time t2 because

If the federal government ________ during the financial crisis of 2008-2009, the negative wealth effect would likely have been larger.

When the ratio of a housing price index to the GDP deflator is rising, this means that housing prices are rising faster than the overall price level.

Deficit targeting acts as an automatic stabilizer.

An example of automatic stabilizers is

An index based on 30 actively traded large companies on the New York Stock Exchange is the

Discretionary government policy ensures the stabilization of the economy.

If the Fed buys U.S. Treasury bills and bonds to finance deficits, this means that the government is financing the deficit by

The Dow-Jones Industrial Average index is all of the following except

Related to the Economics in Practice on p. 270: The severity of the 2008-2009 recession was being predicted by policy makers and economists

The ________ lag of stabilization policy represents the time that it takes for policy makers to recognize a change in the economy.

Which of the following chances has the biggest expected return?

Which of the following chances has the biggest expected return?

The economic impact of ________ during expansionary periods is to moderate growth.

When there is a stock market crash

A stock is part ownership in the company.

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 14.1 below to answer the questions that follow. Figure 14.1 -Refer to Figure 14.1. If policy makers take an action at time t₂, the impact on the economy will not be at time t₂ because