Question 1

Economists

Accepted Answer

A)   agree that the costs of moderate inflation are low and that the cost of reducing inflation is small.
B)   agree that the costs of moderate inflation are low, but disagree about the cost of reducing inflation.
C)   disagree about the costs of moderate inflation, but agree that the cost of reducing inflation is small.
D)   disagree about the costs of moderate inflation and disagree about the cost of reducing inflation.E) All of the above
F) B) and D)

Question 2

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Accepted Answer

A)   Avoid unexpected changes in the inflation rate.
B)   Rewrite the tax laws so that nominal gains were taxed instead of real gains.
C)   Make policy that would discourage firms from issuing indexed bonds.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 3

An economist would be more likely to argue for reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) All of the above
F) B) and D)

Question 4

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A)   economists disagree over basic issues such as the importance of saving for economic growth.
B)   there are tradeoffs and people disagree about the best way to deal with them.
C)   politicians offer misleading information.
D)   people fail to clearly see the benefits or the costs of most changes.E) B) and C)
F) A) and D)

Question 5

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)   lower the discount rate and sell bonds.
B)   lower the discount rate and buy bonds.
C)   raise the discount rate and sell bonds.
D)   raise the discount rate and buy bonds.E) B) and C)
F) None of the above

Question 6

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 7

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 8

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Accepted Answer

A)   increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level.
B)   increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.
C)   decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level.
D)   decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.E) A) and B)
F) All of the above

Question 9

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) B) and D)
F) C) and D)

Question 10

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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

Question 13

Which of the following is correct?

Accepted Answer

A)   Deficits always require people to consume at the expense of their children.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   If the government is in debt it must be running a deficit currently.
D)   The current government debt is a large share of lifetime income.E) None of the above
F) A) and B)

Question 14

IRA, 401(k) , 403(b) , and Keogh plans

Accepted Answer

A)   impose added taxes on those who save.
B)   place no limits on the amount people can deposit into these programs.
C)   impose penalties for withdrawals except under certain circumstances.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 15

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)   changes in the interest rate to change aggregate demand.
B)   changes in the money supply to change interest rates.
C)   the Fed to make changes in policy.
D)   the federal government to change the tax code.E) C) and D)
F) A) and C)

Question 16

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are...

Question 17

Proponents of zero inflation argue that reducing inflation has

Accepted Answer

A)   permanent costs and temporary benefits.
B)   temporary costs and permanent benefits.
C)   permanent costs and benefits.
D)   temporary costs and benefits.E) C) and D)
F) B) and D)

Question 18

Consider the following rule for monetary policy: r = 2 percent + π\piπ  + 1/2(y - y*) /y* + 1/2( π\piπ - π\piπ *) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π\piπ  is the inflation rate, and π\piπ * is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)   1/2 percentage point
B)   1 percentage point
C)   1 and 1/2 percentage points
D)   3 and 1/2 percentage points E) A) and B)
F) C) and D)

Question 19

Inflation

Accepted Answer

A)   causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
B)   causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.
C)   causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
D)   causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.E) B) and C)
F) B) and D)

Question 20

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)   Decrease the money supply.
B)   Decrease taxes.
C)   Decrease government expenditures.
D)   Do nothing and let markets correct themselves.E) A) and B)
F) All of the above

Exam 18: Six Debates Over Macroeconomic Policy

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Correct Answer
verified

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Correct Answer
verified

Tax policy changes that favor people who save will

Correct Answer
verified

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct Answer
verified
Both are prone to lags, but the lags are...
View Answer

The principal reason that monetary policy has lags is that it takes a long time for

Correct Answer
verified

IRA, 401(k) , 403(b) , and Keogh plans

Correct Answer
verified

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

Correct Answer
verified

Inflation

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Correct Answer
verified

The six debates over macroeconomic policy exist mostly because

Correct Answer
verified

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Correct Answer
verified

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Correct Answer
verified

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Correct Answer
verified

Proponents of zero inflation argue that reducing inflation has

Correct Answer
verified

An economist would be more likely to argue for reducing inflation if she thought that

Correct Answer
verified

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct Answer
verified

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct Answer
verified

Economists

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Correct AnswerverifiedShow Answer

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Correct AnswerverifiedShow Answer

Tax policy changes that favor people who save will

Correct AnswerverifiedShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags, but the lags are...View AnswerShow Answer

The principal reason that monetary policy has lags is that it takes a long time for

Correct AnswerverifiedShow Answer

IRA, 401(k) , 403(b) , and Keogh plans

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

Inflation

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The six debates over macroeconomic policy exist mostly because

Correct AnswerverifiedShow Answer

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Correct AnswerverifiedShow Answer

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Correct AnswerverifiedShow Answer

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that reducing inflation has

Correct AnswerverifiedShow Answer

An economist would be more likely to argue for reducing inflation if she thought that

Correct AnswerverifiedShow Answer

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct AnswerverifiedShow Answer

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both are prone to lags, but the lags are...
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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified