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

---

Definitions:

Secondary Reinforcers

Stimuli which become rewarding through their association with primary reinforcers.

Shaping

A method of behavior training in which reinforcement is given for progressively closer approximations of the desired behavior.

Classically Conditioned

A learning process that occurs through associations between an environmental stimulus and a naturally occurring stimulus.

Extinction

In behavioral psychology, the process of diminishing a conditioned response by repeatedly presenting the conditioned stimulus without the unconditioned stimulus.