Question 1

The event which likely caused the risk premium to jump to about 6 percent in September 2008 was the growing unrest in the Middle East.

Accepted Answer

A) True 
 B)False

Question 2

The difference between the three-month bond yield and the six-month bond yield represents a risk premium.

Accepted Answer

A) True 
 B)False

Question 3

Briefly discuss the Fed's balance sheet before and after the financial crisis of 2008.

Accepted Answer

Before the crisis,the asset side of the

Question 4

When a risk premium is added to the short-run model it shifts the MP curve up.

Accepted Answer

A) True 
 B)False

Question 5

Between January 1985 and January 1990 the NIKKEI,the Japanese stock index,rose an astounding 217 percent.Tokyo housing prices had jumped to $93,000 per square foot.Then stock and housing prices plummeted.The NIKKEI finally bottomed out in April 2003 and had lost about 79 percent of its value from January 1990.Explain the macroeconomic effects of this so-called "Lost Decade" in Japan.During this period Japan experienced a deflationary spiral;explain.If you were the chairman of the Bank of Japan what prescription would you apply? If you were the Government of Japan,what would you do? Compare this to the United States' Great Recession.

Accepted Answer

This answer is essentially the same but

Question 6

The effect of the subprime loan crisis pushed the risk premium up.This pushes the MP curve up and the AD down.

Accepted Answer

A) True 
 B)False

Question 7

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

A) real interest rate was negative. 
B) the ten-year bonds nominal interest rate was lower then inflation. 
C) real interest rate was higher than nominal interest rate. 
D) real interest rate was positive. 
E) not enough information 
A) real interest rate was negative. 
B) the ten-year bonds nominal interest rate was lower then inflation. 
C) real interest rate was higher than nominal interest rate. 
D) real interest rate was positive. 
E) not enough information

Question 8

__________ reduced loans despite the Fed's attempts to get liquidity flowing in financial markets after 2008.

Accepted Answer

A) Lessening regulatory control over banks 
B) Record real estate foreclosures 
C) Commercial banks' reluctant take on more risk 
D) Interest payments on bank reserves 
E) c and d 
A) Lessening regulatory control over banks 
B) Record real estate foreclosures 
C) Commercial banks' reluctant take on more risk 
D) Interest payments on bank reserves 
E) c and d

Question 9

In financial economics models,a stock price is approximately equal to the:

Accepted Answer

A) corporate value of the company. 
B) value of current corporate profits. 
C) present discounted value of expected future profits. 
D) results of complicated accounting formulae. 
E) future value of expected future revenues. 
A) corporate value of the company. 
B) value of current corporate profits. 
C) present discounted value of expected future profits. 
D) results of complicated accounting formulae. 
E) future value of expected future revenues.

Question 10

-Consider the IS-MP model in Figure 14.2 above;starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,without a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.

Accepted Answer

A) c;e;its long-run equilibrium 
B) d;b;its long-run equilibrium 
C) b;a;an expansion 
D) a;d;a recession 
E) a;d;an expansion 
A) c;e;its long-run equilibrium 
B) d;b;its long-run equilibrium 
C) b;a;an expansion 
D) a;d;a recession 
E) a;d;an expansion

Question 11

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,the real interest rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 12

The American Recovery and Reinvestment Act is an approximately __________ stimulus package.About __________ takes the form of tax cuts and __________ is new government spending on __________.

Accepted Answer

A) $500 billion;$150 billion;$450 billion;bailing out U.S.automakers and purchases of equity from financial institutions 
B) $1 billion;$100 million;$900 million;subsidies to U.S.farmers and energy producers 
C) $787 billion;$250 billion;$537 billion;infrastructure and aid to state and local governments 
D) $100 billion;$50 billion;$50 billion;the space program 
E) $1 trillion;$500 billion;$500 billion;unemployment insurance and financing the wars in Iraq and Afghanistan 
A) $500 billion;$150 billion;$450 billion;bailing out U.S.automakers and purchases of equity from financial institutions 
B) $1 billion;$100 million;$900 million;subsidies to U.S.farmers and energy producers 
C) $787 billion;$250 billion;$537 billion;infrastructure and aid to state and local governments 
D) $100 billion;$50 billion;$50 billion;the space program 
E) $1 trillion;$500 billion;$500 billion;unemployment insurance and financing the wars in Iraq and Afghanistan

Question 13

A recent FOMC statement asserts: "Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent,over the longer run,with its mandate to promote ...price stability." Your parents have taken interest in your fascinating Macroeconomics course and ask you to interpret this quote.* You tell them:

Accepted Answer

A) "The Fed believes that unemployment is recovering quickly." 
B) "The Fed is worried about spiking inflation." 
C) "The Fed is worried about deflation or inflation that is too low." 
D) "The economy has recovered,and it's business as usual." 
E) "The Fed is trying to appease stock markets." 
A) "The Fed believes that unemployment is recovering quickly." 
B) "The Fed is worried about spiking inflation." 
C) "The Fed is worried about deflation or inflation that is too low." 
D) "The economy has recovered,and it's business as usual." 
E) "The Fed is trying to appease stock markets."

