Question 1

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes,then the Phillips curve is

Accepted Answer

A)   farther to the left than otherwise.If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises.
B)   farther to the left than otherwise.If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises.
C)   farther to the right than otherwise.If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises
D)   farther to the right than otherwise.If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises..E) C) and D)
F) A) and B)

Question 2

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 3

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl...

Question 4

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Accepted Answer

A)   real GDP rose and the inflation rate were positive.
B)   real GDP rose and the inflation rate were negative.
C)   real GDP fell and the inflation rate were positive.
D)   real GDP fell and the inflation rate were negative.E) None of the above
F) All of the above

Question 5

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

In response to recession,who primarily cut taxes rather than raised expenditures?

Accepted Answer

A)   President George W.Bush and President Barack Obama
B)   President George W.Bush but not President Barack Obama
C)   President Barack Obama but not President George W.Bush
D)   Neither President George W.Bush and President Barack ObamaE) B) and C)
F) B) and D)

Question 8

The political business cycle refers to

Accepted Answer

A)   the fact that about every four years some politician advocates greater government control of the Fed.
B)   the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)   the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)   changes in output created by the monetary rule the Fed must follow.E) B) and C)
F) A) and D)

Question 9

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) A) and C)

Question 10

The Federal Reserve will tend to tighten monetary policy when

Accepted Answer

A)   interest rates are rising too rapidly.
B)   it thinks the unemployment rate is too high.
C)   the growth rate of real GDP is quite sluggish.
D)   it thinks inflation is too high today,or will become too high in the future.E) C) and D)
F) B) and C)

Question 11

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce shoeleather costs and permanently lower unemployment
B)   permanently reduce shoeleather costs and temporarily raise unemployment
C)   temporarily reduce shoeleather costs and temporarily lower unemployment
D)   temporarily reduce shoeleather costs and temporarily raise unemploymentE) None of the above
F) B) and D)

Question 12

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Accepted Answer

According to the traditional Keynesian m...

Question 13

Double taxation means that both

Accepted Answer

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

Question 14

The Federal Open Market Committee

Accepted Answer

A)   by law must focus on maintaining low inflation rather than stabilizing output.
B)   by law must focus on stabilizing output rather than maintaining low inflation.
C)   by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target.
D)   operates with almost complete discretion over monetary policy.E) B) and D)
F) B) and C) D

Question 15

Tax policy changes that favor people who save will

Accepted Answer

A)   favor low-income households.
B)   favor people with high income.
C)   create a more egalitarian society.
D)   unambiguously increase national saving.E) B) and D)
F) B) and C) B

Question 16

Which of the following likely occurs when households and firms are pessimistic?

Accepted Answer

A)   Increased spending.
B)   Increased aggregate demand.
C)   Real GDP rises.
D)   The unemployment rate increases.E) None of the above
F) A) and C) D

Question 17

If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

Accepted Answer

A)   consumption and investment both rise.
B)   consumption will rise and investment will fall.
C)   investment will fall and consumption will rise.
D)   consumption and investment will both fall.E) B) and C)
F) All of the above

Question 18

Zero inflation

Accepted Answer

A)   might be dangerous because it could lead to rapidly increasing prices.
B)   would limit the flexibility of the labor market and so could at times raise unemployment.
C)   would make it easy for the Central bank to create negative real interest rates.
D)   is impossible to achieve in the real world.E) All of the above
F) A) and B)

Question 19

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate a...

Question 20

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 B)
F) None of the above

Exam 36: Six Debates Over Macroeconomic Policy

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes,then the Phillips curve is

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

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Correct AnswerverifiedShow Answer

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In response to recession,who primarily cut taxes rather than raised expenditures?

Correct AnswerverifiedShow Answer

The political business cycle refers to

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

The Federal Reserve will tend to tighten monetary policy when

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Correct AnswerverifiedAccording to the traditional Keynesian m...View AnswerShow Answer

Double taxation means that both

Correct AnswerverifiedShow Answer

The Federal Open Market Committee

Correct AnswerverifiedD

Tax policy changes that favor people who save will

Correct AnswerverifiedB

Which of the following likely occurs when households and firms are pessimistic?

Correct AnswerverifiedD

If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

Correct AnswerverifiedShow Answer

Zero inflation

Correct AnswerverifiedShow Answer

What is the benefit of a high saving rate?

Correct AnswerverifiedA high saving rate a...View AnswerShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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If inflation is usually about what peopl...
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According to the traditional Keynesian m...
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D

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B

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D

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A high saving rate a...
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Correct Answer
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