The Wall Street Journal Quiz
Covering front-page articles from Sept 6 – Sept 9, 2005
Professor Guide with Summaries Fall 2005 Issue #3
Developed by: Scott R. Homan Ph.D., Purdue University
Economy Shows Resilience in Face Of Massive Jolt
By JON E. HILSENRATH and GREG IP
September6,2005;PageA1
http://online.wsj.com/article/0,,SB112597341782532399,00.html
The U.S. economy's shock absorbers kicked in within days of one of the worst natural disasters in its history, offering hope that the massive jolt to the country's energy and transportation systems won't produce a long-lived, serious economic contraction. The release of emergency oil and gasoline from global stockpiles, created in the 1970s to counter supply interruptions, sent crude-oil prices down to about pre-hurricane levels in European trading. Long-term interest rates fell despite the prospect of higher inflation, cushioning home buyers and businesses. Temporary-help agencies began to place some workers displaced by the storm. New Orleans's main newspaper, the Times-Picayune, kept publishing on the Internet when printing on paper was impossible. Computerized logistics enabled railroad CSX Corp. to reroute freight normally exchanged with Western railroads at New Orleans to be sent north. Hurricane Katrina is the biggest test in years of the economy's resilience. But recent history offers encouraging, though by no means definitive evidence of the U.S. economy's ability to bounce back from shocks. Economic growth has become significantly less volatile during the past two decades, a trend some economists dub "the Great Moderation." The past five years have witnessed a burst stock bubble, terrorist attacks, corporate scandals, wars in Afghanistan and Iraq, and a doubling in crude oil prices. Yet the economy, after a mild recession in 2001, has embarked on a solid expansion with little inflation. Katrina came at a time when the economy was in solid shape. In August, the unemployment rate fell to 4.9%, a four-year low, from 5% in July, and nonfarm payrolls grew a respectable 169,000, the Labor Department said Friday. "We expect the trend in growth will prove more resilient than is now widely feared," UBS Securities analysts told clients Friday. Employment and output are likely to take a sizable hit in the next few months; the question is the duration and severity of the blow. Economists surveyed last week by Macroeconomic Advisers LLC, a St. Louis forecasting firm, said the storm would result in growth of only about 3.5%, at an annual rate, in the second half of the year, down from pre-storm expectations of 4%. It grew 3.6% in the first half. And the economy does have some worrisome vulnerabilities. The storm hit when world oil producers and U.S. refiners were operating near capacity and they remain highly sensitive to any loss of supply. Higher gasoline prices will act like a tax on consumers who are already stretched: In July their saving rate turned negative as spending exceeded income. Spending might be further hurt if consumer confidence erodes. As a result, some analysts still believe the economic impact might be severe. "What we're witnessing now is going to turn out to be a really huge shock," said Stephen Cecchetti, an economist at Brandeis University. Businesses may also find it hard to adapt to shifts in spending caused by higher energy prices, much as Detroit found it hard to shift to smaller cars in the 1970s.
But there are several factors in the economy's favor. It's more energy-efficient: The gross domestic product has more than doubled since 1979, but petroleum consumption has risen just 9%, according to the Energy Department. Policy makers have reduced, rather than increased, regulatory constraints on supply. In the 1970s, gasoline price caps and other regulations created shortages and waiting lines. Last week, the federal government temporarily eased environmental and transportation regulations so existing gasoline inventories could reach U.S. customers more easily. The release of oil and gasoline from the U.S. Strategic Petroleum Reserve and similar stockpiles in Europe has helped contain the rise in oil prices. Benchmark Brent crude oil for October delivery fell $1.22 in London yesterday to $64.84, around where it stood before Katrina. U.S. markets were closed for Labor Day. Wholesale gasoline prices fell sharply Friday from midweek peaks though they remain well above pre-storm levels due to Gulf Coast refinery closures.
