Question 1

Stimulus spending in 2009 was used for

Accepted Answer

A)   building roads and bridges.
B)   providing aid to local and state governments.
C)   making payments to the unemployed.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 2

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 3

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004.One of their contributions was to argue that if a central bank could convince people to expect zero inflation,then the Fed would be tempted to raise output by increasing inflation.This possibility is known as

Accepted Answer

A)   inflation targeting.
B)   the monetary policy reaction lag.
C)   the time inconsistency of policy.
D)   the sacrifice ratio dilemma.E) A) and B)
F) A) and C)

Question 4

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Accepted Answer

A)   the time inconsistency problem,but not political business cycles.
B)   the political business cycle,but not the time inconsistency problem.
C)   both the time inconsistency problem and political business cycles.
D)   neither the time inconsistency problem nor political business cycles.E) All of the above
F) A) and B)

Question 5

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr...

Question 6

The economy goes into recession.Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

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

Question 7

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 8

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A)   neither fiscal nor monetary policy have much impact on aggregate demand.
B)   attempts to stabilize the economy decrease the magnitude of economic fluctuations.
C)   unemployment and inflation are not cause for much concern.
D)   economic conditions can easily change between the start of policy action and when it takes effect.E) None of the above
F) A) and B)

Question 9

If a reduction in taxes on savings reduced the amount of private saving,then the

Accepted Answer

A)   income effect equaled the substitution effect.
B)   income effect outweighed the substitution effect.
C)   the substitution effect outweighed the income effect.
D)   None of the above.E) A) and B)
F) None of the above

Question 10

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A)   Taxes are raised to provide better education.
B)   Taxes are raised to improve government infrastructure such as roads and bridges.
C)   Taxes are raised to provide more generous Social Security benefits.
D)   None of the above transfer wealth form the young to the old.E) None of the above
F) A) and B)

Question 11

Over time continued budget deficits lead to

Accepted Answer

A)   a higher capital stock and higher real wages.
B)   a higher capital stock and lower real wages.
C)   a lower capital stock and higher real wages.
D)   a lower capital stock and lower real wages.E) A) and D)
F) All of the above

Question 12

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Accepted Answer

A)   A public budget surplus can raise national saving.
B)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
C)   Low-income households save a larger fraction of their income than high-income households.
D)   Tax cuts might cause a budget deficit.E) C) and D)
F) A) and D)

Question 13

In 2009 the federal debt was about

Accepted Answer

A)   $17 billion.
B)   $710 billion.
C)   $7.6 trillion.
D)   $76 trillion.E) A) and D)
F) None of the above

Question 14

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Accepted Answer

A)   the central bank would have to decrease the money supply which would decrease output.
B)   the central bank would have to decrease the money supply which would increase output.
C)   the central bank would have to increase the money supply which would decrease output.
D)   the central bank would have to increase the money supply which would increase output.E) A) and D)
F) C) and D)

Question 15

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Accepted Answer

A)   High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
B)   Inflation reduction works best when it is unexpected,and people in high inflation countries would quickly anticipate any change in monetary policy.
C)   In a country where inflation has been high for a long time,people are likely to have found ways to limit the costs.
D)   In a country where inflation has been high for a long time,there are no costs to the inflation.E) B) and D)
F) B) and C)

Question 16

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Accepted Answer

A) True 
 B)False

Question 17

Inflation

Accepted Answer

A)   leads people to use more resources to reduce money holdings.There is no way it can make labor markets work more efficiently.
B)   leads people to use more resources to reduce money holdings.However,it can make labor markets work more efficiently.
C)   leads people to use fewer resources to reduce money holdings.There is no way it can make labor markets work more efficiently
D)   leads people to use fewer resources to reduce money holdings.However,it can make labor markets work more efficiently.E) C) and D)
F) B) and C)

Question 18

Which of the following is not correct?

Accepted Answer

A)   Deficits give people the opportunity to consume at the expense of their children,but deficits do not require them to do so.
B)   Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)   The only times deficits have increased have been during times of war or economic downturns.
D)   Reducing the budget deficit rather than funding more education spending could,all things considered,make future generations worse off.E) B) and D)
F) B) and C)

Question 19

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

Accepted Answer

A)   increasing government spending.
B)   decreasing the money supply.
C)   increasing taxes.
D)   undertaking no policy action.E) A) and B)
F) B) and D)

Question 20

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation.Sho...

Exam 36: Six Debates Over Macroeconomic Policy

Opponents of using policy to stabilize the economy generally believe that

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Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

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Which of the following is not correct?

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Stimulus spending in 2009 was used for

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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

Inflation

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If a reduction in taxes on savings reduced the amount of private saving,then the

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Which of the programs below would transfer wealth from the young to the old?

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The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Correct AnswerverifiedShow Answer

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Over time continued budget deficits lead to

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Describe three costs of inflation.

Correct AnswerverifiedThere are several costs of inflation.Sho...View AnswerShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Correct AnswerverifiedShow Answer

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004.One of their contributions was to argue that if a central bank could convince people to expect zero inflation,then the Fed would be tempted to raise output by increasing inflation.This possibility is known as

Correct AnswerverifiedShow Answer

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Correct AnswerverifiedShow Answer

Explain how it is possible for the government debt to grow forever.

Correct AnswerverifiedThe debt can grow because the economy gr...View AnswerShow Answer

In 2009 the federal debt was about

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Correct AnswerverifiedShow Answer

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

Correct AnswerverifiedShow Answer

The economy goes into recession.Which of the following lists contains things policymakers could do to try to end the recession?

Correct AnswerverifiedShow Answer

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Tax cuts affect aggregate demand quickly...
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There are several costs of inflation.Sho...
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The debt can grow because the economy gr...
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Correct Answer
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