Question 1

Accumulated over a long span of time, the tax rate on interest income

Accepted Answer

A)   removes all benefits from saving.
B)   reduces the benefits from saving by a small amount.
C)   reduces the benefits from saving by a large amount.
D)   does nor reduce any of the benefits from saving.E) B) and C)
F) A) and C)

Question 2

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

Question 3

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl...

Question 4

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)   requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment.
B)   requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability.
C)   requires the Federal Reserve to place equal weight on promoting price stability and maximum employment.
D)   says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.E) A) and D)
F) A) and C)

Question 5

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Accepted Answer

A)   in the stock market.
B)   in the foreign exchange market.
C)   in the bond market.
D)   in the labor market.E) C) and D)
F) A) and B)

Question 6

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 7

Policymakers following a "lean against the wind" policy would

Accepted Answer

A)   increase government expenditures when output is low and decrease them when output is high.
B)   increase government expenditures when output is low and do nothing when output is high.
C)   decrease government expenditures when output is low and increase them when output is high.
D)   decrease government expenditures when output is high and do nothing when output is low.E) A) and B)
F) A) and C)

Question 8

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) B) and D)

Question 9

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Accepted Answer

A)   increased the money supply because it was concerned about unemployment.
B)   increased the money supply because it was concerned about inflation.
C)   decreased the money supply because it was concerned about unemployment.
D)   decreased the money supply because it was concerned about inflation.E) None of the above
F) B) and C)

Question 10

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 11

The national debt

Accepted Answer

A)   exists because of past government budget deficits.
B)   is the difference between the government's spending and revenue in a given year.
C)   is the amount households owe on credit cards, mortgages and other loans.
D)   is the amount household and firms have borrowed minus the amount they have saved.E) A) and B)
F) B) and C)

Question 12

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 13

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 14

In the Summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Accepted Answer

A)   shift aggregate demand to the right.
B)   increase output.
C)   increase unemployment.
D)   increase prices.E) None of the above
F) A) and B)

Question 15

Which of the following is an argument against trying to use policy to stabilize the economy?

Accepted Answer

A)   Recessions represent a waste of resources.
B)   Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C)   "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D)   Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.E) All of the above
F) A) and D)

Question 16

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

Question 17

The average U.S. citizens' share of the government debt represents about 1 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 18

If the budget deficit were reduced

Accepted Answer

A)   interest rates and investment would increase.
B)   interest rates would increase and investment would decrease.
C)   interest rates and investment would decrease.
D)   interest rates would decrease and investment would increase.E) A) and B)
F) A) and C)

Question 19

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Accepted Answer

A)   the income effect and the substitution effect
B)   the income effect but not the substitution effect
C)   the substitution effect but not the income effect
D)   neither the substitution effect nor the income effectE) A) and D)
F) A) and C)

Question 20

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 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) A) and B)
F) None of the above

Exam 18: Six Debates Over Macroeconomic Policy

Which of the following is an argument against trying to use policy to stabilize the economy?

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A 1977 amendment to the Federal Reserve Act of 1913

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Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct AnswerverifiedShow Answer

Accumulated over a long span of time, the tax rate on interest income

Correct AnswerverifiedShow Answer

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Correct AnswerverifiedShow Answer

If the budget deficit were reduced

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Correct AnswerverifiedShow Answer

The average U.S. citizens' share of the government debt represents about 1 percent of a person's lifetime income.

Correct AnswerverifiedShow Answer

"Leaning against the wind" is exemplified by a

Correct AnswerverifiedShow Answer

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct AnswerverifiedShow Answer

The national debt

Correct AnswerverifiedShow Answer

Policymakers following a "lean against the wind" policy would

Correct AnswerverifiedShow Answer

In the Summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Correct AnswerverifiedShow Answer

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct AnswerverifiedShow Answer

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. This change would be expected to have

Correct AnswerverifiedShow Answer

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct AnswerverifiedShow Answer

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If inflation is usually about what peopl...
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