Question 1

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) All of the above

Question 2

When wages are fixed by contract, inflation reduces

Accepted Answer

A)   nominal wages; this likely makes labor markets more flexible.
B)   nominal wages; this likely makes labor markets less flexible.
C)   real wages; this likely makes labor markets more flexible.
D)   real wages; this likely makes labor markets less flexible.E) B) and C)
F) None of the above

Question 3

List two costs of inflation.

Accepted Answer

shoeleather costs, menu costs,...

Question 4

Inflation reduction has the highest cost when the efforts are

Accepted Answer

A)   credible so that the sacrifice ratio is low.
B)   credible so that the sacrifice ratio is high.
C)   unexpected so that the sacrifice ratio is high.
D)   unexpected so that the sacrifice ratio is low.E) B) and D)
F) B) and C)

Question 5

For which of the following policies is there a significant implementation lag?

Accepted Answer

A)   fiscal policy and monetary policy
B)   fiscal policy but not monetary policy
C)   monetary policy but not fiscal policy
D)   neither monetary policy nor fiscal policyE) B) and C)
F) All of the above

Question 6

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Accepted Answer

Reducing inflation leads to a temporary ...

Question 7

An economist would be more likely to argue for reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) None of the above
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 B)
F) A) and C)

Question 9

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

Accepted Answer

Taxing saving at a lower rate ...

Question 10

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

Question 11

The average person's share of the U.S. government debt as a percentage of lifetime income is

Accepted Answer

A)   less than 2 percent.
B)   about 5 percent.
C)   about 10 percent.
D)   over 12 percent.E) None of the above
F) C) and D)

Question 12

Which of the following reduces 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)   some current government spending benefits future taxpayers
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 13

Which of the following is an argument in favor of a balanced budget rule?

Accepted Answer

A)   Some economists believe that rules are better than discretion.
B)   Per-capita debt is small relative to lifetime income.
C)   The effect of deficit spending on future generations depends in part on what the government buys.
D)   Other government policies also redistribute income across generations.E) All of the above
F) C) and D)

Question 14

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr...

Question 15

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

Question 16

Economists

Accepted Answer

A)   agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)   agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)   disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)   disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.E) All of the above
F) B) and C)

Question 17

Real interest rates

Accepted Answer

A)   cannot be negative.
B)   can be negative only if inflation is negative.
C)   can be negative only if inflation is zero.
D)   can be negative only if inflation is greater than zero.E) B) and C)
F) A) and D)

Question 18

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run as a percentage of GDP) without raising the debt- to-income ratio?

Accepted Answer

The government could run a def...

Question 19

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $68.8 billion
B)   about $137.6 billion
C)   about $275.2 billion
D)   about $309.6 billionE) A) and C)
F) B) and C)

Question 20

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

Exam 23: Six Debates Over Macroeconomic Policy

Economists

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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

For which of the following policies is there a significant implementation lag?

Correct AnswerverifiedShow Answer

The average person's share of the U.S. government debt as a percentage of lifetime income is

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Real interest rates

Correct AnswerverifiedShow Answer

Explain how it is possible for the government debt to grow forever.

Correct AnswerverifiedThe debt can grow because the economy gr...View AnswerShow Answer

An economist would be more likely to argue for reducing inflation if she thought that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an argument in favor of a balanced budget rule?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When wages are fixed by contract, inflation reduces

Correct AnswerverifiedShow Answer

Inflation reduction has the highest cost when the efforts are

Correct AnswerverifiedShow Answer

List two costs of inflation.

Correct Answerverifiedshoeleather costs, menu costs,...View AnswerShow Answer

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Correct AnswerverifiedReducing inflation leads to a temporary ...View AnswerShow Answer

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

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

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

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

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run as a percentage of GDP) without raising the debt- to-income ratio?

Correct AnswerverifiedThe government could run a def...View AnswerShow Answer

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

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The debt can grow because the economy gr...
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shoeleather costs, menu costs,...
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Correct Answer
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Reducing inflation leads to a temporary ...
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Correct Answer
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Correct Answer
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Taxing saving at a lower rate ...
View Answer

Correct Answer
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The government could run a def...
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Correct Answer
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