CAS EC 202 Lecture 6: Financial Crisis

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6 Nov 2016

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Borrowers default and banks insolvent let the bursting of the real estate bubble burst and financial crisis in 2008: consumption fells. Since they felt less wealthy, they reduced consumption: investment fells. Because it was no longer profitable to build new houses with much lower prices: government spending rose. At first because of automatic stabilizers that increased spending on unemployment benefits and other transfers, and then on highways and other items when. Obama"s stimulus package (to boost the economy) was passed: net exports rose because us gdp fell and imports fell, as we bought less from other countries. Net exports would have risen even more if so many other countries hadn"t also been in recession: banks were more reluctant to lend than before the financial crisis. They had lost lots of money when their loans turned bad, and had to cut back on the total value of their lending.

Related Questions

Question 32

Tim, a citizen of the United States living in Virginia, buys a computer that was made in South Korea by a Japanese firm. This transaction would affect the GDP of the United States in which way?

		Net exports would decrease and GDP would decrease.
		Net exports would decrease and GDP would be unaffected.
		Net exports would increase and GDP would increase.
		Net exports would increase and consumption would increase.

1 points

Question 33

An increase in U.S. government spending tends to

		increase U.S. interest rates and increase the U.S. capital account surplus.
		increase U.S. interest rates and decrease the U.S. capital account surplus.
		decrease U.S. interest rates and increase the U.S. capital account surplus.
		decrease U.S. interest rates and decrease the U.S. capital account surplus.

1 points

Question 34

A _______ is a system in which the government intervenes extensively in the foreign exchange market to keep the exchange rate within certain bounds.

dirty float

floating exchange rate

fixed exchange rate

dollarization

1 points

Question 35

Suppose the exchange rate between the euro and the dollar is E0.5 to $1. If a Big Mac costs $3 in the United States and E1.5 in Germany, then the real exchange rate is

1:1.

2:1.

1:2.

It cannot be determined from this information.

1 points

Question 36

Which of the following prevent the purchasing power parity theorem from holding perfectly?

transportation costs

goods that cannot be shipped

tariffs and quotas

Each of these answers is correct.

1 points

Question 37

Fiscal policy is more effective in affecting economic activity if

		many resources are unemployed.
		there is a real shock instead of an aggregate demand shock.
		the economy returns to the long-run condition almost immediately.
		there is a long implementation lag.

1 points

Question 38

In a typical year, changes in government spending compared to overall spending are relatively

small.

large.

unpredictable.

well-timed.

1 points

Question 39

Which statement is TRUE about the difference between monetary and fiscal policy?

		Fiscal policy can quickly adjust to changes in aggregate demand.
		Fiscal policy can have a more direct impact.
		Monetary policy is subject to many long lags.
		Monetary policy can affect the economy regardless of the actions banks take.

1 points

Question 40

Fiscal policies that help an economy in a recession without additional actions by policy makers are called

consumption smoothers.

Ricardian equalizers.

automatic stabilizers.

Each of these answers is correct.

1 points

Question 41

The U.S. individual income tax system can best be described as a

regressive tax system.

flat tax system.

zero tax system.

progressive tax system.

1 points

Question 42

What demographic change in the United States will cause government spending to increase in the next 50 years?

The population over 65 will grow.

The population will be younger.

Women will have fewer children.

Immigration will increase.

1 points

Question 43

What kind of rising costs will mostly cause U.S. government spending to skyrocket in the future?

defense

environmental protection

education

health care

1 points

Question 47

The Fed could have popped the bubble of the housing boom in the 2000s by

lending directly to homeowners.

regulating the stock markets more.

reducing the growth rate of the money supply.

doing nothing.

1 points

Question 48

Which of the following would be an example of running monetary policy by rules?

A 5 percent increase in money supply automatically leads to a 2 percent increase in real GDP.

An increase in money supply automatically leads to an increase in inflation.

The Fed will increase money growth to different levels, depending on the severity of the recession.

A 1 percent drop in real GDP will automatically elicit a 2 percent increase in money supply.

Question 50

Moral hazard occurs when

		the failure of one financial institution can bring down other institutions as well.
		financial institutions take on too much risk because they are insured.
		financial institutions become insolvent because they issued too many loans.
		there are more short-term liabilities than short-term assets.

Which of the following is NOT a transmission mechanism?

reductions in the money supply

intertemporal substitution

uncertainty

sticky wages and prices

Question 56

For a given increase in government spending growth, intertemporal substitution is more widespread when

		the impact of AD growth on both inflation and real GDP growth is stronger.
		the impact of AD growth on both inflation and real GDP growth is weaker.
		the impact of AD growth on inflation is stronger and the impact of the AD growth on real GDP growth is weaker.
		the impact of AD growth on inflation is weaker and the impact of AD growth on real GDP growth is stronger.

Stalin:

		instituted democratic reforms, leading to widespread prosperity.
		took government control of the farms in Ukraine, leading to the starvation of millions of people.
		increased the provision of public goods, which had a positive effect on lowering the unemployment rate.
		tried unsuccessfully to expand voting rights in 1924 Russia.

1 points

Question 60

1 points

Question 59

If voters care about two issues such as taxes and war, then politicians:

		will form a stable policy on these issues.
		can pose a policy that will never lose against another policy.
		must assume that there is no median voter.
		may never converge on a stable outcome.

1 points

Question 58

Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is true?

		Policy A will not become law because it hurts more people than it helps.
		Policy A concentrates all the costs among a small group of people and all the benefits among a large group of people.
		Policy A is likely to be supported by politicians even though it makes society worse off.
		Since Policy A negatively affects many people, and so rational ignorance will not be a problem.

1 points

Question 57

Data for the United States show that the incumbent party tends to win the election if:
I. personal disposable income is growing.
II. the inflation rate is low.
III. the political party has not been in power for too many continuous terms.

		I only
		I and II only
		I and III only
		I, II, and III

1 points

Question 53

1 points

Question 52

What is the purpose of the Fed's structure?

		to give the President of the United States as many tools as possible to regulate the economy
		to make sure all states are given equal access to monetary policy decisions
		to keep the private sector out of the monetary policy making arena
		to keep the power of the Fed dispersed

1 points

Question 51

An increase in money growth will cause inflation to increase in

		the short run only.
		the long run only.
		both the short run and the long run.
		neither the short run nor the long run.

CAS EC 202 Lecture 6: Financial Crisis

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Related Questions

		dirty float
		floating exchange rate
		fixed exchange rate
		dollarization

		transportation costs
		goods that cannot be shipped
		tariffs and quotas
		Each of these answers is correct.

		consumption smoothers.
		Ricardian equalizers.
		automatic stabilizers.
		Each of these answers is correct.

		regressive tax system.
		flat tax system.
		zero tax system.
		progressive tax system.

		The population over 65 will grow.
		The population will be younger.
		Women will have fewer children.
		Immigration will increase.

		lending directly to homeowners.
		regulating the stock markets more.
		reducing the growth rate of the money supply.
		doing nothing.

		1:1.
		2:1.
		1:2.
		It cannot be determined from this information.

		small.
		large.
		unpredictable.
		well-timed.

		defense
		environmental protection
		education
		health care