Question 1

Proponents of zero inflation argue that reducing inflation has

Accepted Answer

A)   permanent costs and temporary benefits.
B)   temporary costs and permanent benefits.
C)   permanent costs and benefits.
D)   temporary costs and benefits.E) A) and B)
F) None of the above

Question 2

The average person's share of the U.S.government debt as a percentage of lifetime income is

Accepted Answer

A)   less than 2 percent.
B)   about 5 percent.
C)   about 10 percent.
D)   over 12 percent.E) A) and D)
F) B) and C)

Question 3

A policymaker in favor of stabilizing the economy would be likely to believe

Accepted Answer

A)   recessions are a waste of resources.
B)   economies must suffer through the booms and busts of the business cycle.
C)   the long policy lags make implementing policy changes in response to recession too risky.
D)   policy exacerbates the magnitude of economic fluctuations.E) A) and B)
F) None of the above

Question 4

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Accepted Answer

A)   Avoid unexpected changes in the inflation rate.
B)   Rewrite the tax laws so that nominal gains were taxed instead of real gains.
C)   Make policy that would discourage firms from issuing indexed bonds.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 5

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 6

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

Accepted Answer

A)   the long-run Phillips curve would shift right.
B)   the long-run Phillips curve would shift left.
C)   the short-run Phillips curve would shift up.
D)   the short-run Phillips curve would shift down.E) B) and C)
F) A) and D)

Question 7

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) B) and C)
F) C) and D)

Question 8

Which of the following is an argument in favor of a balanced budget rule?

Accepted Answer

A)   Some economists believe that rules are better than discretion.
B)   Per-capita debt is small relative to lifetime income.
C)   The effect of deficit spending on future generations depends in part on what the government buys.
D)   Other government policies also redistribute income across generations.E) C) and D)
F) A) and B)

Question 9

List two costs of inflation.

Accepted Answer

shoeleather costs,menu costs,g...

Question 10

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment...

Question 11

Higher inflation results in

Accepted Answer

A)   more frequent price changes and increased variability of relative prices.
B)   more frequent price changes and decreased variability of relative prices.
C)   less frequent price changes and increased variability of relative prices.
D)   less frequent price changes and decreased variability of relative prices.E) A) and D)
F) B) and C)

Question 12

The laws that created the Fed give it only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency.Which of the following government spending and taxation figures will not raise the debt-to-income ratio?

Accepted Answer

A)   government spending equal to 50 billion units and tax collections equal to 76 billion units
B)   government spending equal to 50 billion units and tax collections equal to 14 billion units
C)   government spending equal to 50 billion units and tax collections equal to 10 billion units
D)   government spending equal to 50 billion units and tax collections equal to 8 billion unitsE) A) and C)
F) All of the above

Question 14

Consider the following rule for monetary policy: r = 2 percent +  π\piπ + 1/2(y - y*) /y* + 1/2(  π\piπ -   π\piπ *) ,where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output,  π\piπ  is the inflation rate,and   π\piπ * is the inflation target.Which of the following statements is not correct?

Accepted Answer

A)   If aggregate demand shifts right from long-run equilibrium,this rule unambiguously implies that the Fed increases the nominal interest rate.
B)   If aggregate supply shifts right from long-run equilibrium at the inflation target,we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate.
C)   If output is at its natural level,but inflation is above its target,the Fed must increase the nominal interest rate.
D)   If inflation is at its targeted level,but output is above its natural rate,the Fed must decrease the federal funds rate. E) None of the above
F) C) and D)

Question 15

Which of the following are both correct?

Accepted Answer

A)   Data show no correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the income effect.
B)   Data show no correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the substitution effect.
C)   Data show a positive correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the income effect.
D)   Data show a positive correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the substitution effect.E) A) and D)
F) None of the above

Question 16

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 17

Which of the following likely occurs when households and firms are pessimistic?

Accepted Answer

A)   Increased spending,increased aggregate demand,rising real GDP and a falling unemployment rate.
B)   Decreased spending,increased aggregate demand,rising real GDP and a falling unemployment rate.
C)   Decreased spending,decreased aggregate demand,falling real GDP and a falling unemployment rate.
D)   Decreased spending,decreased aggregate demand,falling real GDP and a rising unemployment rate.E) B) and C)
F) A) and D)

Question 18

Policies that reduce the incentive for households to save include

Accepted Answer

A)   means-testing.
B)   College and university financial aid administration.
C)   inheritance taxes.
D)   All of the above.E) None of the above
F) B) and C)

Question 19

Explain what is meant by saying that capital income is taxed twice,

Accepted Answer

Shareholders are part owners o...

Question 20

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) B) and C)
F) None of the above

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following likely occurs when households and firms are pessimistic?

Correct Answer
verified

An economist would be more likely to argue against reducing inflation if she thought that

Correct Answer
verified

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

Correct Answer
verified

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?

Correct Answer
verified

Which of the following is an argument in favor of a balanced budget rule?

Correct Answer
verified

Correct Answer
verified

A recession has no benefit to society-it represents a sheer waste of resources.

Correct Answer
verified

Correct Answer
verified

Higher inflation results in

Correct Answer
verified

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct Answer
verified

List two costs of inflation.

Correct Answer
verified
shoeleather costs,menu costs,g...
View Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.

Correct Answer
verified

The average person's share of the U.S.government debt as a percentage of lifetime income is

Correct Answer
verified

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 Answer
verified
Those who oppose stabilization policy mo...
View Answer

Explain what is meant by saying that capital income is taxed twice,

Correct Answer
verified
Shareholders are part owners o...
View Answer

Which of the following are both correct?

Correct Answer
verified

A policymaker in favor of stabilizing the economy would be likely to believe

Correct Answer
verified

Policies that reduce the incentive for households to save include

Correct Answer
verified

Proponents of zero inflation argue that reducing inflation has

Correct Answer
verified

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Correct Answer
verified
Investment...
View Answer

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following likely occurs when households and firms are pessimistic?

Correct AnswerverifiedShow Answer

An economist would be more likely to argue against reducing inflation if she thought that

Correct AnswerverifiedShow Answer

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

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?

Correct AnswerverifiedShow Answer

Which of the following is an argument in favor of a balanced budget rule?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A recession has no benefit to society-it represents a sheer waste of resources.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Higher inflation results in

Correct AnswerverifiedShow Answer

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct AnswerverifiedShow Answer

List two costs of inflation.

Correct Answerverifiedshoeleather costs,menu costs,g...View AnswerShow Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.

Correct AnswerverifiedShow Answer

The average person's share of the U.S.government debt as a percentage of lifetime income is

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

Explain what is meant by saying that capital income is taxed twice,

Correct AnswerverifiedShareholders are part owners o...View AnswerShow Answer

Which of the following are both correct?

Correct AnswerverifiedShow Answer

A policymaker in favor of stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

Policies that reduce the incentive for households to save include

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that reducing inflation has

Correct AnswerverifiedShow Answer

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Correct AnswerverifiedInvestment...View AnswerShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
shoeleather costs,menu costs,g...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Those who oppose stabilization policy mo...
View Answer

Correct Answer
verified
Shareholders are part owners o...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Investment...
View Answer