1) The past five years have witnessed a burst stock bubble, terrorist attacks, corporate scandals, wars in Afghanistan and Iraq, and a doubling in crude oil prices. Yet the economy, after a ______in 2001, has embarked on a solid expansion with little inflation..
a) mild expansion
b) mild recession Correct
c) major expansion
d) major recession
2) In August, the U.S. unemployment rate fell to ______%, a four-year low.
a) 2.7
b) 4.9 Correct
c) 6.8
d) 7.6
As Japan Votes, Aid to Countryside Hangs in Balance
By SEBASTIAN MOFFETT and GINNY PARKER WOODS
September7,2005;PageA1
http://online.wsj.com/article/0,,SB112603889772233072,00.html
HIWA, Japan -- In elections this Sunday, Prime Minister Junichiro Koizumi is betting he can win a mandate to engineer a shift no other Japanese leader has ever dared. His goal: To cut off the decades-long tradition of propping up Japan's declining countryside, and channel resources into the nation's successful cities and industries instead. To achieve that vision, Mr. Koizumi plans to dismantle one of the countryside's biggest crutches, the huge and unusual post office, which in addition to selling stamps also acts as a bank and insurer. It is a vast network of 26,000 offices with 280,000 public employees, plus $3 trillion in savings and life-insurance deposits. The deposits are typically funneled into public-spending projects that have boosted rural economies. That system has long been a boon to remote villages like Hiwa in the mountains of western Japan. Hiwa's 600 residents are mainly elderly and get around on electric wheelchairs. Its only industry is rice farming. Hiwa has benefited from many public-works projects through the post office, such as a new tunnel and a smooth road partly connecting the village to a neighboring town -- even though there's hardly any traffic. When the weather is bad, the local postmaster helps residents by withdrawing their cash from the post-office bank and delivering it to their doors. "It would be tough if the post office went away," says 88-year-old Shizue Miura, who walked 20 minutes to the post office recently to withdraw money. Without the branch, Ms. Miura says she would have to travel more than six miles to the next village to get her money from a different branch. Mr. Koizumi says bitter medicine is the only way for Japan to survive. The country's central government stoked rural economies for more than three decades with road and bridge projects, trying to haul up the countryside to city levels of prosperity. But the attempt to invigorate the rural economies failed. The spending added to snowballing national debt, which is now 163% of gross domestic product, the highest level among major industrialized nations. In the U.S., national debt is 66% of GDP, according to the Organization for Economic Cooperation and Development. So Mr. Koizumi is withdrawing support for villages like Hiwa. Since taking office in 2001, he has promoted a small-government recipe for Japan, slashing subsidies to the regions. "They said there's no money anymore," says Katsumasa Miyake, who leads policy planning for the prefecture government of Shimane, where Hiwa is located. "Part of the process of putting the national finances right is that the regions have to suffer." Mr. Koizumi is betting Japan's future on proven successes. That means big cities like the capital Tokyo, which is emerging from the nation's "lost decade" of economic gloom and is bustling with new office and shopping developments. It also includes private corporations, many of which have reported record profits over the past two years, spurred by deregulation and lowered corporate taxes that Mr. Koizumi put in place. Mr. Koizumi's attempt to overhaul Japan is crucial to the world's second-largest economy. The country entered a long slump in the early 1990s after its stock and property bubbles burst. When Mr. Koizumi took office, prices of land, industrial products and consumer goods were falling steadily in the economy-shrinking phenomenon known as deflation. Japan's financial system was also jammed with bad loans made during the bubble era. Since 2003, the economy has brightened, fueled by corporate cost cutting and surging exports to China's roaring manufacturing sector. Mr. Koizumi's policies have also helped. Following a bank-cleanup package in 2002, bad loans are now less than half their 2002 total of $480 billion. Unemployment has fallen to 4.4% from a 2002 peak of 5.5%. The economy grew 2% in 2003 and 1.9% in 2004, and economists are expecting similar growth this year.
