Question 1

A bond is

Accepted Answer

A)  a share of ownership in a company. 
B)  a document that formally promises to repay a loan. 
C)  a promise to pay a dividend. 
D)  a non-contingent payment. 
A)  a share of ownership in a company. 
B)  a document that formally promises to repay a loan. 
C)  a promise to pay a dividend. 
D)  a non-contingent payment.

Question 2

A $1.00 change in the value of stocks changes consumption and investment by about

Accepted Answer

A)  $1.10. 
B)  $1.00. 
C)  $.10. 
D)  $.04. 
A)  $1.10. 
B)  $1.00. 
C)  $.10. 
D)  $.04.

Question 3

The Gramm-Rudman-Hollings Act was passed by Congress in ________ and signed into law by Ronald Reagan.

Accepted Answer

A)  1978 
B)  1986 
C)  1992 
D)  1995 
A)  1978 
B)  1986 
C)  1992 
D)  1995

Question 4

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

Accepted Answer

A)  monetary changes only require the Fed to act. 
B)  fiscal policy changes requires both houses of Congress and the President to act. 
C)  fiscal policy usually requires committee hearings in both houses of Congress. 
D)  all of the above 
A)  monetary changes only require the Fed to act. 
B)  fiscal policy changes requires both houses of Congress and the President to act. 
C)  fiscal policy usually requires committee hearings in both houses of Congress. 
D)  all of the above

Question 5

________ acts as an automatic destabilizer because it requires taxes to be cut and government spending to be raised during ________.

Accepted Answer

A)  Deficit targeting; an expansion 
B)  Deficit targeting; a contraction 
C)  Fiscal policy; an expansion 
D)  Fiscal policy; a contraction 
A)  Deficit targeting; an expansion 
B)  Deficit targeting; a contraction 
C)  Fiscal policy; an expansion 
D)  Fiscal policy; a contraction

Question 6

The price of a stock should equal the face value of its expected future dividends.

Accepted Answer

A) True 
 B)False

Question 7

Fractional ownership of a firm is represented by

Accepted Answer

A)  capital gains. 
B)  retained earnings. 
C)  a corporate bond. 
D)  a share of stock. 
A)  capital gains. 
B)  retained earnings. 
C)  a corporate bond. 
D)  a share of stock.

Question 8

Wealth and investment fall when there is a stock market

Accepted Answer

A)  crash. 
B)  boom. 
C)  merger. 
D)  split. 
A)  crash. 
B)  boom. 
C)  merger. 
D)  split.

Question 9

The Gramm-Rudman-Hollings Act sought to ________ each year between 1987 and 1991.

Accepted Answer

A)  increase the federal budget by $145 billion 
B)  increase tax revenues by $75 billion 
C)  reduce capital gains by $14 billion 
D)  reduce the federal deficit by $36 billion 
A)  increase the federal budget by $145 billion 
B)  increase tax revenues by $75 billion 
C)  reduce capital gains by $14 billion 
D)  reduce the federal deficit by $36 billion

Question 10

A $10.00 change in the value of stocks changes consumption and investment by about

Accepted Answer

A)  $11.00. 
B)  $10.00. 
C)  $1.00. 
D)  $0.40. 
A)  $11.00. 
B)  $10.00. 
C)  $1.00. 
D)  $0.40.

Question 11

Monetary policy has an equal implementation lag as fiscal policy.

Accepted Answer

A) True 
 B)False

Question 12

When there is a run up in stock prices

Accepted Answer

A)  saving increases. 
B)  investment increases. 
C)  inflation increases. 
D)  interest rates decrease. 
A)  saving increases. 
B)  investment increases. 
C)  inflation increases. 
D)  interest rates decrease.

Question 13

All of the following are determining factors in the price of a share of stock except

Accepted Answer

A)  expected dividends. 
B)  the interest rate. 
C)  the number of years the firm has existed. 
D)  risk associated with the company. 
A)  expected dividends. 
B)  the interest rate. 
C)  the number of years the firm has existed. 
D)  risk associated with the company.

Question 14

While targeting the deficit, which of the following is likely to occur after a negative 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 15

The implementation lag for monetary policy tends to be much shorter than for fiscal policy for all of the following reasons except

Accepted Answer

A)  fiscal policy changes requires both houses of Congress and the President to act. 
B)  monetary changes only require the Fed to act. 
C)  fiscal policy usually requires committee hearings in both houses of Congress. 
D)  fiscal policy changes only require the Fed to act. 
A)  fiscal policy changes requires both houses of Congress and the President to act. 
B)  monetary changes only require the Fed to act. 
C)  fiscal policy usually requires committee hearings in both houses of Congress. 
D)  fiscal policy changes only require the Fed to act.

Question 16

The lower the interest rate, the less expected future stock dividends will be discounted.

Accepted Answer

A) True 
 B)False

Question 17

If the federal government had not bailed out the large financial institutions during the financial crisis of 2008-2009, the negative wealth effect would likely have been larger.

Accepted Answer

A) True 
 B)False

Question 18

The implementation lag of monetary policy is longer than that of fiscal policy because Congress can act more quickly then the Fed.

Accepted Answer

A) True 
 B)False

Question 19

The recognition lag for monetary policy is

Accepted Answer

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

Question 20

From 1995 to 2000 the stock market as measured by the S&P 500 index

Accepted Answer

A)  bust a bubble. 
B)  had a record boom. 
C)  declined in real terms. 
D)  was flat. 
A)  bust a bubble. 
B)  had a record boom. 
C)  declined in real terms. 
D)  was flat.

Exam 14: Financial Crises, Stabilization, and Deficits

A bond is

A $1.00 change in the value of stocks changes consumption and investment by about

The Gramm-Rudman-Hollings Act was passed by Congress in ________ and signed into law by Ronald Reagan.

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

________ acts as an automatic destabilizer because it requires taxes to be cut and government spending to be raised during ________.

The price of a stock should equal the face value of its expected future dividends.

Fractional ownership of a firm is represented by

Wealth and investment fall when there is a stock market

The Gramm-Rudman-Hollings Act sought to ________ each year between 1987 and 1991.

A $10.00 change in the value of stocks changes consumption and investment by about

Monetary policy has an equal implementation lag as fiscal policy.

When there is a run up in stock prices

All of the following are determining factors in the price of a share of stock except

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

The implementation lag for monetary policy tends to be much shorter than for fiscal policy for all of the following reasons except

The lower the interest rate, the less expected future stock dividends will be discounted.

If the federal government had not bailed out the large financial institutions during the financial crisis of 2008-2009, the negative wealth effect would likely have been larger.

The implementation lag of monetary policy is longer than that of fiscal policy because Congress can act more quickly then the Fed.

The recognition lag for monetary policy is

From 1995 to 2000 the stock market as measured by the S&P 500 index

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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acts as an automatic destabilizer because it requires taxes to be cut and government spending to be raised during .