Deck 14: The Recession of 2007-2009: Causes and Policy Responses

Question 1

Of the stimulus package proposed by the Bush Administration in 2008,

A)the tax rebates were rejected while the extension of temporary tax cuts was adopted.
B)none of the proposed components of the package were actually implemented.
C)all of the proposed components of the package were quickly implemented.
D)the tax rebates were adopted while the extension of temporary tax cuts was rejected.

Answer 1

D

Question 2

In the years immediately prior to 2005 in the U.S.,

A)home prices were rising briskly.
B)home prices were falling precipitously.
C)home prices were constant.
D)bankers were confident that home prices would decrease in 2005.

Answer 2

A

Question 3

In the recession of 2007-2009, the Net Change in Employment was

A)positive during every month of 2006 and 2007.
B)positive during every month of 2007.
C)negative during every month of 2007.
D)negative during every month of 2008.

Answer 3

D

Question 4

The stimulus package proposed by the Bush Administration in early 2008 relied upon

A)a permanent increase in personal income tax rates.
B)a temporary surtax added to existing personal income tax rates.
C)making permanent the 2003 income tax rate cuts, as well as tax rebates to taxpayers.
D)a requirement that any children claimed as dependents have social security numbers.

Question 5

The beginning date of the recession of 2007-2009 has been determined by the

A)Board of Governors of the Federal Reserve System.
B)National Bureau of Economic Research.
C)University Interscholastic League.
D)Council on Foreign Relations.

Question 6

When comparing the severity of recessions since World War II economists focus on the ones in

A)1990 and 2001.
B)1968 and 1974.
C)2001 and 2007-2009.
D)1982 and 2007-2009.

Question 7

One of the most, if not the most severe recession since World War II began in the

A)fall of 2005.
B)summer of 1964.
C)summer of 1927.
D)fall of 2007.

Question 8

Home price escalation in the U.S. during 2005 fueled booms in

A)Iraq and Afghanistan.
B)stocks of dot com startups in Silicon Valley and U.S. government bonds.
C)home building and home equity lines of credit.
D)mortgage foreclosures and home demolition.

Question 9

As unemployment rose in 2008, non-discretionary fiscal policy measures included

A)increased spending on unemployment insurance, food stamps and Medicaid.
B)major reductions in federal spending on bridges and highways.
C)significant reductions in the income tax rates paid by high-income individual.
D)provision of Universal Health Insurance for all Americans.

Question 10

If home prices rise far above the value of the homeowner's mortgage loan,

A)default risk faced by lenders tends to decrease.
B)default risk faced by lenders tends to increase.
C)homeowners will be tempted to default on their mortgage loans.
D)homeowners will have greater difficulty obtaining a home equity line of credit.

Question 11

In the recession of 2007-2009, the unemployment rate first began to increase sharply

A)in the first quarter of 2007.
B)in the third and fourth quarters of 2008.
C)in the first quarter of 2008.
D)in the fourth quarter of 2007.

Question 12

In January of 2006, the Federal Reserve

A)increased its target federal funds rate by a larger amount than it had in several years.
B)increased its target federal funds rate by a smaller amount than it had in several years.
C)increased its target federal funds rate by the same amount as it had in recent years.
D)left its target federal funds rate unchanged.

Question 13

Between Labor Day weekend and the date of the U.S. presidential election in 2008,

A)Fannie Mae and Freddie Mac were placed in conservatorship.
B)Lehman Brothers filed for bankruptcy.
C)the U.S. Treasury and the Federal Reserve asked Congress for $700 billion for TARP.
D)all of the options are correct.

Question 14

The stimulus package adopted in 2009 by newly-elected President Obama included

A)only discretionary fiscal policy programs.
B)only non-discretionary fiscal policy programs.
C)both discretionary and non-discretionary fiscal policy programs.
D)neither discretionary nor non-discretionary fiscal policy programs.

Question 15

The stimulus package implemented by the Bush Administration in 2008 included

A)rebates to individual taxpayers of $600 per individual and $1200 per married couple.
B)rebates to individual taxpayers of $600 per individual and $900 per married couple.
C)rebates to individual taxpayers of $900 per individual and $600 per married couple.
D)no rebates of any kind to individual taxpayers, only corporations.

Question 16

During the recession of 2007-2009, the Federal Reserve began cutting its target for the Federal Funds rate in

A)January of 2007.
B)September of 2007.
C)September of 2008.
D)January of 2009.

Question 17

In 2007 relative to 2001 in the U. S., household

A)revolving debt was higher and household non-revolving debt was lower.
B)revolving debt was lower and household non-revolving debt was higher.
C)revolving and non-revolving debt both were lower.
D)revolving and non-revolving debt both were higher.

