Question 1

If drought reduces farm output,farmers will probably:
A) work harder to try to make up for the lost output.
B) work less hard and devote less capital to their fields.
C) work the same amount as they normally do.
D) celebrate.

Accepted Answer

When faced with reduced output due to drought, farmers are more likely to work less hard and devote less capital to their fields. This is because they may not have as much to harvest and may not make as much profit, so reducing their input costs can help to minimize their losses.

Question 2

Rapid changes in economic conditions that have large effects on the productivity of capital and labor are called:
A) business cycles.
B) recessions.
C) shocks.
D) transmission mechanisms.

Accepted Answer

Rapid changes in economic conditions that have large effects on the productivity of capital and labor are called shocks. Business cycles refer to the regular fluctuation of economic activity, while recessions are a period of significant decline in economic activity. Transmission mechanisms refer to the channels through which monetary policy affects the economy.

Question 3

Historical data on India's rainfall amounts and real GDP growth show that:
A) economic fluctuations are negatively correlated with real shocks.
B) economic fluctuations are positively correlated with real shocks.
C) economic fluctuations have no correlation with any shocks.
D) real shocks affect only long-term economic growth,but not short-run economic fluctuations.

Accepted Answer

The question states that historical data on rainfall amounts and real GDP growth in India show a positive correlation between economic fluctuations and real shocks. This means that when there are real shocks (such as changes in rainfall patterns), there are corresponding fluctuations in the economy (such as changes in GDP growth). Option A is incorrect because it states that economic fluctuations are negatively correlated with real shocks, which contradicts the information given in the question. Option C is incorrect because it states that economic fluctuations have no correlation with any shocks, which again contradicts the information given in the question. Option D is incorrect because it states that real shocks affect only long-term economic growth, but not short-run economic fluctuations, which again contradicts the information given in the question.

Question 4

Transmission mechanisms:
A) can amplify positive shocks.
B) can amplify negative shocks.
C) can amplify both positive and negative shocks.
D) amplify neither positive nor negative shocks.

Accepted Answer

Transmission mechanisms refer to the way in which shocks or disturbances in one sector of an economy can spread to other sectors, amplifying both positive and negative shocks. For example, a positive shock in the housing market can lead to an increase in construction and housing-related purchases, which may boost other sectors of the economy. Conversely, a negative shock to the financial sector can lead to a decrease in borrowing and lending, leading to a slowdown in economic activity across many sectors. Therefore, transmission mechanisms can amplify both positive and negative shocks.

Question 5

Intertemporal substitution refers to:
A) the tendency to work more when the returns to work are higher.
B) the decision on how to allocate time between work and leisure.
C) the preference for households to smooth their consumption over time.
D) the decision to substitute one television show for another during the same time slot.

Accepted Answer

Intertemporal substitution refers to the tendency of individuals to change their labor supply in response to changes in the wage rate, working more when wages are higher and less when they are lower.

Question 6

Which of the following is NOT an example of intertemporal substitution?
A) David decides to go to college after high school,since he has graduated in the middle of a big recession and jobs are hard to come by.
B) Luke is an accountant who works overtime during tax season.
C) Sandy works 10-hour days as a ski instructor during the winter months but takes a 3-week vacation during the summer.
D) Thomas studies economics 2 hours every night in order to get a good grade in the course.

Accepted Answer

Intertemporal substitution involves making choices between consuming goods or services at different points in time. Options A, B, and C all involve choices made based on the timing of consumption. However, option D involves studying in the present in order to achieve a desired outcome in the future, rather than making a choice regarding when to consume a good or service. Therefore, option D is not an example of intertemporal substitution.

Question 7

Which of the following is NOT a transmission mechanism?
A) intertemporal substitution
B) irreversible investments
C) time bunching
D) shifts in LRAS

Accepted Answer

Intertemporal substitution, irreversible investments, and time bunching are all considered to be transmission mechanisms through which monetary policy can affect the economy. However, shifts in the long-run aggregate supply (LRAS) curve are not considered to be a transmission mechanism of monetary policy, as the LRAS is determined by factors such as technology, capital, and labor, which are mostly independent of monetary policy.

