Question 1

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 2

Which of the following is correct?

Accepted Answer

A)   Deficits always require people to consume at the expense of their children.
B)   If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C)   If the government is in debt it must be running a deficit currently.
D)   The current government debt is a large share of lifetime income.E) B) and C)
F) C) and D)

Question 3

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) B) and D)
F) All of the above

Question 4

The Fed lowered interest rates in 2007 and 2008.This implies,other things the same,that the Fed

Accepted Answer

A)   increased the money supply because it was concerned about unemployment.
B)   increased the money supply because it was concerned about inflation.
C)   decreased the money supply because it was concerned about unemployment.
D)   decreased the money supply because it was concerned about inflation.E) B) and C)
F) A) and B)

Question 5

During recessions,even with no changes in policy,the deficit tends to ______ because _____________.

Accepted Answer

rise,income falls so tax reven...

Question 6

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 D)
F) A) and C)

Question 7

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate supply shifts left,the central bank must

Accepted Answer

A)   decrease the money supply,which will move output back towards its long-run level.
B)   decrease the money supply,which will move output farther from its long-run level.
C)   increase the money supply,which will move output back towards its long-run level.
D)   increase the money supply,which will move output farther from its long-run level.E) All of the above
F) A) and B)

Question 8

In addition to the tax code,other policies reduce the incentives for people to save Provide an example.

Accepted Answer

Some government benefits are m...

Question 9

Which of the following is correct?

Accepted Answer

A)   Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)   Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)   Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)   Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.E) B) and C)
F) A) and D)

Question 10

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Question 11

If financial turmoil overseas reduces U.S.net exports,then those in favor of "lean against the wind policies" would advocate

Accepted Answer

A)   decreasing the money supply and cutting taxes.
B)   decreasing the money supply and raising taxes.
C)   increasing the money supply and cutting taxes.
D)   increasing the money supply and raising taxes.E) B) and C)
F) A) and D)

Question 12

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Accepted Answer

A)   Saving is not very responsive to changes in the tax rate.
B)   Saving is not an important determinant of a nation's ability to produce output.
C)   Reducing the budget deficit instead of changing the tax laws could raise saving.
D)   Changes in the tax laws to induce saving would distribute the tax burden less fairly.E) B) and C)
F) A) and D)

Question 13

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)   The income effect,but not the substitution effect,would tend to reduce private saving.
B)   The substitution effect,but not the income effect,would tend to reduce private saving.
C)   Both the income and substitution effect would tend to reduce private saving.
D)   Neither the income nor the substitution effect would tend to reduce private saving.E) A) and D)
F) A) and C)

Question 15

Supporters of using government expenditures to respond to recession

Accepted Answer

A)   argue that monetary policy should be used first.An increase in the money supply will reduce interest rates.
B)   argue that monetary policy should be used first.An increase in the money supply will raise interest rates.
C)   argue that monetary policy should be used only after fiscal policy has been used.An increase in the money supply will reduce interest rates.
D)   argue that monetary policy should be used only after fiscal policy has been used.An increase in the money supply will raise interest rates.E) A) and C)
F) A) and B)

Question 16

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 1 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 20 billion units and tax collections equal to 16 billion units
B)   government spending equal to 20 billion units and tax collections equal to 14 billion units
C)   government spending equal to 20 billion units and tax collections equal to 10 billion units
D)   government spending equal to 20 billion units and tax collections equal to 8 billion unitsE) C) and D)
F) A) and B)

Question 17

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output,they could

Accepted Answer

A)   increase government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will raise output above its long-run level.
B)   increase government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will reduce output to below its long-run level.
C)   decrease government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will raise output above its long-run level.
D)   decrease government expenditures.If by the time policy has been implemented the economy has moved back to long-run equilibrium,then this policy will reduce output to below its long-run level.E) B) and C)
F) A) and D)

Question 18

As compared to government spending,spending generated by a tax cut is likely to affect aggregate demand

Accepted Answer

A)   more quickly and more likely to be spent on projects with little benefit.
B)   more quickly but less likely to be spent on projects with little benefit.
C)   less quickly but more likely to be spent on projects with little benefit.
D)   less quickly and more likely to be spent on projects with little benefit.E) C) and D)
F) None of the above

Question 19

If tax rates are raised to avoid a deficit during a recession,then

Accepted Answer

A)   real GDP and deadweight loss from taxes will rise.
B)   real GDP will rise and deadweight loss from taxes will fall.
C)   real GDP will fall and deadweight loss from taxes will rise.
D)   real GDP and deadweight loss from taxes will fall.E) A) and B)
F) None of the above

Question 20

The effect of budget deficits on interest rates

Accepted Answer

A)   increases private investment,so eventually the capital stock rises.
B)   increases private investment,so eventually the capital stock falls.
C)   decreases private investment,so eventually the capital stock rises.
D)   decreases private investment,so eventually the capital stock falls.E) A) and B)
F) None of the above

Exam 36: Six Debates Over Macroeconomic Policy

Explain the time inconsistency of monetary policy.

Correct Answer
verified
Time inconsistency refers to the idea th...
View Answer

Supporters of using government expenditures to respond to recession

Correct Answer
verified

Suppose the tax rate on interest income from saving were reduced.

Correct Answer
verified

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct Answer
verified

In addition to the tax code,other policies reduce the incentives for people to save Provide an example.

Correct Answer
verified
Some government benefits are m...
View Answer

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Correct Answer
verified

The Fed lowered interest rates in 2007 and 2008.This implies,other things the same,that the Fed

Correct Answer
verified

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate supply shifts left,the central bank must

Correct Answer
verified

Correct Answer
verified

The Federal Open Market Committee

Correct Answer
verified

If tax rates are raised to avoid a deficit during a recession,then

Correct Answer
verified

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output,they could

Correct Answer
verified

During recessions,even with no changes in policy,the deficit tends to because _______.

Correct Answer
verified
rise,income falls so tax reven...
View Answer

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

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

As compared to government spending,spending generated by a tax cut is likely to affect aggregate demand

Correct Answer
verified

If financial turmoil overseas reduces U.S.net exports,then those in favor of "lean against the wind policies" would advocate

Correct Answer
verified

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct Answer
verified

The effect of budget deficits on interest rates

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Supporters of using government expenditures to respond to recession

Correct AnswerverifiedShow Answer

Suppose the tax rate on interest income from saving were reduced.

Correct AnswerverifiedShow Answer

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct AnswerverifiedShow Answer

In addition to the tax code,other policies reduce the incentives for people to save Provide an example.

Correct AnswerverifiedSome government benefits are m...View AnswerShow Answer

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Correct AnswerverifiedShow Answer

The Fed lowered interest rates in 2007 and 2008.This implies,other things the same,that the Fed

Correct AnswerverifiedShow Answer

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate supply shifts left,the central bank must

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal Open Market Committee

Correct AnswerverifiedShow Answer

If tax rates are raised to avoid a deficit during a recession,then

Correct AnswerverifiedShow Answer

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output,they could

Correct AnswerverifiedShow Answer

During recessions,even with no changes in policy,the deficit tends to ______ because _____________.

Correct Answerverifiedrise,income falls so tax reven...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

As compared to government spending,spending generated by a tax cut is likely to affect aggregate demand

Correct AnswerverifiedShow Answer

If financial turmoil overseas reduces U.S.net exports,then those in favor of "lean against the wind policies" would advocate

Correct AnswerverifiedShow Answer

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct AnswerverifiedShow Answer

The effect of budget deficits on interest rates

Correct AnswerverifiedShow Answer

Correct Answer
verified
Time inconsistency refers to the idea th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Some government benefits are m...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

During recessions,even with no changes in policy,the deficit tends to because _______.

Correct Answer
verified
rise,income falls so tax reven...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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