Question 14

The Fisher equation is given by:

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
E)    . 
A)    . 
B)    . 
C)    . 
D)    . 
E)    .

Question 15

In dollars,the magnitude of the Fed's balance sheet actions were larger than the funding from the Federal government's TARP aid.

Accepted Answer

A) True 
 B)False

Question 16

When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:

Accepted Answer

A) for the Fed to print money. 
B) to raise taxes. 
C) to cut unemployment insurance. 
D) to lay off government workers. 
E) to conduct contractionary monetary policy. 
A) for the Fed to print money. 
B) to raise taxes. 
C) to cut unemployment insurance. 
D) to lay off government workers. 
E) to conduct contractionary monetary policy.

Question 17

If  
Is the federal funds rate,R is the market interest rate,and  
Is the risk premium,what is the equation for the market interest rate?

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 18

The liquidity trap occurs when:

Accepted Answer

A) real interest rates are above the marginal product of capital. 
B) firms have no access to stock markets. 
C) too little money is held in excess reserves. 
D) market interest rates are negative. 
E) the Fed loses control of money supply. 
A) real interest rates are above the marginal product of capital. 
B) firms have no access to stock markets. 
C) too little money is held in excess reserves. 
D) market interest rates are negative. 
E) the Fed loses control of money supply.

Question 19

The return to a risk asset can be written as   
.

Accepted Answer

A) True 
 B)False

Question 20

-Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.

Accepted Answer

A) d;b;its long-run equilibrium 
B) b;a;an expansion 
C) d;f;a recession 
D) d;c;its long-run equilibrium 
E) e;f;a recession 
A) d;b;its long-run equilibrium 
B) b;a;an expansion 
C) d;f;a recession 
D) d;c;its long-run equilibrium 
E) e;f;a recession

The event which likely caused the risk premium to jump to about 6 percent in September 2008 was the growing unrest in the Middle East.

The difference between the three-month bond yield and the six-month bond yield represents a risk premium.

Briefly discuss the Fed's balance sheet before and after the financial crisis of 2008.

When a risk premium is added to the short-run model it shifts the MP curve up.

The effect of the subprime loan crisis pushed the risk premium up.This pushes the MP curve up and the AD down.

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

__________ reduced loans despite the Fed's attempts to get liquidity flowing in financial markets after 2008.

In financial economics models,a stock price is approximately equal to the:

-Consider the IS-MP model in Figure 14.2 above;starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,without a risk premium,can be shown as a movement from point to point and the economy is in __.

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,the real interest rate is 3 percent.

The American Recovery and Reinvestment Act is an approximately stimulus package.About takes the form of tax cuts and is new government spending on .

The Fisher equation is given by:

In dollars,the magnitude of the Fed's balance sheet actions were larger than the funding from the Federal government's TARP aid.

When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:

If Is the federal funds rate,R is the market interest rate,and Is the risk premium,what is the equation for the market interest rate?

The liquidity trap occurs when:

The return to a risk asset can be written as .

-Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point to point and the economy is in __.

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

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

The event which likely caused the risk premium to jump to about 6 percent in September 2008 was the growing unrest in the Middle East.

The difference between the three-month bond yield and the six-month bond yield represents a risk premium.

Briefly discuss the Fed's balance sheet before and after the financial crisis of 2008.

When a risk premium is added to the short-run model it shifts the MP curve up.

The effect of the subprime loan crisis pushed the risk premium up.This pushes the MP curve up and the AD down.

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

__________ reduced loans despite the Fed's attempts to get liquidity flowing in financial markets after 2008.

In financial economics models,a stock price is approximately equal to the:

-Consider the IS-MP model in Figure 14.2 above;starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,without a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.

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,the real interest rate is 3 percent.

The American Recovery and Reinvestment Act is an approximately __________ stimulus package.About __________ takes the form of tax cuts and __________ is new government spending on __________.

The Fisher equation is given by:

In dollars,the magnitude of the Fed's balance sheet actions were larger than the funding from the Federal government's TARP aid.

When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:

If Is the federal funds rate,R is the market interest rate,and Is the risk premium,what is the equation for the market interest rate?

The liquidity trap occurs when:

The return to a risk asset can be written as .

-Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

-Consider the IS-MP model in Figure 14.2 above;starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,without a risk premium,can be shown as a movement from point to point and the economy is in __.

The American Recovery and Reinvestment Act is an approximately stimulus package.About takes the form of tax cuts and is new government spending on .

-Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point to point and the economy is in __.