Deck 21: Recession and depression

Question 1

After the Great Recession was officially over, the average duration of unemployment in the U.S.peaked at about

A)18 weeks
B)24 weeks
C)32 weeks
D)36 weeks
E)40 weeks

Answer 1

40 weeks

Question 2

Between 2008 and 2011, the average duration of unemployment in the U.S.increased from

A)about 10 to about 24 weeks
B)about 15 to about 30 weeks
C)about 15 to about 40 weeks
D)about 20 to about 28 weeks
E)about 20 to about 32 weeks

Answer 2

about 15 to about 40 weeks

Question 3

Inflation-adjusted home prices in the U.S.

A)experienced huge spikes in the 1960s
B)increased sharply in the early 1990s and then leveled off until about 2006
C)were at their highest shortly after World War II when there was a severe shortage of housing
D)all of the above
E)none of the above

Answer 3

none of the above

Question 4

During the period from 1950 to 2010,

A)economic fluctuations were greater from 1950-1980 than from 1980-2000
B)fluctuations in the inflation rate were greater before 1985 than after
C)since the mid-1980s, the inflation rate has never exceeded 5 percent
D)all of the above
E)only B)and C)

Question 5

Which of the following was TRUE about the financial crisis of 2008?

A)it started in the U.S., but quickly spread to global financial markets
B)as credit markets froze, U.S. businesses had trouble financing their inventories
C)the recession that followed in the U.S. might have been a lot worse if the government hadn't undertaken decisive monetary and fiscal policy measures
D)all of the above
E)only A)and C)

Question 6

Inflation-adjusted home prices in the U.S.

A)experienced a huge increase from the late 1990s through 2006
B)were higher in 1982 than in 2002
C)decreased throughout the 1990s but then rose sharply after 2002
D)increased sharply in the mid-1980s and then again in the early 1990s
E)steadily declined in the 1980s and 1990s

Question 7

Which of the following occurred in the U.S.during the period of "the Great Moderation?"

A)inflation was brought under control
B)economic fluctuations were much less pronounced than in previous decades
C)the economy experienced a few negative quarterly GDP growth rates
D)all of the above
E)none of the above

Question 8

If we look at the average duration of unemployment from 1950 to 2013, we see that

A)it was generally higher shortly after recessions than during the recessions
B)it reached an all-time high in 2011
C)in 2011 it was more than twice as high as at any previous time
D)all of the above
E)none of the above

Question 9

If we look at inflation as measured by the GDP deflator from 1947 to 2012, we see that

A)inflation was much higher in 1951 than in 1981
B)inflation was at its highest in 1975
C)inflation was at its lowest in 1991
D)all of the above
E)none of the above

Question 10

During the period known as "the Great Moderation," the U.S.inflation rate never exceeded

A)2)2%
B)2)5%
C)3)0%
D)3)2%
E)5)0%

Question 11

During and after which of the following recessions did the U.S.experience the steepest increase in the average duration of unemployment?

A)2007-09
B)2001-02
C)1991-92
D)1981-82
E)1974-75

Question 12

During the period referred to as "the Great Moderation"

A)there were only mild economic fluctuations despite severe supply shocks
B)few policy changes were implemented so output stayed close to the full employment level
C)economic fluctuations were largely contained through effective policy changes
D)inflation consistently exceeded 4 percent
E)all of the above

Question 13

The Great Recession officially lasted from

A)1929-45
B)1930-35
C)1981-82
D)2007-09
E)2008-11

Question 14

During the Great Recession of 2007-09

A)long-term unemployment rose to unprecedented levels
B)the official unemployment rate reached almost 14 percent
C)the unemployment rate reached levels not seen since the Great Depression
D)the duration of unemployment rose sharply but not to the level it reached shortly after the recession of 1981/82
E)all of the above

Question 15

During the period known as "the Great Moderation," the U.S.quarterly GDP growth rate

A)never hit negative values
B)consistently exceeded 2 percent
C)fluctuated much less than in the previous three decades
D)fluctuated between 1 percent and 4 percent
E)fluctuated very little and remained around 2.5 to 3.0 percent

Question 16

Which of the following was TRUE about the Great Recession of 2007-09?

