Question 1

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Accepted Answer

A)   cutting taxes and increasing expenditures. The effect of the tax cut is larger.
B)   cutting taxes and increasing expenditures. The effect of the tax cut is smaller.
C)   raising taxes and decreasing expenditures. The effect of the tax increase is larger.
D)   raising taxes and decreasing expenditures. The effect of the tax increase is smaller.E) A) and C)
F) A) and B)

Question 2

Which of the following is correct?

Accepted Answer

A)   No forms of capital income are taxed twice.
B)   The tax code cannot be rewritten to provide greater incentive to save.
C)   Means-tested benefits increase the incentive to save.
D)   There is a correlation between national savings rates and measures of economic well-being.E) A) and C)
F) A) and B)

Question 3

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 shifts aggregate demand further right.
B)   decrease the money supply, which shifts aggregate demand left.
C)   increase the money supply, which shifts aggregate demand further right.
D)   increase the money supply, which shifts aggregate demand left.E) B) and D)
F) B) and C)

Question 4

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

Question 5

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 6

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Accepted Answer

During this time the Fed achieved and ma...

Question 7

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   135 billion
B)   143 billion
C)   169 billion
D)   175 billionE) C) and D)
F) None of the above

Question 8

Stimulus spending in 2009 was used for

Accepted Answer

A)   building roads and bridges.
B)   providing aid to local and state governments.
C)   making payments to the unemployed.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 9

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

Question 10

If tax rates are raised to avoid a deficit during a recession, then

Accepted Answer

A)   real GDP and deadweight loss from taxes will rise.
B)   real GDP will rise and deadweight loss from taxes will fall.
C)   real GDP will fall and deadweight loss from taxes will rise.
D)   real GDP and deadweight loss from taxes will fall.E) None of the above
F) B) and D)

Question 11

Why might reforms to encourage saving lead to a less egalitarian society?

Accepted Answer

Taxing saving at a lower rate ...

Question 12

An increase in the money supply

Accepted Answer

A)   reduces interest rates and shifts aggregate demand to the right.
B)   reduces interest rates and shifts aggregate supply to the right
C)   raises interest rates and shifts aggregate demand to the right.
D)   raises interest rates and shifts aggregate supply to the right.E) B) and D)
F) B) and C)

Question 13

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

A)   menu costs.
B)   aggregate supply shocks.
C)   negative real interest rates.
D)   recessions.E) C) and D)
F) A) and D)

Question 14

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) A) and D)

Question 15

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 supply shifts left, the central bank must

Accepted Answer

A)   decrease the money supply so interest rates rise.
B)   decrease the money supply so interest rates fall.
C)   increase the money supply so interest rates rise.
D)   increase the money supply so interest rates fall.E) A) and B)
F) A) and C)

Question 16

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)   The income effect, but not the substitution effect, would tend to reduce private saving.
B)   The substitution effect, but not the income effect, would tend to reduce private saving.
C)   Both the income and substitution effect would tend to reduce private saving.
D)   Neither the income nor the substitution effect would tend to reduce private saving.E) A) and B)
F) A) and C)

Question 17

Explain how tax provisions to encourage private saving may reduce national saving.

Accepted Answer

Without careful planning it is possible ...

Question 18

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Accepted Answer

A)   5%
B)   10%
C)   15%
D)   20%E) All of the above
F) C) and D)

Question 19

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

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) A) and C)

Question 20

Which of the following can tax cuts influence?

Accepted Answer

A)   aggregate demand and aggregate supply
B)   aggregate demand but not aggregate supply
C)   aggregate supply but not aggregate demand
D)   neither aggregate demand nor aggregate supplyE) A) and D)
F) None of the above

Exam 18: Six Debates Over Macroeconomic Policy

An added benefit of inflation is that it allows for the possibility of

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Explain how tax provisions to encourage private saving may reduce national saving.

Correct AnswerverifiedWithout careful planning it is possible ...View AnswerShow Answer

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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If tax rates are raised to avoid a deficit during a recession, then

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Which of the following can tax cuts influence?

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Which of the following is correct?

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Tax cuts affect only aggregate demand not aggregate supply.

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What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Correct AnswerverifiedDuring this time the Fed achieved and ma...View AnswerShow Answer

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

Correct AnswerverifiedShow Answer

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

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 supply shifts left, the central bank must

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Economists

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Why might reforms to encourage saving lead to a less egalitarian society?

Correct AnswerverifiedTaxing saving at a lower rate ...View AnswerShow 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

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

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Stimulus spending in 2009 was used for

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An increase in the money supply

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According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Correct AnswerverifiedShow Answer

Suppose the tax rate on interest income from saving were reduced.

Correct AnswerverifiedShow Answer

Which of the following are taxed?

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Without careful planning it is possible ...
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During this time the Fed achieved and ma...
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Taxing saving at a lower rate ...
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