Question 18

The stimulus package proposed in 2009 by newly-elected President Obama included

A)reduced income tax rates for high-income individuals.
B)reduced levels of federal government aid to state and local governments.
C)a combination of tax changes and significant increases in federal government spending.
D)rapid contraction of the overall size of the federal government as a share of GDP.

Question 19

One of the most significant factors causing the recession of 2007-2009 was

A)very low crude oil prices.
B)the bursting of the housing bubble.
C)very low interest rates maintained by the Federal Reserve.
D)the huge federal government budget surplus.

Question 20

As the U.S. recession was developing in the summer of 2008, oil prices peaked near

A)$30 per barrel.
B)$60 per barrel.
C)$110 per barrel.
D)$140 per barrel.

Question 21

Monetary policy designed to counteract a reduction in aggregate demand might include

A)a reduction in the money stock.
B)a reduction in short-term interest rates.
C)increased government infrastructure spending.
D)an increase in individual income tax rates.

Question 22

Non-discretionary fiscal policies that increase aggregate demand tend to result in

A)lower Real GDP ("RGDP")and a higher price level ("PI").
B)higher Real GDP ("RGDP")and a higher price level ("PI").
C)lower Real GDP ("RGDP")and a lower price level ("PI").
D)higher Real GDP ("RGDP")and a lower price level ("PI").

Question 23

If an adverse shock reduces the level of aggregate demand, it is likely to lead to

A)lower Real GDP ("RGDP")and a higher price level ("PI").
B)higher Real GDP ("RGDP")and a higher price level ("PI").
C)lower Real GDP ("RGDP")and a lower price level ("PI").
D)higher Real GDP ("RGDP")and a lower price level ("PI").

Question 24

The elements of the stimulus package adopted in 2009 that allowed states to pay Medicaid providers despite having exhausted their funds should be considered

A)discretionary fiscal policy.
B)non-discretionary fiscal policy.
C)monetary policy.
D)neither discretionary nor non-discretionary fiscal policy programs.

Question 25

The elements of the stimulus package adopted in 2009 that allowed states to pay $25 per week more than they had being paying in unemployment compensation should be considered

A)discretionary fiscal policy.
B)non-discretionary fiscal policy.
C)monetary policy.
D)neither discretionary nor non-discretionary fiscal policy programs.

Question 26

Non-discretionary fiscal policy initiatives adopted in 2009 were intended mainly to

A)increase aggregate supply.
B)decrease aggregate supply.
C)increase aggregate demand.
D)decrease aggregate demand.

Question 27

Discretionary fiscal policies that increase aggregate demand tend to result in

A)lower Real GDP ("RGDP")and a higher price level ("PI").
B)higher Real GDP ("RGDP")and a higher price level ("PI").
C)lower Real GDP ("RGDP")and a lower price level ("PI").
D)higher Real GDP ("RGDP")and a lower price level ("PI").

Question 28

A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was

A)historically low interest rates.
B)rapid growth of the money stock.
C)the impending expiration of the Bush Tax Cuts of 2003.
D)rising levels of federal government spending.

Question 29

The stimulus plan adopted in 2009 by newly-elected President Obama consisted of

A)only tax cuts.
B)only spending increases on newly-created federal programs.
C)only attempts to shore up Medicaid, welfare and unemployment programs.
D)roughly equal tax cuts and spending increases, with additional spending to shore up existing federal programs.

Question 30

The elements of the stimulus package adopted in 2009 that allowed states to continue to make their unemployment compensation payments despite having exhausted their funds should be considered

A)discretionary fiscal policy.
B)non-discretionary fiscal policy.
C)monetary policy.
D)neither discretionary nor non-discretionary fiscal policy programs.

Question 31

A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was

A)historically low interest rates.
B)uncertainty concerning the outcome of the 2008 presidential election.
C)rapid growth of the money stock.
D)rising levels of federal government spending.

Question 32

The main effect on the economy of the financial sector crisis in late 2008 was

A)reduced aggregate demand.
B)increased aggregate demand.
C)reduced aggregate supply.
D)increased aggregate supply.

Question 33

Monetary policy designed to counteract a reduction in aggregate demand might include

A)an increase in the money stock.
B)a sharp increase in short-term interest rates.
C)increased government infrastructure spending.
D)an increase in individual income tax rates.

Question 34

If not corrected, the financial sector crisis of late 2008 would have tended to

A)increase both Real GDP and the general price level.
B)increase Real GDP and lower the general price level.
C)lower Real GDP and increase the general price level.
D)lower both Real GDP and the general price level.

Question 35

Discretionary fiscal policy designed to counteract a reduction in aggregate demand might include

A)an increase in the money stock.
B)a return to the gold standard.
C)increased government infrastructure spending.
D)all of the options are correct.

Question 36

The discretionary fiscal policy initiatives adopted in 2009 were intended mainly to

A)increase aggregate supply.
B)increase aggregate demand.
C)decrease aggregate supply.
D)decrease aggregate demand.

