Question 1

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

A)   increase taxes, increase government spending
B)   increase taxes, decrease government spending
C)   decrease taxes, increase government spending
D)   decrease taxes, decrease government spendingE) A) and B)
F) None of the above

Question 2

Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Question 3

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Accepted Answer

Tax cuts affect aggregate demand quickly...

Question 4

Which inflation costs could the government take actions to reduce without reducing inflation?

Accepted Answer

A)   shoeleather and menu costs
B)   menu costs and relative price variability
C)   unintended changes in tax liabilities and arbitrary redistributions of wealth
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 5

The argument that an increase in government expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that

Accepted Answer

A)   tax cuts have no multiplier affect.
B)   people will save part of a tax cut.
C)   an increase in consumption expenditures has a smaller effect on real GDP than an equal increase in government expenditures.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 6

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 7

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 8

If inflation falls,

Accepted Answer

A)   people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
B)   people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.
C)   people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
D)   people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.E) None of the above
F) A) and B)

Question 9

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Accepted Answer

A)   left, and the sacrifice ratio will be low.
B)   left, and the sacrifice ratio will be high.
C)   right, and the sacrifice ratio will be low.
D)   right, and the sacrifice ratio will be high.E) A) and B)
F) None of the above

Question 10

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)   The cost of something is what you give up to get it (Principle 2) .
B)   Trade can make everyone better off (Principle 5) .
C)   Markets are usually a good way to organize economic activity (Principle 6) .
D)   A country's standard of living depends on its ability to produce goods and services (Principle 8) .E) A) and B)
F) All of the above

Question 11

Of means tested programs and IRA's, which lower the rate of return on saving?

Accepted Answer

A)   Both means-tested programs and IRA's.
B)   Means-tested programs, but not IRA's.
C)   IRA's but not means-tested programs.
D)   Neither means-tested program, or IRA's.E) A) and B)
F) A) and C)

Question 12

The Federal Open Market Committee

Accepted Answer

A)   operates with almost complete discretion over monetary policy.
B)   is required to increase the money supply by a given growth rate each year.
C)   is required to keep the interest rate within a range set by Congress.
D)   is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.E) None of the above
F) A) and B)

Question 13

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo...

Question 14

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3% and inflation was 2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $94 billion
B)   about $470 billion
C)   about $540 billion
D)   None of the above are correct.E) None of the above
F) All of the above

Question 15

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 16

Proponents of tax-law changes to encourage saving would

Accepted Answer

A)   argue that corporate tax rates should be decreased.
B)   increase the number of government benefits which are means-tested.
C)   argue that state sales tax should be replaced with state income tax.
D)   favor none of the above programs.E) C) and D)
F) B) and D)

Question 17

In response to recession, who primarily cut taxes rather than raised expenditures?

Accepted Answer

A)   President George W. Bush and President Barack Obama
B)   President George W. Bush but not President Barack Obama
C)   President Barack Obama but not President George W. Bush
D)   Neither President George W. Bush and President Barack ObamaE) A) and C)
F) A) and B)

Question 18

Which of the following is correct?

Accepted Answer

A)   Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle.
B)   Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle.
C)   Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle.
D)   Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycleE) All of the above
F) None of the above

Question 19

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Accepted Answer

A)   interest rates and output would rise.
B)   interest rates would rise and output would fall.
C)   interest rates would fall and output would rise.
D)   interest rates and output would fall.E) A) and B)
F) A) and C)

Question 20

Part of the lag in monetary policy effects is due to

Accepted Answer

A)   the long political process of monetary policy decisions.
B)   precise economic forecasts.
C)   the time required for firms and households to alter their spending plans.
D)   changes in the unemployment rate.E) C) and D)
F) All of the above

Exam 18: Six Debates Over Macroeconomic Policy

Proponents of tax-law changes to encourage saving would

Correct AnswerverifiedShow Answer

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3% and inflation was 2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

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If inflation falls,

Correct AnswerverifiedShow Answer

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Correct AnswerverifiedThose who oppose stabilization policy mo...View AnswerShow Answer

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

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Part of the lag in monetary policy effects is due to

Correct AnswerverifiedShow Answer

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Correct AnswerverifiedShow Answer

Of means tested programs and IRA's, which lower the rate of return on saving?

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Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions a...View AnswerShow Answer

The Federal Open Market Committee

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Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Correct AnswerverifiedTax cuts affect aggregate demand quickly...View AnswerShow Answer

Which of the following is correct?

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The argument that an increase in government expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that

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Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

Correct AnswerverifiedShow Answer

Which inflation costs could the government take actions to reduce without reducing inflation?

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct AnswerverifiedShow Answer

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct AnswerverifiedShow Answer

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct AnswerverifiedShow Answer

In response to recession, who primarily cut taxes rather than raised expenditures?

Correct AnswerverifiedShow Answer

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Those who oppose stabilization policy mo...
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Fluctuations in the economy-recessions a...
View Answer

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Tax cuts affect aggregate demand quickly...
View Answer

Correct Answer
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