Question 8

Intertemporal substitution is:
A) the cost of shifting workers from declining sectors of the economy to the growing sectors.
B) the tendency for economic activities to be coordinated at common points in time.
C) the allocation of consumption,work,and leisure across time to maximize well-being.
D) a reduction in the value of collateral.

Accepted Answer

Intertemporal substitution refers to the ability of individuals to allocate their consumption, work, and leisure across different points in time to maximize their overall well-being. It involves decisions about how much to save and invest, as well as how much to consume in the present versus in the future. This concept is central to the theory of intertemporal choice, which explores how individuals make decisions about allocating their resources over time.

Question 9

Which of the following is NOT a transmission mechanism of real shocks and aggregate demand shocks?
A) reversible investment
B) intertemporal substitutions
C) collateral damage
D) time bunching

Accepted Answer

Reversible investment is not a transmission mechanism of real shocks or aggregate demand shocks. The other three options are transmission mechanisms - intertemporal substitutions occur when consumers change their spending patterns over time, collateral damage refers to the spillover effects of shocks on unrelated sectors or regions, and time bunching describes the concentration of economic activity in certain periods due to, for example, tax incentives or seasonality.

Question 10

Economic forces that can amplify shocks across time and sectors of the economy are called:
A) business cycles.
B) cyclical recessions.
C) shock magnifiers.
D) transmission mechanisms.

Accepted Answer

Economic forces that can amplify shocks across time and sectors of the economy are known as transmission mechanisms. These mechanisms can include credit markets, trade linkages, and supply chain interactions that spread the impact of a shock to other parts of the economy.

Question 11

A transmission mechanism:
A) mitigates shocks by spreading them across time and through sectors of the economy.
B) amplifies shocks by spreading them across time and through sectors of the economy.
C) causes shocks to have an equal impact across time and sectors of the economy.
D) turns negative shocks into positive shocks over time.

Accepted Answer

A transmission mechanism, especially in the context of monetary policy or economic shocks, often amplifies shocks by spreading their effects across different sectors of the economy and over time, rather than mitigating them or equalizing their impact. This can lead to wider economic implications than the initial shock might have had in isolation.

Question 12

When a shock is amplified,a mild _____ shock is transformed into _____.
A) negative;a mild positive shock
B) negative;an economic boom
C) negative;a more serious reduction in output
D) positive;a mild negative shock

Accepted Answer

When a shock is amplified, it means that its effects are magnified, so a mild negative shock can result in a more serious reduction in output. Option A and D do not make logical sense because a shock cannot transform into the opposite of what it initially was. Option B is also not correct because an economic boom cannot result from a shock, which is a sudden and unexpected event with negative consequences.

Question 13

Which of the following is the best example of intertemporal substitution?
A) Timmy opens a lemonade stand on the weekends when he's not in school to earn money for a new bike.
B) Sam works overtime to earn extra money.
C) Mary studies an extra 3 hours the night before her economics final exam.
D) Sarah decides to stay home from work today because she is feeling ill.

Accepted Answer

The answer of Which of the following is the best...

Question 14

Intertemporal substitution tends to amplify business cycles because:
A) assets are typically worth more in booms than in recessions.
B) the returns to work are higher in booms than in recessions,so people work more during booms and less during recessions.
C) the returns to investment are higher when others are investing as well,thus we see more investment during booms and less during recessions.
D) many people are hesitant to change jobs during recessions and thus resources are stuck in less productive uses.

Accepted Answer

Intertemporal substitution refers to the idea that individuals may choose to adjust the timing of their consumption or work in response to changes in their opportunities or preferences. During booms, the returns to work are typically higher, so individuals may choose to work more in order to consume more in the future. Conversely, during recessions, the returns to work are lower, so individuals may choose to work less and focus more on leisure. This can amplify business cycles because it leads to a greater fluctuation in the level of output and employment over time. Choices A, C, and D are not directly related to intertemporal substitution.