3) In elections this Sunday, Japan’s Prime Minister Junichiro Koizumi, is betting he can win a mandate to engineer a shift no other Japanese leader has ever dared. His goal: To cut off the decades-long tradition of propping up Japan's declining ______, and channel resources into the nation's successful cities and industries instead.
a) auto industry
b) Class 3 cities
c) countryside Correct
d) bowling industry
4) To achieve that vision, Mr. Koizumi plans to dismantle one of the countryside's biggest crutches, the huge and unusual ______, which acts as a bank and insurer. It is a vast network of 26,000 offices with 280,000 public employees, plus $3 trillion in savings and life-insurance deposits.
a) public library
b) post office Correct
c) Tokyo Red Cross
d) Sony Alumni Club
A Massive Repair Job Begins To Fix Gulf's Broken Oil Network
By SUSAN WARREN and RUSSELL GOLD
September8,2005;PageA1
http://online.wsj.com/article/0,,SB112614371553734843,00.html
In the days after Hurricane Katrina tore through the Gulf Coast last week, the oil industry put in motion a massive effort to assess the damage left behind and restart its most important assets. El Paso Corp. converted a barge into a floating helicopter-refueling station. Enbridge Inc. installed satellite links for its network of natural-gas pipelines to keep them running from afar. Exxon Mobil Corp. sent workers across Louisiana to operate pipelines manually. And Colonial Pipeline Co. -- needing to bring in giant generators to repower its gasoline pipeline -- pulled strings to make sure trucks carrying them wouldn't be stopped by highway weight limits. The push to restart the energy patch appears to be yielding results this week, especially in refining. While power outages, flooding and battered pipelines will keep many refineries in the area from returning to full operations for days or weeks, and in some cases for months, it now appears that half of the lost refinery output in the region will be restored soon. That should mean averting a worst-case shock to the economy.
Production of oil and gas in the Gulf of Mexico is a tougher case, with many facilities, especially underwater pipelines, still not fully assessed. The Gulf accounts for about 29% of domestic oil production and 21% of domestic gas production. In all, the global fossil-fuel system is likely to remain stretched for months as a result of Katrina. As the hurricane spun north out of Louisiana and Mississippi, the U.S. slid perilously close to an energy crisis. The ability of one city-sized refinery in Baton Rouge to keep churning out gasoline amid the unfolding chaos stood in the way of that crisis. The Exxon complex, the second-largest in the U.S. after Exxon's refinery in Baytown, Texas, can handle 500,000 barrels of crude a day. It proved far enough away from the brunt of the storm to avoid direct damage. Even as it escaped, its ability to keep operating was imperiled by the severe crimp in the supply of crude oil. Some ingenious moves, including getting a legal waiver that permitted a foreign-owned tanker to ferry in crude, helped keep it going. The hurricane has underlined one of America's energy vulnerabilities: concentration. A quarter-century ago, dozens of small refineries dotted the nation. Today, a handful of giant facilities dominate oil refining. The day before Katrina hit, eight nearby refineries had completely shut down, and more than 10% of the nation's refinery capacity was idled, sending gasoline prices above $3 a gallon. In the Gulf, the storm destroyed at least 29 drilling platforms and hobbled four deep-water ones that pump about 10% of the Gulf's output. It is likely that a maze of underwater pipelines was scrambled as well, since last year's lesser hurricane, Ivan, tied some of them in knots. While the Gulf's oil and gas production is back to about 52% of normal, according to the federal Minerals Management Service, some of the rest will be time-consuming to restore because it will require repairing the complex facilities. BP PLC expects the pipelines that move oil from several of its deep-water platforms to be out of commission for weeks. It is considering using tankers to move oil ashore, such as one special tanker that's now positioned near Newfoundland, Canada. Exxon came through better than some other oil companies. Company moves both before and after the huge storm show how the industry is trying to get things back to normal as quickly as possible.
5) While power outages, flooding and battered pipelines will keep many refineries from returning to full operations for days or weeks, and in some cases for months, it now appears that ______of the lost refinery output in the region will be restored soon.
a) 25%
b) 30%
c) 50 % Correct
d) 100 %
6) Facilities in the Gulf of Mexico accounts for about ______of U.S. domestic oil production and 21% of domestic U.S. gas production.