Question 1

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Accepted Answer

Government spending exceeds tax revenues...

Question 2

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Accepted Answer

A)   would have to increase the money supply. This would move unemployment closer to the natural rate.
B)   would have to increase the money supply. This would move unemployment further from the natural rate.
C)   would have to decrease the money supply. This would move unemployment closer to the natural rate.
D)   would have to decrease the money supply. This would move unemployment further from the natural rate.E) None of the above
F) C) and D)

Question 3

IRAs, and 401k)  and 403b)  plans

Accepted Answer

A)   impose added taxes on those who save.
B)   place no limits on the amount people can deposit into these programs.
C)   impose penalties for withdrawals except under certain circumstances.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 4

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Accepted Answer

A)   high and the reduction is unexpected.
B)   high and the reduction is expected.
C)   low and the reduction is unexpected.
D)   low and the reduction is expected.E) A) and B)
F) B) and C)

Question 5

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $226.0 billion
B)   about $248.6 billion
C)   about $474.6 billion
D)   about $561.8 billionE) B) and C)
F) B) and D)

Question 6

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

Question 7

Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 500 billion units of currency and current nominal national debt of 100 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to income ratio constant?

Accepted Answer

A)   government spending equal to 50 billion units and tax collections equal to 48 billion units
B)   government spending equal to 50 billion units and tax collections equal to 41 billion units
C)   government spending equal to 50 billion units and tax collections equal to 40 billion units
D)   government spending equal to 50 billion units and tax collections equal to 32 billion unitsE) A) and B)
F) A) and C)

Question 8

Which of the following reduce the incentive for households to save?

Accepted Answer

A)   both means-testing of government benefits and inheritance taxes
B)   means-testing of government benefits but not inheritance taxes
C)   inheritance taxes, but not means-testing of government benefits
D)   neither means-testing of government benefits nor inheritance taxesE) B) and C)
F) A) and C)

Question 9

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Accepted Answer

A)   about 414.9 billion
B)   about 404.8 billion
C)   about 253.0 billion
D)   about 161.9 billionE) B) and C)
F) None of the above

Question 10

Means-tested college aid, base college aid primarily on

Accepted Answer

A)   a student's abilities, and create an incentive to save.
B)   a student's abilities but create 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) C) and D)
F) A) and B)

Question 11

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

Accepted Answer

A)   its substitution effect on saving and its effect on the government budget
B)   its substitution effect on saving but not its effect on the government budget
C)   its effect on the government budget but not its substitution effect on saving
D)   neither its substitution effect on saving nor its effect on the government budgetE) All of the above
F) A) and B)

Question 12

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Accepted Answer

A)   The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict.
B)   The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict.
C)   The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict.
D)   The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.E) B) and D)
F) A) and D)

Question 13

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 14

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

Question 15

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

Accepted Answer

A)   the short-run Phillips curve shifts right, and unemployment will rise by more than otherwise.
B)   the short-run Phillips curve shifts right, and unemployment will rise by less than otherwise.
C)   the short-run Phillips curve shifts left, and unemployment will rise by more than otherwise.
D)   the short-run Phillips curve shifts left, and unemployment will rise by less than otherwise.E) A) and B)
F) None of the above

Question 16

Paul Volcker's inflation reduction efforts

Accepted Answer

A)   failed to reduce inflation.
B)   failed to reduce expected inflation.
C)   resulted in the highest unemployment rate since the Great Depression.
D)   none of the above are correct.E) A) and D)
F) None of the above

Question 17

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) All of the above

Question 18

Time inconsistency will cause the

Accepted Answer

A)   short-run Phillips curve to be higher than otherwise.
B)   short-run Phillips curve to be lower the otherwise.
C)   long-run Phillips curve to be farther to the right than otherwise.
D)   long-run Phillips curve to be farther left than otherwise.E) C) and D)
F) A) and B)

Question 19

The Federal Reserve

Accepted Answer

A)   does not have an inflation target; if it did it would likely be 1% or less.
B)   does not have an inflation target; if it did it would likely be in the range of 2%.
C)   does have an inflation target; it is 1%.
D)   does have an inflation target; it is a range from 1-3%.E) All of the above
F) None of the above

Question 20

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

Exam 18: Six Debates Over Macroeconomic Policy

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 Answer
verified

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Correct Answer
verified

Correct Answer
verified

The Federal Reserve

Correct Answer
verified

Which of the following reduce the incentive for households to save?

Correct Answer
verified

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

Correct Answer
verified

Paul Volcker's inflation reduction efforts

Correct Answer
verified

Time inconsistency will cause the

Correct Answer
verified

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Correct Answer
verified

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Correct Answer
verified
Government spending exceeds tax revenues...
View Answer

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Correct Answer
verified

Means-tested college aid, base college aid primarily on

Correct Answer
verified

The principal lag for monetary policy

Correct Answer
verified

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
verified

IRAs, and 401k) and 403b) plans

Correct Answer
verified

Economists

Correct Answer
verified

Why do many economists advocate a consumption tax rather than an income tax?

Correct Answer
verified
The current income tax means that income...
View Answer

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Correct Answer
verified

In theory the severity of recessions can be diminished with

Correct Answer
verified

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

Correct Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

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

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

Which of the following reduce the incentive for households to save?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Paul Volcker's inflation reduction efforts

Correct AnswerverifiedShow Answer

Time inconsistency will cause the

Correct AnswerverifiedShow Answer

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Correct AnswerverifiedShow Answer

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Correct AnswerverifiedGovernment spending exceeds tax revenues...View AnswerShow Answer

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Correct AnswerverifiedShow Answer

Means-tested college aid, base college aid primarily on

Correct AnswerverifiedShow Answer

The principal lag for monetary policy

Correct AnswerverifiedShow Answer

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

IRAs, and 401k) and 403b) plans

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

Why do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Correct AnswerverifiedShow Answer

In theory the severity of recessions can be diminished with

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Government spending exceeds tax revenues...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The current income tax means that income...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified