Question 1

In response to the financial crisis of 2008, the federal government passed a ________ bailout bill.

Accepted Answer

A)  $450 million 
B)  $36 billion 
C)  $700 billion 
D)  $3 trillion 
A)  $450 million 
B)  $36 billion 
C)  $700 billion 
D)  $3 trillion

Question 2

________ that often erode effectiveness of monetary and fiscal policy measures represent delays in the response of the economy to stabilization policy.

Accepted Answer

A)  High inflation levels 
B)  High unemployment levels 
C)  Time lags 
D)  Negative business cycles 
A)  High inflation levels 
B)  High unemployment levels 
C)  Time lags 
D)  Negative business cycles

Question 3

If you own a share of stock in a company and the risk associated with its business falls, you would expect

Accepted Answer

A)  a capital gain. 
B)  a capital loss. 
C)  a higher dividend. 
D)  a bubble. 
A)  a capital gain. 
B)  a capital loss. 
C)  a higher dividend. 
D)  a bubble.

Question 4

If you think the price of a share of stock reflects its true value, but you buy it anyway because you expect to be able to sell it later at a higher price, then you are participating in

Accepted Answer

A)  a stock market price bubble. 
B)  insider trading. 
C)  hedging. 
D)  fraud. 
A)  a stock market price bubble. 
B)  insider trading. 
C)  hedging. 
D)  fraud.

Question 5

A capital gain is

Accepted Answer

A)  when you can sell an asset for more than you paid for it. 
B)  when you increase the plant and equipment you own. 
C)  when your dividends rise. 
D)  when your coupon payment rises. 
A)  when you can sell an asset for more than you paid for it. 
B)  when you increase the plant and equipment you own. 
C)  when your dividends rise. 
D)  when your coupon payment rises.

Question 6

If the government spending multiplier were 3.5, a $2 billion decrease in government spending would lower GDP by

Accepted Answer

A)  $70 billion after one year. 
B)  $2 billion after two years. 
C)  $1.5 billion after one year. 
D)  $7 billion after one year. 
A)  $70 billion after one year. 
B)  $2 billion after two years. 
C)  $1.5 billion after one year. 
D)  $7 billion after one year.

Question 7

Cyclical deficits generally increase during recessions.

Accepted Answer

A) True 
 B)False

Question 8

Under the original Gramm-Rudman-Hollings Act, a congressionally enacted budget deficit that was larger than the targeted amount would

Accepted Answer

A)  result in automatic tax cuts. 
B)  result in automatic spending increases. 
C)  result in both automatic tax cuts and spending increases. 
D)  result in automatic spending cuts. 
A)  result in automatic tax cuts. 
B)  result in automatic spending increases. 
C)  result in both automatic tax cuts and spending increases. 
D)  result in automatic spending cuts.

Question 9

The total return that the owner of a stock receives is the value of the dividends received minus the capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 10

The lags of monetary and fiscal policy imply that government stabilization policy is likely to be optimal.

Accepted Answer

A) True 
 B)False

Question 11

The following is likely to occur after a ________ shock: [AD↓ ⇒ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↓ ].

Accepted Answer

A)  positive aggregate demand 
B)  positive aggregate supply 
C)  negative aggregate demand 
D)  negative aggregate supply 
A)  positive aggregate demand 
B)  positive aggregate supply 
C)  negative aggregate demand 
D)  negative aggregate supply

Question 12

A firm might issue stock to

Accepted Answer

A)  finance a capital project. 
B)  decrease the number of owners. 
C)  to increase its debt. 
D)  employ more people. 
A)  finance a capital project. 
B)  decrease the number of owners. 
C)  to increase its debt. 
D)  employ more people.

Question 13

The ________ declared that part of the Gramm-Rudman-Hollings Act was illegal and that the mandated automatic spending cuts had to be approved by the Congress.

Accepted Answer

A)  U.S. Senate 
B)  U.S. Supreme Court 
C)  Federal Reserve Board 
D)  president 
A)  U.S. Senate 
B)  U.S. Supreme Court 
C)  Federal Reserve Board 
D)  president

Question 14

Because the Fed's current tool for changing the interest rate is to change the ________, once the decision has been made to make the change, ________.