Question 15

Which is NOT an example of a transmission mechanism?
A) time bunching
B) intertemporal substitution
C) labor adjustment costs
D) irreversible employment

Accepted Answer

Time bunching, intertemporal substitution, and labor adjustment costs are all examples of transmission mechanisms that affect how changes in policy or economic conditions impact the overall economy. Irreversible employment, however, is not a transmission mechanism but rather a characteristic of certain types of employment arrangements.

Question 16

The economic forces that amplify shocks by spreading them across time and sectors of the economy are called:
A) irreversible investments.
B) intertemporal substitutions.
C) transmission mechanisms.
D) aggregate demand conveyances.

Accepted Answer

The term "transmission mechanisms" refers to the economic forces that transmit or spread shocks across different sectors and periods of the economy. These mechanisms can include changes in interest rates, exchange rates, and credit availability, among others. Intertemporal substitutions refer to the substitution of consumption or production over time, while irreversible investments refer to investments that cannot easily be reversed or undone. Aggregate demand conveyances is not a commonly used term in economics.

Question 17

Which of the following is a transmission mechanism?
A) intertemporal substitution
B) irreversible employment
C) labor bunching
D) time substitution

Accepted Answer

Intertemporal substitution is a transmission mechanism as it refers to how individuals may adjust their consumption and work behavior in response to changes in interest rates or other macroeconomic factors affecting their income and saving decisions. The other options do not relate to transmission mechanisms.

Question 18

Which of the following are people NOT more likely to do during a recession?
A) retire
B) shrink business operations
C) focus on homemaking
D) drop out of school

Accepted Answer

The answer of Which of the following are people NOT...

Question 19

Which of the following is NOT a transmission mechanism?
A) time bunching
B) intertemporal substitution
C) reversible investments
D) labor adjustment costs

Accepted Answer

Reversible investments are not considered a transmission mechanism in the context of economic theory. Transmission mechanisms refer to the ways in which monetary policy decisions are passed on through the economy, affecting variables like investment, consumption, and labor. Time bunching, intertemporal substitution, and labor adjustment costs are all mechanisms that can explain how economic agents respond to changes in economic conditions or policies. Reversible investments, on the other hand, pertain to the flexibility of reallocating capital without significant costs, which doesn't directly act as a mechanism transmitting economic policy effects.

Question 20

What is taking place when an economy experiences quick changes that have large effects on productivity?
A) economic shocks
B) geographic capital fluctuations
C) decreases in aggregate demand
D) time bunching

Accepted Answer

Quick changes that have large effects on productivity are referred to as economic shocks. These shocks can come in the form of natural disasters, political instability, changes in consumer demand, or unexpected changes in technology. These shocks can disrupt the economy and cause significant changes in output, employment, and prices.

Quiz 14: Transmission and Amplification Mechanisms

If drought reduces farm output,farmers will probably:

Rapid changes in economic conditions that have large effects on the productivity of capital and labor are called:

Historical data on India's rainfall amounts and real GDP growth show that:

Transmission mechanisms:

Intertemporal substitution refers to:

Which of the following is NOT an example of intertemporal substitution?

Which of the following is NOT a transmission mechanism?

Intertemporal substitution is:

Which of the following is NOT a transmission mechanism of real shocks and aggregate demand shocks?

Economic forces that can amplify shocks across time and sectors of the economy are called:

A transmission mechanism:

When a shock is amplified,a mild _ shock is transformed into _.

Which of the following is the best example of intertemporal substitution?

Intertemporal substitution tends to amplify business cycles because:

Which is NOT an example of a transmission mechanism?

The economic forces that amplify shocks by spreading them across time and sectors of the economy are called:

Which of the following is a transmission mechanism?

Which of the following are people NOT more likely to do during a recession?

Which of the following is NOT a transmission mechanism?

What is taking place when an economy experiences quick changes that have large effects on productivity?