Deck 48: The Economics of Terrorism

Question 1

Using Figure 48.1, modeling the attacks of September 11, 2001 you would show the impact of higher oil prices by using

A)Panel 1 only with a shift from AD_A to AD_B.
B)Panel 1 only with a shift from AD_B to AD_A.
C)Panel 2 only with a shift from AS_B to AS_A.
D)Panel 1 to model the aggregate demand shock (AD_B to AD_A)and Panel 2 to model the aggregate supply shock (AS_B to AS_A).

Answer 1

C

Question 2

When looking at the full economic impact of the terrorist attacks, you will find that GDP was

A)negatively affected by rebuilding costs.
B)unaffected by rebuilding costs.
C)positively affected by rebuilding costs.
D)completely redefined because of the attacks.

Answer 2

C

Question 3

When using the present value of lost earnings as your measure of the cost associated with a person's lost life, you will find that people

A)who do more socially useful work are valued the most.
B)whose earnings are the highest are valued the most.
C)who work the hardest are valued the most.
D)with the most friends are valued the most.

Answer 3

B

Question 4

The attacks of September 11, 2001 are a quintessential example of

A)a positive aggregate supply shock.
B)a positive aggregate demand shock.
C)a negative aggregate supply shock.
D)the rebound effect.

Question 5

When looking at the economic impact of the terrorist attacks, you will find that GDP

A)was negatively affected by increases in defense and homeland security expenditures.
B)was unaffected by increases in defense and homeland security expenditures.
C)was positively affected by increases in defense and homeland security expenditures.
D)data collectors initially denied the authenticity of defense and homeland security expenditures.

Question 6

Reinsurance is a common solution for insurance companies when the

A)uncertainty to homeowners is large but small for insurance companies.
B)uncertainty to homeowners and insurance companies is small.
C)uncertainty cannot be summarized actuarially.
D)uncertainty to homeowners and insurance companies is large.

Question 7

Using Figure 48.1, modeling the attacks of September 11, 2001 you would show the aggregate supply shock by using Figure 48.1

A)Panel 1 only with a shift from AD_A to AD_B.
B)Panel 1 only with a shift from AD_B to AD_A.
C)Panel 2 only with a shift from AS_B to AS_A.
D)Panel 1 to model the aggregate demand shock (AD_B to AD_A)and Panel 2 to model the aggregate supply shock (AS_B to AS_A).

Question 8

When looking at the economic impact of the increase in donations to relief agencies that resulted from the terrorist attacks, you will find that GDP

A)was negatively affected by this giving.
B)was positively affected by this giving.
C)was unaffected by this giving.
D)calculations were outsourced to Bangladesh.

Question 9

To estimate the cost of the September 11, 2001 terrorist attacks, which of the following concepts would be used to calculate the value of lost lives?

A)The present value of lost earnings
B)The total value of lost earnings
C)The concept of acceptable risk
D)The fallacy of composition

Question 10

Reinsurance exists to permit

A)people to buy insurance against accidents.
B)people to buy insurance against terrorist acts.
C)insurance companies to absorb predictable losses.
D)insurance companies to absorb large losses.

Question 11

Using Figure 48.1, modeling the attacks of September 11, 2001 you would show the impact of reduced consumer confidence by using

A)Panel 1 only with a shift from AD_A to AD_B.
B)Panel 1 only with a shift from AD_B to AD_A.
C)Panel 2 only with a shift from AS_A to AS_B.
D)Panel 1 to model the aggregate demand shock (AD_B to AD_A)and Panel 2 to model the aggregate supply shock (AS_B to AS_A).

Question 12

Terrorism insurance is much more likely to be available where

A)terrorism has never occurred.
B)terrorism is a relatively predictable thing.
C)insurance of any kind is rare.
D)insurance is highly regulated.

Question 13

Using Figure 48.1, modeling the attacks of September 11, 2001 you would Figure 48.1

A)use Panel 1 only with a shift from AD_A to AD_B.
B)use Panel 1 only with a shift from AD_B to AD_A.
C)use Panel 2 only with a shift from AS_A to AS_B.
D)use Panel 1 to model the aggregate demand shock (AD_B to AD_A)and Panel 2 to model the aggregate supply shock (AS_B to AS_A).

