Question 1

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 otherwise.E) None of the above
F) B) and C)

Question 2

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year. Then the government can have a deficit of about

Accepted Answer

A)  5 percent of GDP without raising the debt-to-income ratio.
B)  4.5 percent of GDP without raising the debt-to-income ratio.
C)  1.25 percent of GDP without raising the debt-to-income ratio.
D)  .5 percent of GDP without raising the debt-to-income ratio.E) C) and D)
F) All of the above

Question 3

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

A)  increase the money supply, increase taxes, increase government spending
B)  increase the money supply, increase taxes, decrease government spending
C)  increase the money supply, decrease taxes, increase government spending
D)  decrease the money supply, increase taxes, decrease government spendingE) All of the above
F) A) and C)

Question 4

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)  stabilizing the economy during a recession
B)  future generations will benefit from some current expenditures
C)  both a and b
D)  neither a nor bE) None of the above
F) B) and D) B

Question 5

If net exports fall, what actions could a central bank take to stabilize the economy?

Accepted Answer

Increase the money s...

Question 6

Explain why fiscal policy actions typically work with a lag.

Accepted Answer

Fiscal policy works with a lag primarily...

Question 7

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)  its income effect on saving and its effect on the government budget
B)  its income effect on saving but not its effect on the government budget
C)  its effect on the government budget but not its income effect on saving
D)  neither its income effect on saving nor its effect on the government budgetE) A) and B)
F) C) and D)

Question 8

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Accepted Answer

A higher rate of return on saving means ...

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

If the government cut expenditures during an expansion

Accepted Answer

A)  it would have to raise the tax rate
B)  it would tend to stabilize the economy
C)  both a and b
D)  neither a nor bE) A) and B)
F) A) and C)

Question 11

If the unemployment rate falls below its long-run level, which policies would be appropriate to stabilize output?

Accepted Answer

A)  increase the money supply, increase taxes
B)  increase the money supply, cut taxes
C)  decrease the money supply, increase taxes
D)  decrease the money supply, cut taxesE) All of the above
F) None of the above C

Question 12

"Leaning against the wind" is exemplified by a(n)

Accepted Answer

A)  tax increase when there is a recession.
B)  increase in the money supply when there is a recession.
C)  decrease in government expenditures when there is a recession.
D)  All of the above are correct.E) None of the above
F) C) and D) B

Question 13

Economists agree that at least in the short run disinflation

Accepted Answer

A)  leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high.
B)  leads to a period of higher unemployment. They disagree about the cost of moderate inflation.
C)  leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high.
D)  leads to a period of lower unemployment. They disagree about the cost of moderate inflation.E) None of the above
F) C) and D)

Question 14

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Accepted Answer

The amendment indicates the Fe...

Question 15

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 demand shifts right, the central bank must

Accepted Answer

A)  increase the money supply so interest rates rise.
B)  increase the money supply so interest rates fall.
C)  decrease the money supply so interest rates rise.
D)  decrease the moneys supply so interest rates fallE) A) and B)
F) A) and C)

Question 16

Which of the following is not an argument in favor of requiring the government to balance its budget?

Accepted Answer

A)  Government debt imposes higher taxes or more borrowing on future generations.
B)  A balanced budget will smooth the business cycle.
C)  Deficits lower national saving.
D)  Recent history shows that Congress will run deficits even when deficits are not justified by war or recession.E) C) and D)
F) None of the above

Question 17

Which of the following is an important advantage of discretionary monetary policy?

Accepted Answer

A)  Influencing the political business cycle
B)  Flexibility to deal with changing economic conditions
C)  Limiting the opportunities for abuse of power by policymakers
D)  Avoiding the time inconsistency of policy problemE) A) and D)
F) All of the above

Question 18

Time inconsistency will cause the

Accepted Answer

A)  short-run Phillips curve to be higher than otherwise.
B)  short-run Phillips curve to be lower the otherwise.
C)  long-run Phillips curve to be farther to the right than otherwise.
D)  long-run Phillips curve to be farther left than otherwise.E) A) and B)
F) A) and D)

Question 19

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

Accepted Answer

A)  the short-run Phillips curve shifts right, and unemployment will rise by more than otherwise.
B)  the short-run Phillips curve shifts right, and unemployment will rise by less than otherwise.
C)  the short-run Phillips curve shifts left, and unemployment will rise by more than otherwise.
D)  the short-run Phillips curve shifts left, and unemployment will rise by less than otherwise.E) A) and B)
F) A) and D)

Question 20

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

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

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year. Then the government can have a deficit of about

Correct AnswerverifiedShow Answer

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Correct AnswerverifiedShow Answer

Which of the following are justifications for running a budget deficit?

Correct AnswerverifiedB

If net exports fall, what actions could a central bank take to stabilize the economy?

Correct AnswerverifiedIncrease the money s...View AnswerShow Answer

Explain why fiscal policy actions typically work with a lag.

Correct AnswerverifiedFiscal policy works with a lag primarily...View AnswerShow Answer

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct AnswerverifiedShow Answer

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow 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 the government cut expenditures during an expansion

Correct AnswerverifiedShow Answer

If the unemployment rate falls below its long-run level, which policies would be appropriate to stabilize output?

Correct AnswerverifiedC

"Leaning against the wind" is exemplified by a(n)

Correct AnswerverifiedB

Economists agree that at least in the short run disinflation

Correct AnswerverifiedShow Answer

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Correct AnswerverifiedThe amendment indicates the Fe...View AnswerShow 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 demand shifts right, the central bank must

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of requiring the government to balance its budget?

Correct AnswerverifiedShow Answer

Which of the following is an important advantage of discretionary monetary policy?

Correct AnswerverifiedShow Answer

Time inconsistency will cause the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct AnswerverifiedShow Answer

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B

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Increase the money s...
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Fiscal policy works with a lag primarily...
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A higher rate of return on saving means ...
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C

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B

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The amendment indicates the Fe...
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