Question

Please choose a letter answer and explain the answer please.

1. If you believe the economy is about to go into a recession you might change your asset allocation by selling       and buying              .

1. growth stocks, long-term bonds
2. long-term bonds, growth stocks
3. defensive stocks, growth stocks
4. defensive stocks, long-term bonds

2. A big increase in government spending is an example of                    .

1. a demand shock
2. a supply shock
3. an unsurprising shock
4. none of the above

3. Which of the following is not an example of fiscal policy?

1. Social Security spending
2. Medicare spending
3. government purchases of Treasury securities
4. changes in the tax rate

4. A trough is                   .

1. a transition from an expansion in the business cycle to the start of a contraction
2. a transition from a contraction in the business cycle to the start of an expansion
3. only something used by farmers to feed pigs and is not a term in investments
4. none of the above

Answer 1

1. If you believe the economy is about to go into a recession you might change your asset allocation by selling growth stock (as they will face huge dip in recession) and buying long term bonds (bonds do relatively good in recession as they provide an assured coupon & maturity payment). Thus A growth stocks, long-term bonds

2.A big increase in government spending is an example of a supply shock.  Supply shock is defined as an unexpected event which leads to sudden change in the supply of a anything. Here government spending increase will lead to an sudden increase in supply of funds leading to supply shock.   Answer. B. a supply shock

3. Which of the following is not an example of fiscal policy? Government purchases of Treasury securities is part of the monetary policy executed by the Central Bank to control the cash flows & thus control inflation.Thus answer is C. Government purchases of Treasury securities

4. A trough is is the bottoming up of economy before the rise. Thus answer is B a transition from a contraction in the business cycle to the start of an expansion