The "Tech Bubble" Burst of 2000,the Terrorist Attacks of 2001

question 68

Multiple Choice

The "tech bubble" burst of 2000,the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy.Which of the following is an appropriate description of the mechanism that would have ensued?

• A)Household and business spending would have been eroded shifting the AD curve to the left.
• B)Unemployment would have risen and inflation would have fallen.
• C)Output would have declined below potential but through shifts in the AS curve,the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004.
• D)all of the above
• E)none of the above

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Definitions:

Bond Premium

When a bond's selling price surpasses its original issued cost, known as its face value.

Annual Interest

The amount of interest charged or earned over a year on borrowed capital or investment principal.

Present Value

The contemporary financial worth of a future sum or ongoing cash flows, evaluated at a designated rate of return.

Compounded Annually

A method of calculating interest where the interest earned each year is added to the principal, and the interest for the next year is calculated on the total amount.