Accepted Answer

A)  rate it pays on bank reserves; the implementation lag is usually very long 
B)  rate it pays on bank reserves; there is in effect no implementation lag 
C)  required reserve rate; the implementation lag is usually very long 
D)  required reserve rate; there is in effect no implementation lag 
A)  rate it pays on bank reserves; the implementation lag is usually very long 
B)  rate it pays on bank reserves; there is in effect no implementation lag 
C)  required reserve rate; the implementation lag is usually very long 
D)  required reserve rate; there is in effect no implementation lag

Question 15

The Standard and Poor's 500 index is

Accepted Answer

A)  an index of a basket of consumer good purchased by the typical consumer. 
B)  an index based on the stock prices of 30 actively traded large companies. 
C)  an index based on the 500 largest firms traded in the three biggest stock markets. 
D)  an index of 5,000 companies traded on the national association of securities dealers automatic quotation system. 
A)  an index of a basket of consumer good purchased by the typical consumer. 
B)  an index based on the stock prices of 30 actively traded large companies. 
C)  an index based on the 500 largest firms traded in the three biggest stock markets. 
D)  an index of 5,000 companies traded on the national association of securities dealers automatic quotation system.

Question 16

During the financial crisis of 2008-2009, the U.S. government bailed out Goldman Sachs.

Accepted Answer

A) True 
 B)False

Question 17

The legislative intent of the Gramm-Rudman-Hollings Act was to

Accepted Answer

A)  reduce the federal deficit by a set amount each year. 
B)  increase federal interstate highway expenditures. 
C)  increase defense-related expenditures. 
D)  decrease personal and corporate taxes. 
A)  reduce the federal deficit by a set amount each year. 
B)  increase federal interstate highway expenditures. 
C)  increase defense-related expenditures. 
D)  decrease personal and corporate taxes.

Question 18

The ________ lag for monetary policy tends to be much shorter than for fiscal policy because only monetary policy requires rather immediate changes in open market operations.

Accepted Answer

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

Question 19

Cyclical deficits ________, and large structural deficits ________.

Accepted Answer

A)  are usually temporary and do not pose long-run problems; can have negative long-run consequences 
B)  are usually permanent and often pose long-run problems; can have negative long-run consequences 
C)  usually have negative long-run consequences; are usually temporary and do not pose long-run problems 
D)  usually have negative long-run consequences; are usually temporary but often pose long-run problems 
A)  are usually temporary and do not pose long-run problems; can have negative long-run consequences 
B)  are usually permanent and often pose long-run problems; can have negative long-run consequences 
C)  usually have negative long-run consequences; are usually temporary and do not pose long-run problems 
D)  usually have negative long-run consequences; are usually temporary but often pose long-run problems

Question 20

The economic impact of automatic stabilizers during recessionary periods is to

Accepted Answer

A)  have no impact on the recession. 
B)  moderate the recession. 
C)  make the recession worse. 
D)  increase taxes. 
A)  have no impact on the recession. 
B)  moderate the recession. 
C)  make the recession worse. 
D)  increase taxes.

Exam 14: Financial Crises, Stabilization, and Deficits

In response to the financial crisis of 2008, the federal government passed a ________ bailout bill.

________ that often erode effectiveness of monetary and fiscal policy measures represent delays in the response of the economy to stabilization policy.

If you own a share of stock in a company and the risk associated with its business falls, you would expect

If you think the price of a share of stock reflects its true value, but you buy it anyway because you expect to be able to sell it later at a higher price, then you are participating in

A capital gain is

If the government spending multiplier were 3.5, a $2 billion decrease in government spending would lower GDP by

Cyclical deficits generally increase during recessions.

Under the original Gramm-Rudman-Hollings Act, a congressionally enacted budget deficit that was larger than the targeted amount would

The total return that the owner of a stock receives is the value of the dividends received minus the capital gain or loss.

The lags of monetary and fiscal policy imply that government stabilization policy is likely to be optimal.

The following is likely to occur after a ________ shock: [AD↓ ⇒ Y↓ ⇒ T↓ ⇒ deficit↑ ⇒ G↓ ⇒ AD↓ ⇒ Y↓ ].

A firm might issue stock to

The ________ declared that part of the Gramm-Rudman-Hollings Act was illegal and that the mandated automatic spending cuts had to be approved by the Congress.

Because the Fed's current tool for changing the interest rate is to change the ________, once the decision has been made to make the change, ________.

The Standard and Poor's 500 index is

During the financial crisis of 2008-2009, the U.S. government bailed out Goldman Sachs.

The legislative intent of the Gramm-Rudman-Hollings Act was to

The ________ lag for monetary policy tends to be much shorter than for fiscal policy because only monetary policy requires rather immediate changes in open market operations.

Cyclical deficits ________, and large structural deficits ________.

The economic impact of automatic stabilizers during recessionary periods is to

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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Because the Fed's current tool for changing the interest rate is to change the , once the decision has been made to make the change, .

Cyclical deficits , and large structural deficits .