Question 1

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Accepted Answer

A)  small and an increase in private saving tends to have a small impact on the capital stock.
B)  small and an increase in private saving tends to have a large impact on the capital stock.
C)  large and an increase in private saving tends to have a small impact on the capital stock.
D)  large and an increase in private saving tends to have a large impact on the capital stock.E) B) and D)
F) A) and C)

Question 2

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes,then the Phillips curve is

Accepted Answer

A)  farther to the left than otherwise.If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises.
B)  farther to the left than otherwise.If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises.
C)  farther to the right than otherwise.If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises
D)  farther to the right than otherwise.If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises..E) A) and B)
F) None of the above

Question 3

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If the public correctly perceives that the central bank will reduce inflation,then

Accepted Answer

A)  the short-run Phillips curve shifts right,and the sacrifice ratio will be higher.
B)  the short-run Phillips curve shifts right,and the sacrifice ratio will be lower.
C)  the short-run Phillips curve shifts left,and the sacrifice ratio will be higher.
D)  the short-run Phillips curve shifts left,and the sacrifice ratio will be lower.E) A) and B)
F) None of the above

Question 6

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) A) and C)
F) A) and D)

Question 7

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax increase when there is a recession.
B)  decrease in the money supply when there is an expansion.
C)  decrease in government expenditures when there is a recession.
D)  All of the above are correct.E) C) and D)
F) B) and C)

Question 8

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)  policymakers should "do no harm".
B)  there are no obstacles to the practical application of policy in real life.
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky.
D)  policy mitigates the magnitude of economic fluctuations.E) All of the above
F) A) and D)

Question 9

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) All of the above
F) A) and C)

Question 10

Some economists argue that since inflation

Accepted Answer

A)  raises the real value of fixed nominal wages,a little inflation may make it easier for labor markets to adjust.
B)  raises the real value of fixed nominal wages,a little inflation may make it harder for labor markets to adjust.
C)  reduces the real value of fixed nominal wages,a little inflation may make it easier for labor markets to adjust.
D)  reduces the real value of fixed nominal wages,a little inflation may make it harder for labor markets to adjust.E) A) and B)
F) A) and C)

Question 11

Suppose a tax cut affected aggregate demand and aggregate supply.The shift in aggregate supply would make the

Accepted Answer

A)  price level and real GDP change by more than otherwise.
B)  price level change by more than otherwise and real GDP change by less than otherwise
C)  price level change by less than otherwise and real GDP change by more than otherwise.
D)  price level and real GDP change by more than otherwiseE) All of the above
F) A) and B)

Question 12

Economists

Accepted Answer

A)  agree that the costs of moderate inflation are low and that the cost of reducing inflation is small.
B)  agree that the costs of moderate inflation are low,but disagree about the cost of reducing inflation.
C)  disagree about the costs of moderate inflation,but agree that the cost of reducing inflation is small.
D)  disagree about the costs of moderate inflation and disagree about the cost of reducing inflation.E) A) and C)
F) B) and C)

Question 13

Which of the following are taxed?

Accepted Answer

A)  both corporate profits and dividends paid to stockholders
B)  corporate profits but not dividends paid to stockholders
C)  dividends paid to stockholders but not corporate profits
D)  neither corporate profits nor dividends paid to stock holdersE) A) and D)
F) B) and C)

Question 14

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

Question 15

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) C) and D)
F) B) and D)

Question 16

The cost of inflation reduction is a large,permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 17

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 18

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 demand shifts right,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) A) and D)
F) A) and C)

Question 19

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

Accepted Answer

According to the traditional Keynesian m...

Question 20

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

Exam 37: Six Debates Over Macroeconomic Policy

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

Correct AnswerverifiedAccording to the traditional Keynesian m...View AnswerShow Answer

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

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Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Correct AnswerverifiedShow Answer

If the public correctly perceives that the central bank will reduce inflation,then

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

Correct AnswerverifiedShow Answer

Some economists argue that since inflation

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Correct AnswerverifiedShow Answer

Proponents of tax-law changes to encourage saving would

Correct AnswerverifiedShow Answer

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct AnswerverifiedShow Answer

Suppose a tax cut affected aggregate demand and aggregate supply.The shift in aggregate supply would make the

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 demand shifts right,the central bank must

Correct AnswerverifiedShow Answer

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes,then the Phillips curve is

Correct AnswerverifiedShow Answer

The principal lag for monetary policy

Correct AnswerverifiedShow Answer

Which of the following are taxed?

Correct AnswerverifiedShow Answer

A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow 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

The cost of inflation reduction is a large,permanent increase in unemployment.

Correct AnswerverifiedShow Answer

All of the following are arguments against stabilization policy except

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"Leaning against the wind" is exemplified by a

Correct AnswerverifiedShow Answer

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According to the traditional Keynesian m...
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