A)the U.S. government quickly implemented austerity programs
B)monetary and fiscal policy responses to the crisis were implemented too slowly
C)while the unemployment rate rose sharply, long-term unemployment remained steady
D)financial markets froze, making it difficult for businesses to finance inventories
E)none of the above

Question 17

When we look at inflation-adjusted home prices in the U.S.from 1910-2010, we see that

A)in real terms homes were more expensive in the 1930s than in the 1990s
B)the sharpest increase in home prices occurred right after World War II
C)the sharpest increase in home prices occurred from the late 1990s to about 2006
D)from 2000-2006, nominal housing prices increased sharply but real housing prices decreased slightly
E)none of the above

Question 18

Unemployment rates during and shortly after the Great Recession

A)reached levels unseen since the Great Depression
B)exceeded those of the Great Depression
C)exceeded those during and shortly after the recession in 1981/82
D)reached close to 10 percent but the duration of unemployment was fairly short
E)were lower than in 1983 but for many the period of unemployment was much longer

Question 19

Between 1996 and 2012, the civilian unemployment rate in the U.S.

A)was about 5% for most of the period until the Great Recession, when it climbed to more than 10%
B)increased steadily and consistently from 2000 to 2008
C)increased slightly but steadily in the 1990s, then started to decrease until it increased sharply again during the Great Recession
D)all of the above
E)none of the above

Question 20

The term "the Great Moderation" refers to

A)the fact that members of Congress collaborated much better in the 1980s or 1990s than in recent years
B)the fact that inflation-adjusted housing prices stayed fairly constant from 1950 to 1975
C)the period in the 1930s after the New Deal was implemented
D)the period after the Great Recession when the economy started to grow only slowly
E)the period from 1980 to 2007 when economic cycles were kept at a minimum

Question 21

If we compare the Great Depression with the Great Recession, we see that

A)the Great Recession was more severe but of much shorter duration than the Great Depression
B)unemployment reached 24% in the Great Depression but only 12% in the Great Recession
C)both economic downturns were the result of a major stock market crash
D)the policy responses to the Great Recession were much more immediate and massive than the responses to the Great Depression
E)all of the above

Question 22

One of the assertions that Keynesians make when explaining the severity of the Great Depression in the U.S.is that

A)the economic collapse originated from the negative effect that the stock market crash had on individuals' wealth
B)investment spending responded negatively to huge increases in the real interest rate
C)vigorous use of expansionary fiscal policy early on could have reduced the severity of the economic downturn
D)in response to the stock market crash, the U.S. Fed imposed credit controls that were much too restrictive
E)none of the above

Question 23

Between 1950 and 2012, the average duration of unemployment in the U.S.

A)increased to about 24 weeks after each recession
B)decreased to about 15 weeks after each recession
C)increased before and during each recession but declined sharply after the recession was officially over
D)all of the above
E)none of the above

Question 24

If you had $1,000 invested in the stock market at its peak in 1929, approximately how much would it have been worth at the lowest level in 1932?

A)$50
B)$150
C)$350
D)$450
E)$750

Question 25

Mortgage-backed securities

A)are low risk financial instruments, as their market value is based on long-term mortgages
B)were only marketed in the U.S. and could not be sold to financial institutions abroad
C)are fairly risk-free as the financial institutions that buy and sell them understand how to spread the risk that is involved
D)are a form of derivatives, that is, securities whose value is based on the value of other financial instruments
E)none of the above

Question 26

If you had $5,000 invested in the stock market at its peak in 1929, the beginning of the Great Depression, approximately how much would it have been worth at the lowest level in 1932?

A)$2,500
B)$1,500
C)$1,000
D)$750
E)$500

Question 27

What does U6, a broad measure of unemployment, stand for?

A)total unemployed, including workers who are underemployed
B)total unemployed minus all marginally attached workers
C)total unemployed plus all marginally attached workers and total employed part time for economic reasons
D)total unemployed, including all marginally attached workers but excluding workers who are underemployed
E)total unemployed, excluding those out of work for more than six months

Question 28

Which of the following is FALSE about the mortgage-backed securities?

A)many of them were purchased by financial investors who had no idea how risky they were
B)they were marketed as virtually risk-free even though they were actually very risky
C)in principle they spread risk more widely and allow banks to make more loans
D)all of the above
E)none of the above

Question 29

Assume 160 million people are in the work force but 10% of them are unemployed.If the average duration of unemployment is eight months and the average monthly paycheck is $3,000, what is the approximate cost of the unemployment in terms of lost wages?

A)$3.2 trillion
B)$384 billion
C)$224 billion
D)$32 billion
E)$24 billion

Question 30

In 2010, the U.S.unemployment rate reached almost 10 percent, but this official unemployment figure does not tell the whole story since

A)many workers became discouraged and left the workforce
B)the number of marginally attached workers increased
C)many U.S. workers were underemployed.
D)long-term unemployment increased drastically
E)all of the above

Question 31

While the U.S.was in the Great Depression

A)many European countries were enjoying modest to substantial growth
B)many countries were erecting trade barriers through tariffs
C)many U.S. businesses took advantage of low interest rates and increased investment spending
D)most of the (then)48 states cut taxes and increased deficit spending as a way to stimulate their economies
E)all of the above

Question 32

According to the monetarists, the Great Depression

A)was a result of a decline in investment opportunities and there was little that the Fed could have done to avoid the depression
B)proved that the economy only remains at full employment if the Fed employs active counter-cyclical monetary policy
C)was the result of the failure of the Fed to prevent bank failures and halt the decline in money supply from 1930 to 1933
D)was caused by the Fed's insistence that inflation needed to be drastically reduced
E)all of the above

Question 33

The initial response of the Federal Reserve to the economic collapse at the beginning of the Great Depression was to

A)observe from the sidelines
B)lend vigorously to banks facing liquidity problems
C)guarantee customer deposits in failed banks
D)abolish previously imposed credit controls
E)conduct huge open market sales in an effort to change interest rates

Question 34

Assume 120 million people are in the work force but 8% of them are unemployed.If the average duration of unemployment is eight months and the average monthly paycheck is $3,400 what is the approximate cost of that unemployment in terms of lost wages?

A)$26 trillion
B)$2.6 trillion
C)$260 billion
D)$26 billion
E)$2.6 billion

Question 35

Which of the following is FALSE about the financial crisis of 2008?

A)the crisis started in the in the U.S. but had a particularly devastating effect on the economies of Mexico and Canada
B)as it became increasingly difficult to get loans, the financial crisis quickly spread to the goods and labor markets causing economic activity to decline
C)in the recession that followed, the unemployment level in the U.S. hit highs not seen since 1983 and reached its peak only after the recession was officially declared over
D)as financial institutions curtailed their lending activity, even solvent firms experienced severe liquidity problems
E)none of the above

Question 36

Assume 140 million people are in the work force but 12% of them are unemployed.If the average duration of unemployment is ten months and the average monthly paycheck is $3,200, what is the approximate cost of the unemployment in terms of lost wages?

A)$64 trillion
B)$8.4 trillion
C)$684 billion
D)$540 billion
E)$38 billion

Question 37

According to John Maynard Keynes, the major cause of the Great Depression was

A)the collapse of the stock market
B)the inability of the Fed to conduct open market sales
C)the high interest rates that existed at the time
D)the huge increase in the federal budget deficit
E)none of the above

Question 38

Which of the following occurred in the U.S.during the period from 1929 to 1933?

A)the CPI increased nearly 35%
B)the stock market fell nearly 50%
C)the unemployment rate rose from 3% to 12%
D)output fell nearly 30%
E)all of the above

Question 39

Which of the following is FALSE about unemployment in the U.S.?

