Question 1

The effect of the subprime loan crisis pushed the __________.This pushes the MP curve __________ and the AD __________.

Accepted Answer

The subprime loan crisis increased the risk premium, which would push the MP (monetary policy) curve up. This would cause the AD (aggregate demand) curve to shift down, as higher interest rates discourage borrowing and spending. Therefore, the correct answer is A, as none of the other choices accurately reflect the impacts of the subprime loan crisis.

Question 2

The liquidity trap occurs when:

Accepted Answer

The answer of The liquidity trap occurs when:
...

Question 3

For the following questions refer to Figure 14.3 below. 
-Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is an increase in the economy's risk premium,the economy would move from point __________ to __________.

Accepted Answer

The correct answer is A because an increase in the economy's risk premium would lead to a decrease in investment and a decrease in output, moving the economy from point c to point d.

Question 4

When there is deflation,

Accepted Answer

Deflation leads to an increase in the real interest rate because the nominal interest rate remains constant, but the purchasing power of money increases. This leads to a higher cost of borrowing, which results in a decrease in investment and consumption, further reducing the demand for goods and services and adding to deflationary pressures.

Question 5

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. 
-Throughout the first three-fourths or so of 2009,

Accepted Answer

The answer of Refer to Figure 14.4 below,which shows the...

Question 6

When the Fed lowers the nominal interest rate to zero,what is the real interest rate?

Accepted Answer

The answer of When the Fed lowers the nominal interest...

Question 7

In the IS-MP framework,when the Fed __________ the federal funds rate in the aftermath of the decline in housing prices,the risk premium gave rise to a(n)__________ in the real interest rate which caused a(n)__________.

Accepted Answer

According to the IS-MP framework, when the Fed lowers the federal funds rate (as mentioned in option A), it causes the risk premium to increase, which in turn leads to an increase in the real interest rate. This can lead to a deeper recession as it becomes more expensive for firms and individuals to borrow money and invest in the economy. Hence, option A is the best choice.

Question 8

If the rate of inflation is -2 percent,the output gap is -5 percent,the nominal interest rate is 5 percent,and the unemployment rate is 8 percent,what is the real interest rate?

Accepted Answer

Real interest rate = nominal interest rate - inflation rate 
Real interest rate = 5% - (-2%) 
Real interest rate = 7%

Question 9

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. 
-For most of 2008,

Accepted Answer

During most of 2008, the real interest rate was negative due to the nominal interest rates being low and inflation being relatively high, especially during the financial crisis.

Question 10

According to the Fisher equation,the real interest rate is:

Accepted Answer

The answer of According to the Fisher equation,the real interest...

Question 11

In the AS/AD framework,the risk premium appears as a(n):

Accepted Answer

In the AS/AD framework, a risk premium typically appears as a negative demand shock because it increases the cost of borrowing, reducing consumption and investment, and thus shifting the aggregate demand curve to the left.

Question 12

During the Great Depression,

Accepted Answer

During the Great Depression, deflation increased the real interest rate because the nominal interest rates were low, but the falling prices increased the real value of debt.

Question 13

For the following questions refer to Figure 14.3 below. 
-The effect of the subprime loan crisis pushed the __________.In Figure 14.3,this is shown as a movement from point __________ to __________.

Accepted Answer

The subprime loan crisis increased the risk premium, which is shown as a movement from point c to d in Figure 14.3.

Question 14

If the rate of inflation is 2 percent,the output gap is 0 percent,the nominal interest rate is 3 percent,and the unemployment rate is 10 percent,what is the real interest rate?

Accepted Answer

The answer of If the rate of inflation is 2...

Question 15

The liquidity trap occurs when:

Accepted Answer

The answer of The liquidity trap occurs when:
...

Question 16

The Fisher equation is given by:

Accepted Answer

The answer of The Fisher equation is given by:
...

Question 17

When inflation is negative it:

Accepted Answer

When inflation is negative, the real interest rate (nominal interest rate minus inflation rate) increases. This is because the value of money is increasing in purchasing power, making it more valuable to hold onto instead of investing. This makes borrowing and lending less attractive, leading to higher real interest rates.

Question 18

For the following questions refer to Figure 14.3 below. 
-Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point __________ to __________.

