Question 1

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)   Saving is a key determinant of long-run prosperity.
B)   Current tax laws discourage saving for the purpose of leaving a large bequest.
C)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
D)   The tax code currently taxes some forms of capital income twice.E) C) and D)
F) B) and C)

Question 2

As opposed to an increase in government expenditures, a tax cut

Accepted Answer

A)   is likely to impact spending faster and according to traditional theory has a larger multiplier.
B)   is likely to impact spending faster, but according to traditional theory has a smaller multiplier.
C)   is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier.
D)   is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplierE) A) and B)
F) B) and D)

Question 3

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

Accepted Answer

A)   There are no limits on the amount of funds people can hold in them.
B)   Some people are not eligible to hold them.
C)   There are never penalties for withdrawals.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 4

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Accepted Answer

A) True 
 B)False

Question 5

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Accepted Answer

A)   raise the money supply. It could do this to counter high unemployment.
B)   raise the money supply. It could do this to counter high inflation.
C)   reduce the money supply. It could do this to counter high unemployment.
D)   reduce the money supply. It could do this to counter high inflation.E) A) and D)
F) None of the above

Question 6

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 D)
F) B) and C)

Question 7

Which of the following is correct? In the 1990's

Accepted Answer

A)   the Fed maintained low inflation because it had to follow a policy rule.
B)   the Fed maintained low inflation even without being required to follow a policy rule.
C)   the Fed was not required to follow a policy rule and let inflation move higher.
D)   the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher.E) None of the above
F) B) and C)

Question 8

Which of the following is correct?

Accepted Answer

A)   Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)   Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)   Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)   Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.E) All of the above
F) None of the above

Question 9

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

U.S. public policy discourages saving because

Accepted Answer

A)   other things the same, taxes increase the return from savings.
B)   means tested programs such as Medicaid provide lower benefits to those who did not save.
C)   none of parents' bequest to their children is taxed.
D)   some forms of capital income are taxed twice.E) A) and B)
F) A) and C)

Question 12

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 13

Fluctuations in employment and output result from changes in

Accepted Answer

A)   aggregate demand only.
B)   aggregate supply only.
C)   aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) All of the above
F) None of the above

Question 14

The Fed lowered interest rates in 2001 and 2002. 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 D)
F) B) and C)

Question 15

Which of the following is not a typical justification for running a budget deficit?

Accepted Answer

A)   financing a war
B)   dealing with a recession
C)   fighting inflation
D)   dealing with unemploymentE) A) and C)
F) B) and C)

Question 16

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t...

Question 17

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 18

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Accepted Answer

Households will spend disposable income ...

Question 19

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

Accepted Answer

Without careful planning it is possible ...

Question 20

A reduction in the tax rate on interest income

Accepted Answer

A)   would necessarily raise national saving.
B)   would primarily benefit the wealthy.
C)   both a and b are correct.
D)   None of the above are correct.E) A) and D)
F) None of the above

Exam 23: Six Debates Over Macroeconomic Policy

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Correct Answer
verified
Households will spend disposable income ...
View Answer

Which of the following is not a typical justification for running a budget deficit?

Correct Answer
verified

U.S. public policy discourages saving because

Correct Answer
verified

As opposed to an increase in government expenditures, a tax cut

Correct Answer
verified

Which of the following is correct? In the 1990's

Correct Answer
verified

Explain the main arguments in favor of economic stabilization.

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

The Federal Open Market Committee

Correct Answer
verified

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct Answer
verified

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Correct Answer
verified

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct Answer
verified

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

Correct Answer
verified
Without careful planning it is possible ...
View Answer

A reduction in the tax rate on interest income

Correct Answer
verified

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Correct Answer
verified

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Correct Answer
verified

Fluctuations in employment and output result from changes in

Correct Answer
verified

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Correct Answer
verified

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct Answer
verified
The political business cycle describes t...
View Answer

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

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Correct AnswerverifiedHouseholds will spend disposable income ...View AnswerShow Answer

Which of the following is not a typical justification for running a budget deficit?

Correct AnswerverifiedShow Answer

U.S. public policy discourages saving because

Correct AnswerverifiedShow Answer

As opposed to an increase in government expenditures, a tax cut

Correct AnswerverifiedShow Answer

Which of the following is correct? In the 1990's

Correct AnswerverifiedShow Answer

Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions a...View AnswerShow Answer

The Federal Open Market Committee

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Correct AnswerverifiedShow Answer

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct AnswerverifiedShow Answer

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

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

A reduction in the tax rate on interest income

Correct AnswerverifiedShow Answer

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Correct AnswerverifiedShow Answer

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct AnswerverifiedThe political business cycle describes t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified
Households will spend disposable income ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Without careful planning it is possible ...
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
The political business cycle describes t...
View Answer

Correct Answer
verified