Chapter 14 - Transmission Mechanics

Question 1

Economic forces that can amplify shocks and transmit them across sectors and through time.

Answer 1

Transmission Mechanisms.

Question 2

A mild negative shock can be transformed into a serious reduction in ___.

Answer 2

Output

Question 3

A ___ shock can be transformed into a boom.

Answer 3

Positive

Question 4

Intertemporal Substitutions:

Answer 4

The allocation of consumption, work, and leisure across time to maximize well-being.
- During a boom, people are less likely to retire or take early retirement.

Question 5

Substituting effort across time is called:

Answer 5

Intertemporal substitution.

Question 6

Irreversible Investments:

Answer 6

Have high value only under specific conditions—they cannot be easily moved, adjusted, or reversed if conditions change. (Sunk Costs)

Question 7

Labor Adjustment Costs:

Answer 7

The costs of shifting workers from declining sectors of the economy to the growing sectors.

Question 8

Time Bunching:

Answer 8

The tendency for economic activities to be coordinated at common points in time. (Seasonal effects, tax refunds, vacations, house sales)

Question 9

Shocks to Collateral and New Worth:

Answer 9

• Collateral:A valuable asset that is pledged to a lender to secure a loan. If the borrower defaults, ownership of the collateral transfers to the lender.
• Collateral Shock: A reduction in the value of collateral. Collateral shocks make borrowing and lending more difficult.