If a Nation Experiences an Output Shock and Wishes to Borrow

question 12

Multiple Choice

If a nation experiences an output shock and wishes to borrow to smooth consumption, how much of consumer spending must it forgo each year to achieve consumption smoothing and maintain the long-run budget constraint?

• A) an amount equal to r^*/(1 + r^*) of the output shock
• B) an amount equal to 20% of its output shock
• C) 95% of the output shock
• D) an amount equal to r^* as a percent of the former level of GDP

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Definitions:

Attribution Error

Error made in attributing the causes for someone’s behavior to their membership in a particular group, such as a racial group.

Formal Organizations

Highly structured groups formed for a specific set of objectives or activities, characterized by defined roles and administrative rules.

Functionalist Perspective

A sociological approach that emphasizes the interdependence of society's components and their contribution to societal stability and equilibrium.

Conflict Perspective

A sociological approach that views human society as an arena of inequalities that breeds conflict and social change, emphasizing the role of power differentials in producing social order.