Question 1

If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

Accepted Answer

A)   consumption and investment both rise.
B)   consumption will rise and investment will fall.
C)   investment will fall and consumption will rise.
D)   consumption and investment will both fall.E) A) and D)
F) C) and D)

Question 2

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce shoeleather costs and permanently lower unemployment
B)   permanently reduce shoeleather costs and temporarily raise unemployment
C)   temporarily reduce shoeleather costs and temporarily lower unemployment
D)   temporarily reduce shoeleather costs and temporarily raise unemploymentE) C) and D)
F) All of the above

Question 3

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

Question 4

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is correct? In the 1990's

Accepted Answer

A)   the Fed maintained low inflation because it had to follow a policy rule.
B)   the Fed maintained low inflation even without being required to follow a policy rule.
C)   the Fed was not required to follow a policy rule and let inflation move higher.
D)   the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation move higher.E) C) and D)
F) A) and B)

Question 6

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce menu costs and permanently lower unemployment.
B)   permanently reduce menu costs and temporarily raise unemployment.
C)   temporarily reduce menu costs and temporarily lower unemployment.
D)   temporarily reduce menu costs and temporarily raise unemployment.E) C) and D)
F) B) and C)

Question 7

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 8

The Federal Open Market Committee meets about

Accepted Answer

A)   every six days.
B)   every six weeks.
C)   every six months.
D)   every sixteen months.E) A) and C)
F) A) and D) B

Question 9

In theory the severity of recessions can be diminished with

Accepted Answer

A)   an increase in government spending, which the political process cannot delay.
B)   an increase in government spending, which the length of the political process can delay.
C)   a decrease in government expenditures, which the political process cannot delay.
D)   a decrease in government spending, which the length of the political process can delay.E) A) and B)
F) All of the above

Question 10

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) C) and D)
F) A) and B)

Question 11

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Accepted Answer

A)   the long-run Phillips curve would shift right.
B)   the long-run Phillips curve would shift left.
C)   the short-run Phillips curve would shift up.
D)   the short-run Phillips curve would shift down.E) C) and D)
F) B) and C)

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

Question 13

Means-tested government benefits base benefits on

Accepted Answer

A)   a household's wealth and are an incentive to save.
B)   a household's wealth and are a disincentive to save.
C)   the current interest rate and are an incentive to save.
D)   the current interest rate and are a disincentive to save.E) All of the above
F) None of the above

Question 14

Fluctuations in employment and output result from changes in

Accepted Answer

A)   aggregate demand only.
B)   aggregate supply only.
C)   aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) All of the above
F) None of the above

Question 15

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

Accepted Answer

A)   the short-run Phillips curve would shift up.
B)   the short-run Phillips curve would shift down.
C)   the long-run Phillips curve would shift right.
D)   the long-run Phillips curve would shift left.E) B) and C)
F) A) and D)

Question 16

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

Question 17

Economists

Accepted Answer

A)   agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)   agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)   disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)   disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.E) All of the above
F) B) and D)

Question 18

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

A reduction in the tax rate on interest income

Accepted Answer

A)   raises the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is larger than the substitution effect.
B)   raises the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is smaller than the substitution effect.
C)   reduces the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is larger than the substitution effect.
D)   reduces the amount earned on savings. Saving will rise if the income effect of the reduction in the tax rate is smaller than the substitution effect.E) A) and D)
F) A) and C)

Exam 18: Six Debates Over Macroeconomic Policy

If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A recession has no benefit to society-it represents a sheer waste of resources.

Correct AnswerverifiedShow Answer

Which of the following is correct? In the 1990's

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets about

Correct AnswerverifiedB

In theory the severity of recessions can be diminished with

Correct AnswerverifiedShow Answer

An economist would be more likely to argue against reducing inflation if she thought that

Correct AnswerverifiedShow Answer

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Correct AnswerverifiedShow Answer

Higher saving is associated with

Correct AnswerverifiedA

Means-tested government benefits base benefits on

Correct AnswerverifiedShow Answer

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct AnswerverifiedShow Answer

Supporters of using government expenditures to respond to recession

Correct AnswerverifiedA

A reduction in the tax rate on interest income

Correct AnswerverifiedShow Answer

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B

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A

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A

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