A)the unemployment rate in 2010 was higher than the unemployment rate in 1983
B)with a few exceptions, the peak in the average length unemployment following a recession has risen steadily since the 1950s
C)even four years after the official end of the Great Recession, long-term unemployment remained at levels previously unseen
D)even during the Great Recession, the unemployment rate did not exceed 10 percent
E)in 2011, roughly one out of six workers was either unemployed or underemployed.

Question 40

Which of the following did NOT happen in the period from 2008 to 2012?

A)Canada experienced a worse recession than the U.S.
B)Ireland and Iceland suffered greatly from the financial crisis that originated in the U.S.
C)long-term unemployment in the U.S. reached unprecedented levels
D)nearly one out of six workers in the U.S. was either unemployed or underemployed
E)the average duration of unemployment went from about 15 weeks to about 40 weeks

Question 41

About how much of its value did the U.S.stock market lose between September 1929 and June 1932?

A)24%
B)35%
C)64%
D)85%
E)92%

Question 42

In the early 1930s interest rates were very low and money supply declined sharply.This was mostly the result of

A)restrictive monetary policies
B)the Fed conducting open market sales on a large scale
C)restrictive monetary policy combined with restrictive fiscal policy
D)restrictive monetary policy combined with expansionary fiscal policy
E)a large number of bank failures and low credit demand

Question 43

During which year of the Great Depression did the U.S.experience the highest rate of unemployment?

A)1929
B)1931
C)1933
D)1936
E)1938

Question 44

The monetarist explanation of the Great Depression emphasizes the fact that

A)investment and consumption spending collapsed because of negative expectations
B)the economy was basically unstable and could not recover because the government didn't increase spending drastically
C)the Fed pushed interest rates to extremely low levels, which forced the economy into the liquidity trap
D)the Fed didn't do enough to prevent the large number bank failures, which resulted in a huge decline in money supply
E)the Fed failed to establish a strict monetary growth rule early on

Question 45

If you had $10,000 invested in the stock market at its peak in September 1929, how much would your portfolio have been worth in June 1932?

A)$500
B)$1,500
C)$2,500
D)$3,500
E)$5,000

Question 46

According to the Keynesians, the Great Depression was primarily caused by

A)the stock market crash of 1929, in which many people lost their life savings
B)an inactive Fed that did not respond adequately to the financial crisis that followed the stock market crash of 1929
C)a sharp reduction in consumption and investment spending accompanied by restrictive fiscal policies
D)large budget deficits that crowded out private spending as the government implemented a fiscal stimulus package
E)a collapse of the housing market followed by a financial crisis that made it difficult for businesses to get loans

Question 47

Which of the following did NOT happen in the U.S.as a result of the Great Depression?

A)the Fed was reorganized
B)the Federal Deposit Insurance Corporation (FDIC) was established
C)the Securities and Exchange Commission (SEC) was created
D)the Social Security Administration was established
E)unionization was discouraged to keep wages and prices low

Question 48

Which of the following did NOT happen during the Great Depression?

A)U)S. unemployment reached 24 percent
B)many countries imposed high tariffs causing a decline in world trade
C)almost every country in the world suffered from a deep recession
D)U)S. unemployment did not fall below 5 percent until the U.S. entered World War II
E)the U.S. government quickly cut taxes causing federal budget deficits to increase sharply

Question 49

Which of the following is FALSE?

A)in 1929, the U.S. unemployment rate averaged 3.2 percent
B)in 1933, the U.S. unemployment rate hit an all-time high of 20.1 percent
C)from 1930 to 1939 the U.S. experienced unemployment rates in the double digits, despite massive government intervention
D)both the Keynesian and the monetarists explanations of the Great Depression fit the facts
E)macroeconomics developed as a distinct discipline as a result of what happened during the Great Depression

Question 50

Which of the following is TRUE?

A)during the 1930s the U.S. federal government never ran a budget surplus
B)during the 1930s the U.S. never ran a total government full-employment budget surplus
C)money supply declined drastically from 1929 to 1932 but there was only a minimal response from the U.S. Fed
D)thanks to massive government intervention early in the 1930s, the U.S. economy had recovered from the economic downturn by 1938
E)all of the above