Question 1

What is meant by the political business cycle?

Accepted Answer

Central banks sympathetic to i...

Question 2

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Accepted Answer

A lag of six months ...

Question 3

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Accepted Answer

A)   inflation will raise their real wage and so increase the number of available workers.
B)   inflation will raise their real wage and so decrease the number of available workers
C)   inflation will reduce their real wage and so increase the number of available workers.
D)   inflation will reduce their real wage and so decrease the number of available workers.E) A) and D)
F) None of the above

Question 4

The principal lag for monetary policy

Accepted Answer

A)   and fiscal policy is the time it takes to implement policy.
B)   and fiscal policy is the time it takes for policy to change spending.
C)   is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending.
D)   is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.E) A) and C)
F) B) and D)

Question 5

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would likely increase private saving?

Accepted Answer

A)   both expansion of means testing and a consumption tax
B)   expansion of means testing, but not a consumption tax
C)   a consumption tax, but not expansion of means testing
D)   neither expansion of means testing nor a consumption taxE) C) and D)
F) A) and C)

Question 7

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) A) and D)
F) B) and D)

Question 8

If inflation falls,

Accepted Answer

A)   people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
B)   people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.
C)   people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
D)   people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.E) A) and B)
F) A) and C)

Question 9

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

Question 10

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 11

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

Question 12

Which of the following is true concerning IRA's, 401(k)  and 403(b)  plans?

Accepted Answer

A)   Not everyone is eligible to put funds into them.
B)   There are restrictions on the amount of funds that can be put into them.
C)   Except under unusual circumstances, there are penalties for withdrawals before retirement.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 13

Which of the following is not a typical justification for running a budget deficit?

Accepted Answer

A)   financing a war
B)   dealing with a recession
C)   fighting inflation
D)   dealing with unemploymentE) None of the above
F) B) and C)

Question 14

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo...

Question 15

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

Question 16

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

Accepted Answer

A temporar...

Question 17

In 2009 President Barack Obama responded to recession

Accepted Answer

A)   only by cutting taxes.
B)   by cutting taxes and reducing government expenditures.
C)   only by raising government expenditures.
D)   by cutting taxes and by raising government expenditures.E) A) and D)
F) None of the above

Question 18

Higher saving is associated with

Accepted Answer

A)   a larger capital stock and higher productivity.
B)   a larger capital stock but not higher productivity.
C)   higher productivity but not a higher capital stock.
D)   neither a higher capital stock nor higher productivity.E) A) and C)
F) B) and C)

Question 19

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

Question 20

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

Exam 36: Six Debates Over Macroeconomic Policy

Correct Answer
verified

The principal lag for monetary policy

Correct Answer
verified

Which of the following is not a typical justification for running a budget deficit?

Correct Answer
verified

Double taxation means that both

Correct Answer
verified

Higher saving is associated with

Correct Answer
verified

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

Correct Answer
verified

Which of the following is true concerning IRA's, 401(k) and 403(b) plans?

Correct Answer
verified

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 Answer
verified

What is meant by the political business cycle?

Correct Answer
verified
Central banks sympathetic to i...
View Answer

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

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

If inflation falls,

Correct Answer
verified

In 2009 President Barack Obama responded to recession

Correct Answer
verified

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Correct Answer
verified
Those who oppose stabilization policy mo...
View 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 Answer
verified

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

Correct Answer
verified
A temporar...
View Answer

Tax cuts affect only aggregate demand not aggregate supply.

Correct Answer
verified

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Correct Answer
verified
A lag of six months ...
View Answer

Which of the following would likely increase private saving?

Correct Answer
verified

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

Correct Answer
verified

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

Correct AnswerverifiedShow Answer

The principal lag for monetary policy

Correct AnswerverifiedShow Answer

Which of the following is not a typical justification for running a budget deficit?

Correct AnswerverifiedShow Answer

Double taxation means that both

Correct AnswerverifiedShow Answer

Higher saving is associated with

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is true concerning IRA's, 401(k) and 403(b) plans?

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

What is meant by the political business cycle?

Correct AnswerverifiedCentral banks sympathetic to i...View AnswerShow 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

If inflation falls,

Correct AnswerverifiedShow Answer

In 2009 President Barack Obama responded to recession

Correct AnswerverifiedShow Answer

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Correct AnswerverifiedThose who oppose stabilization policy mo...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

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

Correct AnswerverifiedA temporar...View AnswerShow Answer

Tax cuts affect only aggregate demand not aggregate supply.

Correct AnswerverifiedShow Answer

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Correct AnswerverifiedA lag of six months ...View AnswerShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
Central banks sympathetic to i...
View Answer

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Those who oppose stabilization policy mo...
View Answer

Correct Answer
verified

Correct Answer
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A temporar...
View Answer

Correct Answer
verified

Correct Answer
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A lag of six months ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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