Question 1

If there is an increase in the money supply,in the short run

Accepted Answer

A)  the interest rises.It takes several weeks for spending to fully respond to this change.
B)  the interest rises.It takes several months for spending to fully respond to this change.
C)  the interest falls.It takes several weeks for spending to fully respond to this change.
D)  the interest falls.It takes several months for spending to fully respond to this change.E) A) and B)
F) A) and D)

Question 2

Which of the following would transfer wealth from old to young?

Accepted Answer

A)  Increases in the budget deficit.
B)  Decreased building of highways and bridges.
C)  More generous education subsidies.
D)  Indexation of Social Security benefits to inflation.E) A) and D)
F) A) and C)

Question 3

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) B) and C)

Question 4

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)  The cost of something is what you give up to get it (Principle 2) .
B)  Trade can make everyone better off (Principle 5) .
C)  Markets are usually a good way to organize economic activity (Principle 6) .
D)  A country's standard of living depends on its ability to produce goods and services (Principle 8) .E) A) and C)
F) C) and D)

Question 5

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

Question 6

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) B) and D)

Question 7

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 8

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Accepted Answer

A) True 
 B)False

Question 9

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 10

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A)  time inconsistency of policy
B)  flexibility to confront unforeseen circumstances
C)  political business cycle
D)  the ability to craft rules that account for all possible contingencies in advanceE) None of the above
F) A) and B)

Question 11

The time inconsistency of monetary policy means that

Accepted Answer

A)  once people have formed expectations of low inflation based on a promise by the central bank,the central bank is tempted to raise inflation to lower unemployment.
B)  at some times central banks think it is more important to keep unemployment low; at other times,they think it is more important to keep inflation low.
C)  monetary policy is not consistent across time because it is influenced by politics.
D)  monetary policy is not consistent across time because policymakers are incompetent.E) C) and D)
F) None of the above

Question 12

Higher saving is associated with

Accepted Answer

A)  a larger capital stock and a higher standard of living.
B)  a larger capital stock but not a higher standard of living.
C)  a higher standard of living but not a larger capital stock.
D)  neither a higher standard of living nor a higher capital stock.E) None of the above
F) A) and B)

Question 13

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Accepted Answer

A) True 
 B)False

Question 14

Government deficits mean that

Accepted Answer

A)  national saving is negative so public saving is negative
B)  national saving is negative so public saving is lower than otherwise.
C)  public saving is negative so national saving is negative
D)  public saving is negative so national saving is lower than otherwise.E) None of the above
F) A) and B)

Question 15

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

The debt can grow because the economy gr...

Question 17

Means-tested programs tend to favor

Accepted Answer

A)  those with high income as would a consumption tax.
B)  those with high income while a consumption tax would favor those with low income.
C)  those with low income as would a consumption tax.
D)  those with low income while a consumption tax would favor those with high income.E) B) and C)
F) A) and B)

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

Question 19

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)  the government raise taxes or cut expenditures.This would increase the magnitude of economic fluctuations.
B)  the government raise taxes or cut expenditures.This would decrease the magnitude of economic fluctuations.
C)  the government cut taxes or raise expenditures.This would increase the magnitude of economic fluctuations.
D)  the government cut taxes or raise expenditures.This would decrease the magnitude of economic fluctuations.E) A) and B)
F) All of the above

Question 20

Tax policy changes that favor people who save will

Accepted Answer

A)  favor low-income households.
B)  favor people with high income.
C)  create a more egalitarian society.
D)  unambiguously increase national saving.E) All of the above
F) A) and D)

Exam 37: Six Debates Over Macroeconomic Policy

Opponents of using policy to stabilize the economy generally believe that

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Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

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If there is an increase in the money supply,in the short run

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Means-tested programs tend to favor

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Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

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In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

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Higher saving is associated with

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Tax policy changes that favor people who save will

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A balanced budget would require that when real GDP was growing rapidly,

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Which of the following is not correct?

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An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

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Government deficits mean that

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Which of the following would transfer wealth from old to young?

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Tax cuts affect only aggregate demand not aggregate supply.

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Which of the following is correct?

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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

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

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

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

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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

The time inconsistency of monetary policy means that

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The debt can grow because the economy gr...
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Those who oppose stabilization policy mo...
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