Question 1

From the end of 2005 to the end of 2006, the United States ran a deficit of about $309 billion. The debt at the start of this period was about $4,592 billion. Which of the following combinations of inflation and real GDP growth would have allowed the government to run this deficit while keeping the ratio of real GDP to the debt about the same?

Accepted Answer

A)   about 3% inflation and about 2.2% real GDP growth
B)   about 3% inflation and about 3.2% real GDP growth
C)   about 3.4% inflation and about 3.3% real GDP growth
D)   about 3.4% inflation and about 4% real GDP growthE) A) and C)
F) None of the above

Question 2

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance, o...

Question 3

Which of the following would likely increase private saving?

Accepted Answer

A)   both expansion of means testing and a consumption tax
B)   expansion of means testing, but not a consumption tax
C)   a consumption tax, but not expansion of means testing
D)   neither expansion of means testing nor a consumption taxE) A) and C)
F) A) and B)

Question 4

The Federal Open Market Committee

Accepted Answer

A)   must submit its policies to the President and Senate for approval.
B)   operates with almost complete discretion over monetary policy.
C)   is required to target short-term interest rates in a mechanical way based on an equation that takes into account both price stability and output fluctuations.
D)   is required to set and publicize targets for money supply growth.E) None of the above
F) B) and D)

Question 5

Proponents of tax-law changes to encourage saving would

Accepted Answer

A)   argue that corporate tax rates should be decreased.
B)   increase the number of government benefits which are means-tested.
C)   argue that state sales tax should be replaced with state income tax.
D)   favor none of the above programs.E) A) and C)
F) A) and B)

Question 6

If inflation were reduced, then it is

Accepted Answer

A)   likely that real incomes would rise more rapidly and labor markets would be more flexible.
B)   likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible.
C)   likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly.
D)   unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible.E) C) and D)
F) A) and B)

Question 7

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 8

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Accepted Answer

A)   decrease the money supply.
B)   decrease government expenditures.
C)   decrease taxes.
D)   do nothing.E) A) and C)
F) C) and D)

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

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Accepted Answer

A)   some forms of capital income are taxed twice
B)   if they are large enough, bequests are taxed
C)   both a and b
D)   neither a nor bE) C) and D)
F) B) and D)

Question 11

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)   lower the discount rate and sell bonds.
B)   lower the discount rate and buy bonds.
C)   raise the discount rate and sell bonds.
D)   raise the discount rate and buy bonds.E) All of the above
F) A) and B)

Question 12

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

Question 13

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 14

A consumption tax that replaces an income tax

Accepted Answer

A)   only taxes a household on the money it spends.
B)   discourages saving.
C)   would likely result in a lower level of saving than an income tax.
D)   ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase.E) A) and D)
F) B) and C)

Question 15

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Accepted Answer

Both monetary and fiscal policy work wit...

Question 16

Which of the following statements is not true?

Accepted Answer

A)   The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding.
B)   The U.S. federal debt in 2012 was about $11.3 trillion.
C)   Government debt per person represents more than 5 percent of a typical worker's lifetime resources.
D)   Forward-looking parents can reverse adverse effects of government debt on their children.E) C) and D)
F) B) and D)

Question 17

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

Question 18

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Accepted Answer

maximum employment, stable pri...

Question 19

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Accepted Answer

A)   both the shift of aggregate demand and the shift of aggregate supply
B)   the shift of aggregate demand, but not the shift of aggregate supply
C)   the shift of aggregate supply, but not the shift of aggregate demand
D)   neither the shift of aggregate demand nor the shift of aggregate supplyE) B) and D)
F) B) and C)

Question 20

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Accepted Answer

A)   small and an increase in private saving tends to have a small impact on the capital stock.
B)   small and an increase in private saving tends to have a large impact on the capital stock.
C)   large and an increase in private saving tends to have a small impact on the capital stock.
D)   large and an increase in private saving tends to have a large impact on the capital stock.E) A) and B)
F) B) and C)

Exam 18: Six Debates Over Macroeconomic Policy

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 Answer
verified
Those who oppose stabilization policy mo...
View Answer

If inflation were reduced, then it is

Correct Answer
verified

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Correct Answer
verified

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Correct Answer
verified

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Correct Answer
verified

The Federal Open Market Committee

Correct Answer
verified

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Correct Answer
verified

Social Security transfers wealth from younger generations to older generations.

Correct Answer
verified

Which of the following statements is not true?

Correct Answer
verified

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

Correct Answer
verified

Which of the following would likely increase private saving?

Correct Answer
verified

Correct Answer
verified

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Correct Answer
verified

A consumption tax that replaces an income tax

Correct Answer
verified

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Correct Answer
verified
Both monetary and fiscal policy work wit...
View Answer

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Correct Answer
verified
maximum employment, stable pri...
View Answer

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Correct Answer
verified
Means-tested benefits give assistance, o...
View Answer

Proponents of tax-law changes to encourage saving would

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

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

If inflation were reduced, then it is

Correct AnswerverifiedShow Answer

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Correct AnswerverifiedShow Answer

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Correct AnswerverifiedShow Answer

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Correct AnswerverifiedShow Answer

The Federal Open Market Committee

Correct AnswerverifiedShow Answer

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Correct AnswerverifiedShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Correct AnswerverifiedShow Answer

A consumption tax that replaces an income tax

Correct AnswerverifiedShow Answer

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Correct AnswerverifiedBoth monetary and fiscal policy work wit...View AnswerShow Answer

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Correct Answerverifiedmaximum employment, stable pri...View AnswerShow Answer

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Correct AnswerverifiedMeans-tested benefits give assistance, o...View AnswerShow Answer

Proponents of tax-law changes to encourage saving would

Correct AnswerverifiedShow Answer

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

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

Correct Answer
verified
Those who oppose stabilization policy mo...
View 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both monetary and fiscal policy work wit...
View Answer

Correct Answer
verified
maximum employment, stable pri...
View Answer

Correct Answer
verified
Means-tested benefits give assistance, o...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified