Question 1

Paul Volcker, former chair of the Fed, implemented

Accepted Answer

A)  contractionary policy which increased the popularity of the U.S. president who had appointed him.
B)  contractionary policy which decreased the popularity of the U.S. president who had appointed him.
C)  expansionary policy which increased the popularity of the U.S. president who had appointed him.
D)  expansionary policy which decreased the popularity of the U.S. president who had appointed him.E) A) and D)
F) A) and C)

Question 2

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

Question 3

If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if

Accepted Answer

A)  real GDP rose and the inflation rate were positive.
B)  real GDP rose and the inflation rate were negative.
C)  real GDP fell and the inflation rate were positive.
D)  real GDP fell and the inflation rate were negative.E) A) and B)
F) A) and D)

Question 4

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

Accepted Answer

A)  increase the money supply, increase taxes
B)  increase the money supply, cut taxes
C)  decrease the money supply, increase taxes
D)  decrease the money supply, cut taxesE) All of the above
F) C) and D)

Question 5

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Accepted Answer

A)  some forms of capital income are taxed twice
B)  if they are large enough, bequests are taxed
C)  both a and b
D)  neither a nor bE) B) and D)
F) A) and D)

Question 6

As it is usually practiced, inflation targeting sets

Accepted Answer

A)  a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number.
B)  a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number.
C)  sets some range of inflation rates for the central bank to target but prohibits it from deviating from that range even when some shock pushes inflation outside the range.
D)  sets some range of inflation rates for the central bank to target but allows it to deviate from that range even when some shock pushes inflation outside the range.E) A) and B)
F) A) and C)

Question 7

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

Accepted Answer

A)  Increased spending.
B)  Increased aggregate demand.
C)  Real GDP rises.
D)  The unemployment rate increases.E) B) and C)
F) A) and B)

Question 8

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase 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 C)
F) None of the above

Question 9

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)  its income effect on saving and its effect on the government budget
B)  its income effect on saving but not its effect on the government budget
C)  its effect on the government budget but not its income effect on saving
D)  neither its income effect on saving nor its effect on the government budgetE) A) and B)
F) A) and C)

Question 10

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A)  economists disagree over basic issues such as the importance of saving for economic growth.
B)  there are tradeoffs and people disagree about the best way to deal with them.
C)  politicians offer misleading information.
D)  people fail to clearly see the benefits or the costs of most changes.E) A) and C)
F) B) and C)

Question 11

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Accepted Answer

A)  buy bonds. These purchases also move the price level closer to its original level.
B)  buy bonds. However these purchases move the price level farther from its original level.
C)  sell bonds. These sales also move the price level closer to its original level.
D)  sell bonds. However these sales move the price level farther from its original level.E) A) and D)
F) A) and B)

Question 12

A reduction in the tax rate on income from saving would

Accepted Answer

A)  most directly benefit the poor in the short run.
B)  increase real wages over time.
C)  decrease the capital stock over time.
D)  decrease productivity over time.E) A) and D)
F) B) and D)

Question 13

The time inconsistency of policy implies that

Accepted Answer

A)  what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)  when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply.
C)  people will believe Fed policy will be more inflationary than the Fed claims.
D)  what policymakers say they will do is usually not what they do, but people believe them anyway.E) A) and B)
F) A) and D)

Question 14

The principal lag for monetary policy

Accepted Answer

A)  and fiscal policy is the time it takes to implement policy.
B)  and fiscal policy is the time it takes for policy to change spending.
C)  is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending.
D)  is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.E) B) and C)
F) A) and D)

Question 15

All of the following are arguments against stabilization policy except

Accepted Answer

A)  Economic forecasting is highly imprecise.
B)  Long lags may cause stabilization policies to in fact destabilize the economy.
C)  Monetary policy affects aggregate demand by changing interest rates.
D)  Fiscal policy must go through a long political process.E) None of the above
F) B) and C)

Question 16

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are...

Question 17

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. This change would be expected to have

Accepted Answer

A)  decreased interest rates and investment.
B)  decreased interest rates and increased investment.
C)  increased interest rates and investment.
D)  increased interest rates and decreased investment.E) C) and D)
F) None of the above

Question 18

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 19

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)  Saving is a key determinant of long-run prosperity.
B)  Current tax laws discourage saving for the purpose of leaving a large bequest.
C)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
D)  The tax code currently taxes some forms of capital income twice.E) None of the above
F) B) and D)

Question 20

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) None of the above
F) A) and D)

Exam 23: Six Debates Over Macroeconomic Policy

If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if

Correct Answer
verified

The time inconsistency of policy implies that

Correct Answer
verified

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

Correct Answer
verified

The principal lag for monetary policy

Correct Answer
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Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct Answer
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Both are prone to lags, but the lags are...
View Answer

Proponents of zero inflation argue that reducing inflation has

Correct Answer
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All of the following are arguments against stabilization policy except

Correct Answer
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Paul Volcker, former chair of the Fed, implemented

Correct Answer
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The six debates over macroeconomic policy exist mostly because

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

Correct Answer
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A reduction in the tax rate on income from saving would

Correct Answer
verified

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. This change would be expected to have

Correct Answer
verified

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Correct Answer
verified

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct Answer
verified

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Correct Answer
verified

As it is usually practiced, inflation targeting sets

Correct Answer
verified

Explain the time inconsistency of monetary policy.

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

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct Answer
verified

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

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy

If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if

Correct AnswerverifiedShow Answer

The time inconsistency of policy implies that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The principal lag for monetary policy

Correct AnswerverifiedShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags, but the lags are...View AnswerShow Answer

Proponents of zero inflation argue that reducing inflation has

Correct AnswerverifiedShow Answer

All of the following are arguments against stabilization policy except

Correct AnswerverifiedShow Answer

Paul Volcker, former chair of the Fed, implemented

Correct AnswerverifiedShow Answer

The six debates over macroeconomic policy exist mostly because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A reduction in the tax rate on income from saving would

Correct AnswerverifiedShow Answer

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. This change would be expected to have

Correct AnswerverifiedShow Answer

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Correct AnswerverifiedShow Answer

As it is usually practiced, inflation targeting sets

Correct AnswerverifiedShow Answer

Explain the time inconsistency of monetary policy.

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

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Both are prone to lags, but the lags are...
View Answer

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

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