Question 1

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

Question 2

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Accepted Answer

A)   would have to increase the money supply. This would move unemployment closer to the natural rate.
B)   would have to increase the money supply. This would move unemployment further from the natural rate.
C)   would have to decrease the money supply. This would move unemployment closer to the natural rate.
D)   would have to decrease the money supply. This would move unemployment further from the natural rate.E) A) and C)
F) None of the above

Question 3

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

A)   menu costs.
B)   aggregate supply shocks.
C)   negative real interest rates.
D)   recessions.E) B) and C)
F) A) and D)

Question 4

Which of the following would likely increase private saving?

Accepted Answer

A)   Both expansion of IRA type accounts and a consumption tax.
B)   Expansion of IRA type accounts, but not a consumption tax.
C)   A consumption tax, but not expansion of IRA type accounts.
D)   Neither expansion of IRA type accounts nor a consumption tax.E) A) and B)
F) A) and C)

Question 5

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

Question 6

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 7

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Accepted Answer

A)   high and the reduction is unexpected.
B)   high and the reduction is expected.
C)   low and the reduction is unexpected.
D)   low and the reduction is expected.E) B) and C)
F) A) and D)

Question 8

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation. Sh...

Question 9

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Accepted Answer

The benefits of the project ac...

Question 10

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 11

In which cases were tax cuts followed by robust growth?

Accepted Answer

A)   the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981
B)   the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981
C)   the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964
D)   neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981E) A) and B)
F) A) and C)

Question 12

Which of the following is not correct?

Accepted Answer

A)   Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.
B)   Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)   The only times deficits have increased have been during times of war or economic downturns.
D)   Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.E) A) and B)
F) A) and C)

Question 13

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

Accepted Answer

A)   buy bonds. These purchases also move the price level closer to its original level.
B)   buy bonds. However these purchases move the price level farther from its original level.
C)   sell bonds. These purchases also move the price level closer to its original level.
D)   sell bonds. However these purchase move the price level farther from its original level.E) A) and C)
F) A) and B)

Question 14

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 of the current spending benefits future taxpayers
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 15

All of the following are arguments against stabilization policy except

Accepted Answer

A)   Economic forecasting is highly imprecise.
B)   Long lags may cause stabilization policies to in fact destabilize the economy.
C)   Monetary policy affects aggregate demand by changing interest rates.
D)   Fiscal policy must go through a long political process.E) A) and B)
F) None of the above

Question 16

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

Question 17

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Accepted Answer

A)   A public budget surplus can raise national saving.
B)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
C)   Low-income households save a larger fraction of their income than high-income households.
D)   Tax cuts might cause a budget deficit.E) All of the above
F) C) and D)

Question 18

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 19

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Accepted Answer

A) True 
 B)False

Question 20

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

A)   only price stability
B)   only maximum employment
C)   only price stability and maximum employment
D)   price stability, maximum employment, and moderate long-term interest ratesE) A) and C)
F) B) and C)

Exam 18: Six Debates Over Macroeconomic Policy

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Policies that reduce the incentive for households to save include

Correct AnswerverifiedShow Answer

Describe three costs of inflation.

Correct AnswerverifiedThere are several costs of inflation. Sh...View AnswerShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Correct AnswerverifiedShow Answer

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

Correct AnswerverifiedShow Answer

In which cases were tax cuts followed by robust growth?

Correct AnswerverifiedShow Answer

Which of the following would likely increase private 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

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Correct AnswerverifiedShow Answer

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The political business cycle refers to

Correct AnswerverifiedShow Answer

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Correct AnswerverifiedThe benefits of the project ac...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Correct AnswerverifiedShow Answer

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Correct AnswerverifiedShow Answer

All of the following are arguments against stabilization policy except

Correct AnswerverifiedShow Answer

An added benefit of inflation is that it allows for the possibility of

Correct AnswerverifiedShow Answer

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
There are several costs of inflation. Sh...
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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The benefits of the project ac...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified