Exam 14: Macroeconomic Policy: Challenges in a Global Economy

One of the trigger points for the financial crisis of 2007-2009 was that subprime borrowers defaulted when the interest on adjustable-rate mortgages went up.

(Figure: Natural Rate of Unemployment) The natural rate of unemployment

Country X is practicing expansionary monetary policy. This drives down the price of its imports and drives up the price of its exports.

Which statement(s) is/are TRUE? I. The 18-month economic downturn that lasted from December 2007 to July 2009 was dubbed the Great Depression. II) The economic recovery that took place after the 2007-2009 economic downturn was slow, requiring many years for economic indicators to return to their prerecession levels. III) The housing boom of 2003-2007 did not contribute to the 2007-2009 economic downturn.

Deflation is a problem because

In the short run, unanticipated inflation usually leads to

Briefly describe how the last credit crisis developed in the U.S. economy and how it precipitated the worldwide recession.

Leverage occurs when investors borrow money at low interest rates to purchase investments that may provide higher rates of return.

A leveraged account

How was the 2007-2009 recession different from the previous two recessions?

The adaptive expectations model concludes that individuals use past events to form expectations.

Which of these did NOT contribute to the jobless recovery from the 2007-2009 recession?

Expectations theories developed by Keynes, Friedman, and Lucas use the same basic concept to describe the formation of expectations.

How did low interest rates affect the housing market in the early 2000s? How did low interest rates contribute to problems in the housing market?

When the growth in productivity is _____ the rate of change in wages, inflation is _____, and the level of unemployment at that point is _____ the natural rate of unemployment.

Because recent legislation has slowed the rise in health care costs, the overall cost of Medicare has become sustainable in the long term.

In a global economy, a problem with using expansionary fiscal and monetary policies to fix the problems in our country is that they can lead to retaliatory actions by other nations.

What caused the housing boom of 2003 to 2007?

Adaptive expectations are driven by emotions.

Prior to the 2007-2009 recession, banks had an incentive to originate subprime mortgages because they could collect origination fees and then sell the mortgage.