Question 1

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Accepted Answer

A)  increases the interest rate and decreases spending on capital goods.
B)  increases the interest rate and increases spending on capital goods.
C)  decreases the interest rate and increases spending on capital goods.
D)  decreases the interest rate and decreases spending on capital goods.E) C) and D)
F) A) and C)

Question 2

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 3

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)  the government raise taxes or cut expenditures. This would increase the magnitude of economic fluctuations.
B)  the government raise taxes or cut expenditures. This would decrease the magnitude of economic fluctuations.
C)  the government cut taxes or raise expenditures. This would increase the magnitude of economic fluctuations.
D)  the government cut taxes or raise expenditures. This would decrease the magnitude of economic fluctuations.E) C) and D)
F) B) and D)

Question 4

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A)  time inconsistency of policy
B)  flexibility to confront unforeseen circumstances
C)  political business cycle
D)  the ability to craft rules that account for all possible contingencies in advanceE) B) and D)
F) All of the above

Question 5

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $226.0 billion
B)  about $248.6 billion
C)  about $474.6 billion
D)  about $561.8 billionE) All of the above
F) None of the above

Question 6

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Accepted Answer

Because a decrease i...

Question 7

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

Question 8

Policies that reduce the incentive for households to save include

Accepted Answer

A)  means-testing.
B)  College and university financial aid administration.
C)  inheritance taxes.
D)  All of the above.E) None of the above
F) A) and C)

Question 9

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

Question 10

Some economists argue that since inflation

Accepted Answer

A)  raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
B)  raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.
C)  reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
D)  reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.E) A) and D)
F) B) and D)

Question 11

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Accepted Answer

A)  increase the money supply, which causes output to move closer to its long-run equilibrium.
B)  increase the money supply, which causes output to move farther from long-run equilibrium.
C)  decrease the money supply, which causes output to move closer to its long-run equilibrium.
D)  decrease the money supply, which causes output to move farther from long-run equilibrium.E) A) and B)
F) A) and C)

Question 12

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Accepted Answer

The Federal Open Mar...

Question 13

A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct?

Accepted Answer

A)  the substitution effect was larger than the income effect; national saving rose
B)  the substitution effect was larger than the income effect; national saving fell
C)  the income effect was larger than the substitution effect; national saving rose
D)  the income effect was larger than the substitution effect; national saving fellE) B) and D)
F) A) and B)

Question 14

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Accepted Answer

Government spending exceeds tax revenues...

Question 15

Which of the programs below would not transfer wealth from young to old generations?

Accepted Answer

A)  Taxes are reduced as a result of cutting expenditures on education.
B)  Taxes are raised to improve government infrastructure such as roads and bridges.
C)  Taxes are raised to provide more generous Social Security benefits.
D)  Taxes are raised to provide more generous Medicare benefits.E) B) and C)
F) A) and B)

Question 16

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) All of the above
F) None of the above

Question 17

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Accepted Answer

A)  decrease the money supply, which will move output back towards its long-run level.
B)  decrease the money supply, which will move output farther from its long-run level.
C)  increase the money supply, which will move output back towards its long-run level.
D)  increase the money supply, which will move output farther from its long-run level.E) B) and C)
F) All of the above

Question 18

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

Question 19

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 20

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

Accepted Answer

First, economists believe that inflation...

Exam 36: Six Debates Over Macroeconomic Policy

Double taxation means that both

Correct Answer
verified

Policies that reduce the incentive for households to save include

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

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct Answer
verified

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Correct Answer
verified

Correct Answer
verified

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

Correct Answer
verified
First, economists believe that inflation...
View Answer

Which of the programs below would not transfer wealth from young to old generations?

Correct Answer
verified

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Correct Answer
verified
Because a decrease i...
View Answer

Some economists argue that since inflation

Correct Answer
verified

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Correct Answer
verified
Government spending exceeds tax revenues...
View Answer

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Correct Answer
verified

Real interest rates

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

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Correct Answer
verified
The Federal Open Mar...
View Answer

A balanced budget would require that when real GDP was growing rapidly,

Correct Answer
verified

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Correct Answer
verified

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
verified

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

Correct Answer
verified

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

Double taxation means that both

Correct AnswerverifiedShow Answer

Policies that reduce the incentive for households to save include

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

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct AnswerverifiedShow Answer

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

Correct AnswerverifiedFirst, economists believe that inflation...View AnswerShow Answer

Which of the programs below would not transfer wealth from young to old generations?

Correct AnswerverifiedShow Answer

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Correct AnswerverifiedBecause a decrease i...View AnswerShow Answer

Some economists argue that since inflation

Correct AnswerverifiedShow Answer

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Correct AnswerverifiedGovernment spending exceeds tax revenues...View AnswerShow Answer

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Correct AnswerverifiedShow Answer

Real interest rates

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

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Correct AnswerverifiedThe Federal Open Mar...View AnswerShow Answer

A balanced budget would require that when real GDP was growing rapidly,

Correct AnswerverifiedShow Answer

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Correct AnswerverifiedShow Answer

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
First, economists believe that inflation...
View Answer

Correct Answer
verified

Correct Answer
verified
Because a decrease i...
View Answer

Correct Answer
verified

Correct Answer
verified
Government spending exceeds tax revenues...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Federal Open Mar...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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