Question 37

If a fiscal policy program requires new legislation to make it happen, it is necessarily

A)non-discretionary.
B)discretionary.
C)contractionary.
D)unconstitutional.

Question 38

A factor tending to slow the U.S. economy early in the recession of 2007-2009 was

A)historically low interest rates.
B)unprecedented levels of federal deficit spending.
C)rapid growth of the money stock.
D)sharply rising crude oil prices.

Question 39

The deepening recession in late 2008 sharply reduced consumer confidence, causing

A)aggregate demand to contract markedly.
B)aggregate supply to contract markedly.
C)aggregate supply to expand markedly.
D)aggregate demand to expand markedly.

Question 40

Non-discretionary fiscal policy designed to counteract a reduction in aggregate demand might include

A)an increase in the money stock.
B)a return to the gold standard.
C)increased government spending on unemployment benefits.
D)all of the options are correct.

Question 41

The efforts to reduce the deficit in 2011 can be best thought of as using

A)the traditional tools of monetary policy.
B)new tools of monetary policy.
C)discretionary fiscal policy.
D)none of these options are correct.

Question 42

Housing prices peaked

A)right as the recession began in December 2007.
B)after the recession began in December 2007.
C)before the recession of 2007-2009 began.
D)In 1999

Question 43

The Federal Reserve is blamed by some for the recession of 2007-2009 because it

A)raised interest rates too fast in 2005-2007.
B)lowered interest rates too fast in 2008.
C)kept interest rates high in 2005-2007.
D)kept interest rates too low prior to 2005 leading to a housing boom (that ultimately went bust.

Question 44

The efforts to revive the economy in 2009 through the stimulus package is an example of

A)the traditional tools of monetary policy.
B)new tools of monetary policy.
C)discretionary fiscal policy.
D)all of the options are correct.

Question 45

The recession of 2007-2009 started

A)with the financial collapse.
B)rather mildly in late 2007.
C)abruptly in 2007 with higher gasoline prices.
D)in 2006.

Question 46

Housing Starts peaked

A)right as the recession began in December 2007.
B)after the recession began in December 2007.
C)before the recession of 2007-2009 began.
D)In 1999

Question 47

Economic growth leading into the 2007-2009 recession was

A)much greater than it had been in the previous 20 years.
B)much slower than it had been in the previous 20 years.
C)somewhat greater than it had been in the previous 20 years.
D)almost precisely the same as it had been in the previous 20 years.

Question 48

The slow growth coming out of the Great Recession caused the Fed to

A)focus exclusively on the traditional tools of monetary policy.
B)employ new tools of monetary policy.
C)employ discretionary fiscal policy.
D)employ nondiscretionary fiscal policy.

Question 49

The efforts to revive the economy in 2009 through 2011 were drawn from

A)the traditional tools of monetary policy.
B)new tools of monetary policy.
C)discretionary fiscal policy.
D)all of the options are correct.

Question 50

Prior to the recession of 2007-2009

A)revolving debt was rising rapidly but non-revolving debt was not.
B)non-revolving debt was rising rapidly but revolving debt was not.
C)neither revolving nor non-revolving debt were rising rapidly.
D)both revolving and non-revolving debt were rising rapidly.

Question 51

The new tools of monetary policy that the Fed employed included

A)focusing exclusively on the traditional tools of monetary policy.
B)the sustained purchase of mortgage backed securities
C)discretionary fiscal policy.
D)nondiscretionary fiscal policy.

Question 52

The lowering of the federal funds rate to nearly zero in 2008 is an example of the use of

A)the traditional tools of monetary policy.
B)new tools of monetary policy.
C)discretionary fiscal policy.
D)all of the options are correct.

Question 53

QE2 was an effort to revive the economy in 2010 and 2011. It relied on

A)the traditional tools of monetary policy.
B)new tools of monetary policy.
C)discretionary fiscal policy.
D)all of the options are correct.

Question 54

A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was

A)increases by the Federal Reserve in its target short-term interest rate.
B)rapid growth of the money stock.
C)the unexpected return to the gold standard.
D)rising levels of federal government spending.

Question 55

TARP was

A)the name given to the auto company bailouts.
B)the name given to the bank bailouts.
C)what kept AIG afloat.
D)the name given to the stimulus package of 2009.

Question 56

The new tools of monetary policy that the Fed employed included

A)focusing exclusively on the traditional tools of monetary policy.
B)the sustained purchase of longer term federal debt
C)discretionary fiscal policy.
D)nondiscretionary fiscal policy.

Question 57

TARP was created during the Presidency of

A)President Clinton and only implemented by President G.W. Bush.
B)President G.H.W. Bush and only implemented by President G.W. Bush.
C)President G.W. Bush.
D)President B. Obama.