Accepted Answer

A decrease in the economy's risk premium would likely lead to increased investment and spending, shifting the aggregate demand curve to the right. This would move the economy from point a (long-run equilibrium) to point b (short-run equilibrium with higher output and price level).

Question 19

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. 
-To eradicate deflation during the Great Depression,the Fed __________ and __________.

Accepted Answer

During the Great Depression, the Fed lowered the nominal interest rate and abandoned the gold standard in order to eradicate deflation. Lowering the nominal interest rate made borrowing cheaper and encouraged spending, while abandoning the gold standard allowed the Fed to adjust the money supply more easily. These actions were part of the Fed's efforts to stimulate the economy and end the deflationary spiral.

Question 20

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. 
-Between 2006 and 2007,

Accepted Answer

The answer of Refer to Figure 14.4 below,which shows the...

Quiz 14: The Great Recession and the Short-Run Model

The effect of the subprime loan crisis pushed the .This pushes the MP curve and the AD __.

The liquidity trap occurs when:

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is an increase in the economy's risk premium,the economy would move from point to .

When there is deflation,

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -Throughout the first three-fourths or so of 2009,

When the Fed lowers the nominal interest rate to zero,what is the real interest rate?

In the IS-MP framework,when the Fed the federal funds rate in the aftermath of the decline in housing prices,the risk premium gave rise to a(n) in the real interest rate which caused a(n) __.

If the rate of inflation is -2 percent,the output gap is -5 percent,the nominal interest rate is 5 percent,and the unemployment rate is 8 percent,what is the real interest rate?

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -For most of 2008,

According to the Fisher equation,the real interest rate is:

In the AS/AD framework,the risk premium appears as a(n) :

During the Great Depression,

For the following questions refer to Figure 14.3 below. -The effect of the subprime loan crisis pushed the .In Figure 14.3,this is shown as a movement from point to __.

If the rate of inflation is 2 percent,the output gap is 0 percent,the nominal interest rate is 3 percent,and the unemployment rate is 10 percent,what is the real interest rate?

The liquidity trap occurs when:

The Fisher equation is given by:

When inflation is negative it:

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point to .

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -To eradicate deflation during the Great Depression,the Fed and .

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -Between 2006 and 2007,

Quiz 14: The Great Recession and the Short-Run Model

The effect of the subprime loan crisis pushed the __________.This pushes the MP curve __________ and the AD __________.

The liquidity trap occurs when:

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is an increase in the economy's risk premium,the economy would move from point __________ to __________.

When there is deflation,

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -Throughout the first three-fourths or so of 2009,

When the Fed lowers the nominal interest rate to zero,what is the real interest rate?

In the IS-MP framework,when the Fed __________ the federal funds rate in the aftermath of the decline in housing prices,the risk premium gave rise to a(n) __________ in the real interest rate which caused a(n) __________.

If the rate of inflation is -2 percent,the output gap is -5 percent,the nominal interest rate is 5 percent,and the unemployment rate is 8 percent,what is the real interest rate?

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -For most of 2008,

According to the Fisher equation,the real interest rate is:

In the AS/AD framework,the risk premium appears as a(n) :

During the Great Depression,

For the following questions refer to Figure 14.3 below. -The effect of the subprime loan crisis pushed the __________.In Figure 14.3,this is shown as a movement from point __________ to __________.

If the rate of inflation is 2 percent,the output gap is 0 percent,the nominal interest rate is 3 percent,and the unemployment rate is 10 percent,what is the real interest rate?

The liquidity trap occurs when:

The Fisher equation is given by:

When inflation is negative it:

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point __________ to __________.

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -To eradicate deflation during the Great Depression,the Fed __________ and __________.

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -Between 2006 and 2007,

The effect of the subprime loan crisis pushed the .This pushes the MP curve and the AD __.

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is an increase in the economy's risk premium,the economy would move from point to .

In the IS-MP framework,when the Fed the federal funds rate in the aftermath of the decline in housing prices,the risk premium gave rise to a(n) in the real interest rate which caused a(n) __.

For the following questions refer to Figure 14.3 below. -The effect of the subprime loan crisis pushed the .In Figure 14.3,this is shown as a movement from point to __.

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point to .

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -To eradicate deflation during the Great Depression,the Fed and .