Question 1

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

Accepted Answer

A)   avoiding raising tax rates
B)   stabilizing an economy during a recession
C)   both a and b
D)   neither a nor bE) A) and C)
F) All of the above

Question 2

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 B)
F) C) and D)

Question 3

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Accepted Answer

A)   Both the income effect and the substitution effect would tend to increase the amount of money a household saved.
B)   The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings.
C)   The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings.
D)   Both the income effect and the substitution effect would tend to decrease the amount of money a household saved.E) A) and B)
F) None of the above

Question 4

Stimulus spending in 2009 was used for

Accepted Answer

A)   building roads and bridges.
B)   providing aid to local and state governments.
C)   making payments to the unemployed.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 5

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 6

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Accepted Answer

A)   the price level and real GDP
B)   the price level but not real GDP
C)   real GDP but not the price level
D)   neither real GDP nor the price levelE) None of the above
F) B) and C)

Question 9

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Accepted Answer

A)   increased the money supply because it was concerned about unemployment.
B)   increased the money supply because it was concerned about inflation.
C)   decreased the money supply because it was concerned about unemployment.
D)   decreased the money supply because it was concerned about inflation.E) All of the above
F) A) and C)

Question 10

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

A)   increase taxes, increase government spending
B)   increase taxes, decrease government spending
C)   decrease taxes, increase government spending
D)   decrease taxes, decrease government spendingE) A) and D)
F) C) and D)

Question 11

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 B)
F) A) and C)

Question 12

The effect of budget deficits on interest rates

Accepted Answer

A)   increases private investment, so eventually the capital stock rises.
B)   increases private investment, so eventually the capital stock falls.
C)   decreases private investment, so eventually the capital stock rises.
D)   decreases private investment, so eventually the capital stock falls.E) B) and C)
F) A) and D)

Question 13

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

Question 14

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

Question 15

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

Accepted Answer

A)   she held much currency and on net was a lender.
B)   she held much currency and on net was a borrower.
C)   she held little currency and on net was a lender.
D)   she held little currency and on net was a borrower.E) None of the above
F) B) and D)

Question 16

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 17

"Leaning against the wind" is exemplified by an)

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) B) and C)
F) All of the above

Question 18

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce shoeleather costs and permanently lower unemployment
B)   permanently reduce shoeleather costs and temporarily raise unemployment
C)   temporarily reduce shoeleather costs and temporarily lower unemployment
D)   temporarily reduce shoeleather costs and temporarily raise unemploymentE) All of the above
F) C) and D)

Question 19

Which of the following things can a government do to lower the costs of inflation?

Accepted Answer

A)   sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed
B)   sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed
C)   rewrite tax laws so that real rather than nominal gains are taxed, but not sell inflation-indexed bonds
D)   neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxedE) A) and B)
F) A) and C)

Question 20

Critics of active monetary and fiscal policy emphasize

Accepted Answer

A)   that policy affects the economy with a lag and our ability to forecast future economic conditions is poor.
B)   "leaning against the wind" of economic change to stabilize the economy.
C)   cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive.
D)   boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low.E) All of the above
F) A) and B)

Exam 23: Six Debates Over Macroeconomic Policy

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Correct Answer
verified

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Correct Answer
verified

Economists

Correct Answer
verified

Stimulus spending in 2009 was used for

Correct Answer
verified

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Correct Answer
verified

Which of the following things can a government do to lower the costs of inflation?

Correct Answer
verified

Critics of active monetary and fiscal policy emphasize

Correct Answer
verified

In which cases were tax cuts followed by robust growth?

Correct Answer
verified

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

Correct Answer
verified

Approximately how often does the Federal Open Market Committee meet?

Correct Answer
verified
The FOMC m...
View Answer

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

Correct Answer
verified

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

Correct Answer
verified

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct Answer
verified

The effect of budget deficits on interest rates

Correct Answer
verified

Correct Answer
verified

"Leaning against the wind" is exemplified by an)

Correct Answer
verified

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct Answer
verified

A permanent reduction in inflation would

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 are justifications for running a budget deficit?

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Correct AnswerverifiedShow Answer

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

Stimulus spending in 2009 was used for

Correct AnswerverifiedShow Answer

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

Which of the following things can a government do to lower the costs of inflation?

Correct AnswerverifiedShow Answer

Critics of active monetary and fiscal policy emphasize

Correct AnswerverifiedShow Answer

In which cases were tax cuts followed by robust growth?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Approximately how often does the Federal Open Market Committee meet?

Correct AnswerverifiedThe FOMC m...View AnswerShow Answer

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

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

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct AnswerverifiedShow Answer

The effect of budget deficits on interest rates

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

"Leaning against the wind" is exemplified by an)

Correct AnswerverifiedShow Answer

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

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 are justifications for running a budget deficit?

Correct AnswerverifiedShow Answer

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The FOMC m...
View 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
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Correct Answer
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Correct Answer
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