Question 14

Legislation passed shortly after September 11, 2001 saw the federal government become

A)the insurer (hence, re-insurer)of last resort.
B)the primary insurer for all acts of terrorism but not for other losses.
C)the primary re-insurer in the U.S.
D)the primary insurer in the U.S.

Question 15

The attacks of September 11, 2001 are a quintessential example of

A)a negative aggregate demand shock.
B)a positive aggregate demand shock.
C)a positive aggregate supply shock.
D)the rebound effect.

Question 16

When looking at the economic impact of the terrorist attacks, the initial claim by Osama Bin Laden that the cost to the U.S. would be $1 trillion

A)was viewed at the time to be too high, but in retrospect, is actually too low.
B)was viewed at the time to be too high, but in retrospect, is actually about right.
C)was viewed at the time to be about right.
D)was viewed at the time to be too low.

Question 17

Without reinsurance, insurance companies would be less likely to insure

A)potential terrorist targets.
B)against auto accidents.
C)against home fires.
D)against home burglaries.

Question 18

Without reinsurance, insurance companies would be less likely to insure

A)homes in hurricane prone areas.
B)against auto accidents.
C)against home fires.
D)against home burglaries.

Question 19

Using Figure 48.1, modeling the attacks of September 11, 2001 you would show the aggregate demand shock by using Figure 48.1

A)Panel 1 only with a shift from AD_A to AD_B.
B)Panel 1 only with a shift from AD_B to AD_A.
C)Panel 2 only with a shift from AS_A to AS_B.
D)Panel 1 to model the aggregate demand shock (AD_B to AD_A)and Panel 2 to model the aggregate supply shock (AS_B to AS_A).

Question 20

When a reinsurance company pays a claim they pay

A)the victim directly.
B)the originating insurance company.
C)the government.
D)the rebuilding contractors directly.

Question 21

Up until the occurrence of Hurricanes Katrina and Sandy, the worst insurance outcome in U.S. history was

A)Hurricane Andrew.
B)the September 11^th terrorist attack.
C)the Northridge earthquake.
D)the sinking of the Titanic.

Question 22

The "rational terrorist" is one that

A)has a political goal.
B)devotes scarce resources to achieving a goal.
C)weighs the costs and benefits of a goal.
D)does all of the above.

Question 23

If the September 11^th terrorist attacks had not occurred, it is unlikely that the war in Iraq would have

A)occurred at all.
B)been so protracted.
C)uncovered so many weapons of mass destruction.
D)divided Congress as it did.

Question 24

The attempt by Al-Qaeda terrorists to board a train between Belgium and France with machine guns was an example of the "rational terrorist's"

A)diversion technique.
B)marginalist technique.
C)compression effect.
D)substitution effect.

Question 25

The Paris Bataclan massacre by Al-Qaeda, which struck a French target that was lightly defended, was an example of the "rational terrorist's"

A)diversion technique.
B)marginalist technique.
C)compression effect.
D)substitution effect.

Question 26

Hurricanes Katrina and Sandy disrupted the reinsurance market because some saw them as

A)acts of God.
B)totally unpredictable events.
C)possible evidence of global warming.
D)interference with the tourist trade.

Question 27

In the context of terrorism, increasing airport security has the

A)positive externality of making all aspects of life safer.
B)negative externality of making other potential targets relatively more attractive to future terrorists.
C)positive externality of making other potential targets relatively more attractive to future terrorists.
D)negative externality of making all aspects of life safer.

Question 28

A "rational terrorist" will react to the increased security at U.S. airports by

A)attacking U.S. airports.
B)ending all attacks.
C)attacking other high value U.S. interests outside the U.S.
D)attacking other highly defended targets.

Question 29

The total cost to the U.S. of a terrorist attack occurring on its soil is

A)best measured by the insurance claims, since those are the costs that must be explicitly paid in dollars.
B)fully measured only by economic or opportunity costs, the highest valued opportunities foregone.
C)poorly measured by economic or opportunity costs, since these are usually vague and subjective.
D)fully and clearly recorded in the speeches of Osama bin Laden broadcast on Al Jazeera.

Question 30

Al-Qaeda operatives claimed that the September 11th terrorist attacks inflicted damage upon the U.S. of

A)almost $1 million.
B)between $1 billion and $10 billion.
C)between $10 billion and $100 billion.
D)more than $1 trillion.

Question 31

The Bali, Indonesia bombing by Al-Qaeda, which struck a U.S. target that was lightly defended, was an example of the "rational terrorist's"

A)diversion technique.
B)marginalist technique.
C)compression effect.
D)substitution effect.

Question 32

To maximize progress toward a political goal, the "rational terrorist" will always choose those actions for which the

A)marginal benefit equals or exceeds the marginal cost.
B)most people die.
C)fewest innocent people die.
D)most money is lost.

Question 33

Economists who study terrorism use a similar definition of _______ as economists who study criminals.

A)"rational"
B)"understandable"
C)"moral"
D)"sensible"

Question 34

In the context of auto theft, protecting one's own car with an anti-theft device has

A)the positive externality of making all cars safer.
B)the negative externality of making other cars relatively more attractive to thieves.
C)the positive externality of making other cars relatively more attractive to thieves.
D)the negative externality of making all cars safer.

Question 35

In the context of terrorism, an example of self-protection would be

A)the airline industry increasing security.
B)the airline industry buying terrorism insurance.
C)an insurance company buying reinsurance from another insurance company.
D)an insurance company buying reinsurance from the government.

Question 36

A "rational terrorist" will react to the increased security at U.S. airports by

A)attacking U.S. airports.
B)ending all attacks.
C)attacking other targets that are as visible but less defended.
D)attacking other highly defended targets.

Question 37

If both Real GDP and the general price level fell following the September 11^th terrorist attack,

A)the negative aggregate supply shock was smaller than the negative aggregate demand shock.
B)the negative aggregate supply shock was larger than the negative aggregate demand shock.
C)the aggregate supply shock was negative, but the aggregate demand shock must have been positive.
D)both the aggregate supply shock and the aggregate demand shock must have been, ironically, positive.

Question 38

The radicalization of U.S. citizens as individuals and having them target lightly defended places (such as a San Bernardino office and Orlando's Pulse nightclub)are examples of the "rational terrorist's"

A)diversion technique.
B)marginalist technique.
C)compression effect.
D)substitution effect.

Question 39

In the context of auto theft, an example of self-protection would be

A)an individual purchasing a product that makes a car less susceptible to theft.
B)an individual buying auto insurance to recover losses from theft.
C)an insurance company buying reinsurance from another insurance company.
D)an insurance company buying reinsurance from the government.

Question 40

Which of the following terrorist acts makes the most sense from the perspective of the "rational terrorist"

A)quietly killing a CIA agent.
B)attempting to attack a well defended target.
C)attacking a lightly defended target in a media center.
D)attacking a lightly defended target in a remote area.

Question 41

The 2001 terrorist attack reduced U.S. aggregate supply in part because it led to

A)higher insurance premiums.
B)more powerful labor unions in private industry.
C)a decline in consumer confidence.
D)lower oil prices.

Question 42

The 2001 terrorist attack reduced U.S. aggregate demand in part because it led to

A)higher insurance premiums.
B)more powerful labor unions in private industry.
C)a decline in consumer confidence.
D)lower oil prices.

Question 43

The terrorist attacks in Bali, London and Madrid since 2001 suggest that U.S. policy has

A)made it impossible to launch another terrorist attack against the U.S. on U.S. soil.
B)forced a complete reversal of the overriding objectives of terrorist groups since 2001.
C)made it significantly costlier to launch another terrorist attack against the U.S. on U.S. soil.
D)depleted the financial resources of foreign terrorist groups.