Question 1

The Federal Open Market Committee

Accepted Answer

A)   operates with almost complete discretion over monetary policy.
B)   is required to increase the money supply by a given growth rate each year.
C)   is required to keep short-term interest rates within a range set by Congress.
D)   is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.E) A) and B)
F) C) and D)

Question 2

Which of the following is true concerning IRA's, 401k)  and 403b)  plans?

Accepted Answer

A)   Not everyone is eligible to put funds into them.
B)   There are restrictions on the amount of funds that can be put into them.
C)   Except under unusual circumstances, there are penalties for withdrawals before retirement.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 3

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) None of the above
F) All of the above

Question 4

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 5

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

Accepted Answer

A)   Ben Bernanke
B)   Alan Greenspan
C)   Paul Volcker
D)   Arthur BurnsE) All of the above
F) A) and B)

Question 6

The Fed lowered interest rates in 2007 and 2008. 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) A) and B)
F) None of the above

Question 7

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

Accepted Answer

A)   the short-run Phillips curve shifts right, and the sacrifice ratio will be higher.
B)   the short-run Phillips curve shifts right, and the sacrifice ratio will be lower.
C)   the short-run Phillips curve shifts left, and the sacrifice ratio will be higher.
D)   the short-run Phillips curve shifts left, and the sacrifice ratio will be lower.E) B) and D)
F) None of the above

Question 8

Double taxation means that both

Accepted Answer

A)   the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States.
B)   the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the U.S.
C)   wage income and employee benefits are taxed, which is not currently the case in the United States.
D)   wage income and employee benefits are taxed, which is currently the case in the United States.E) None of the above
F) A) and B)

Question 9

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Accepted Answer

A)   interest rates and output would rise.
B)   interest rates would rise and output would fall.
C)   interest rates would fall and output would rise.
D)   interest rates and output would fall.E) A) and C)
F) A) and B)

Question 10

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, 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 D)
F) None of the above

Question 11

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)   decrease the money supply
B)   increase taxes
C)   increase government expenditures
D)   Do nothing and let markets correct themselves.E) C) and D)
F) A) and B)

Question 12

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 13

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 14

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Accepted Answer

A)   the growth rate of output is high
B)   in response to increased debt, parents save more to leave their children larger bequests
C)   budget deficits raise interest rates
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 15

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Accepted Answer

A) True 
 B)False

Question 16

As it is usually practiced, inflation targeting sets

Accepted Answer

A)   a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number.
B)   a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number.
C)   sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range.
D)   sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range.E) A) and D)
F) C) and D)

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

Question 18

Eliminating double-taxation would likely

Accepted Answer

A)   raise saving and primarily benefit people with lower incomes.
B)   raise saving but primarily benefit people with higher incomes.
C)   reduce saving but primarily benefit people with lower incomes.
D)   reduce saving and primarily benefit people with higher income.E) None of the above
F) A) and B)

Question 19

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A)   cutting government spending.
B)   raising taxes.
C)   having the Fed purchase government bonds.
D)   reducing the money supply.E) B) and C)
F) All of the above

Question 20

In 2012 the federal debt was about

Accepted Answer

A)   11.3 trillion
B)   9.3 trillion
C)   1.13 trillion
D)   930 billionE) A) and D)
F) B) and C)

Exam 23: Six Debates Over Macroeconomic Policy

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

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Which of the following is true concerning IRA's, 401k) and 403b) plans?

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

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Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

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The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

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Eliminating double-taxation would likely

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Double taxation means that both

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The Federal Open Market Committee

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When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

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In 2012 the federal debt was about

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A nation's saving rate is not a primary determinant of its long-run economic prosperity.

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Which of the following does not reduce the potential burden of an increase in debt on future generations?

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In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

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Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

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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

The principal lag for monetary policy

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Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

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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 there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

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As it is usually practiced, inflation targeting sets

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During this time the Fed achieved and ma...
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Those who oppose stabilization policy mo...
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