Collateral Shocks Tend to Amplify Business Cycles Because

question 9

Multiple Choice

Collateral shocks tend to amplify business cycles because:

• A) assets are typically worth more in booms than in recessions and the value of assets tends to be positively correlated to firms' ability to obtain investment funding.
• B) the returns to work are higher in booms than in recessions,so people work more during booms and less during recessions.
• C) the returns to investment are higher when others are investing as well;thus we see more investment during booms and less during recessions.
• D) the uncertainty of recessions tends to increase people's job search time,while greater certainty decreases search time during booms.

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Definitions:

Great Depression

A severe worldwide economic depression in the 1930s, marked by high unemployment, deflation, and significant declines in economic activity.

Aggregate Demand

The total demand for all goods and services in an economy at various price levels, at a given point in time.

Aggregate Supply

The total amount of goods and services that producers are willing and able to supply at a given overall price level in an economy.

Market Risk

Market risk, also known as systematic risk, refers to the potential for investors to experience losses due to factors that affect the overall performance of the financial markets.