Question 1

Which of the following are both correct?

Accepted Answer

A)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
B)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.
C)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
D)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.E) A) and D)
F) A) and C)

Question 2

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

A)  Federal Reserve increase the money supply or the government increase taxes.
B)  Federal Reserve increase the money supply or the government decrease taxes.
C)  Federal Reserve decrease the money supply or the government increase taxes.
D)  Federal Reserve decrease the money supply or the government decrease taxes.E) B) and C)
F) C) and D)

Question 3

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 4

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections the Fed would

Accepted Answer

A)  raise interest rates to shift aggregate demand left.
B)  raise interest rates to shift aggregate demand right.
C)  reduce interest rates to shift aggregate demand left.
D)  reduce interest rates to shift aggregate demand right.E) C) and D)
F) All of the above

Question 5

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Accepted Answer

Tax policies designed to encourage savin...

Question 6

Explain what is meant by the time inconsistency of monetary policy.

Accepted Answer

The time inconsistency of monetary polic...

Question 7

Which of the following is an argument in favor of a balanced budget rule?

Accepted Answer

A)  Some economists believe that rules are better than discretion.
B)  Per-capita debt is small relative to lifetime income.
C)  The effect of deficit spending on future generations depends in part on what the government buys.
D)  Other government policies also redistribute income across generations.E) All of the above
F) C) and D)

Question 8

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt-to-GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)  10.0 trillion
B)  6.7 trillion
C)  4 trillion
D)  None of the above are correct.E) B) and D)
F) B) and C)

Question 9

The Fed lowered interest rates in 2001 and 2002. 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) A) and B)
F) B) and C)

Question 10

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance, o...

Question 11

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt-to-income ratio?

Accepted Answer

The government could run a def...

Question 12

In the summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Accepted Answer

A)  shift aggregate demand to the left.
B)  increase output.
C)  decrease unemployment.
D)  increase prices.E) A) and D)
F) A) and C)

Question 13

In addition to the tax code, other policies reduce the incentives for people to save Provide an example.

Accepted Answer

Some government benefits are m...

Question 14

Economists

Accepted Answer

A)  agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)  agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)  disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)  disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.E) None of the above
F) A) and C)

Question 15

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 16

IRAs, and 401(k)  and 403(b)  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) A) and B)

Question 17

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 18

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 B)
F) A) and D)

Question 19

The Federal Open Market Committee

Accepted Answer

A)  by law must focus on maintaining low inflation rather than stabilizing output.
B)  by law must focus on stabilizing output rather than maintaining low inflation.
C)  by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target.
D)  operates with almost complete discretion over monetary policy.E) All of the above
F) A) and D)

Question 20

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A)  arbitrary redistributions of wealth
B)  shoeleather costs
C)  menu costs
D)  none of the above is correct.E) All of the above
F) A) and D)

Exam 36: Six Debates Over Macroeconomic Policy

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

In addition to the tax code, other policies reduce the incentives for people to save Provide an example.

Correct AnswerverifiedSome government benefits are m...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

IRAs, and 401(k) and 403(b) plans

Correct AnswerverifiedShow Answer

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct AnswerverifiedShow Answer

Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt-to-income ratio?

Correct AnswerverifiedThe government could run a def...View AnswerShow Answer

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt-to-GDP ratio was unchanged. About what was it's debt at the start of last year?

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Correct AnswerverifiedTax policies designed to encourage savin...View AnswerShow Answer

In the summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Correct AnswerverifiedShow Answer

Which of the following are both correct?

Correct AnswerverifiedShow Answer

Which of the following is an argument in favor of a balanced budget rule?

Correct AnswerverifiedShow Answer

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Correct AnswerverifiedShow Answer

Explain what is meant by the time inconsistency of monetary policy.

Correct AnswerverifiedThe time inconsistency of monetary polic...View AnswerShow Answer

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections the Fed would

Correct AnswerverifiedShow Answer

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Correct AnswerverifiedMeans-tested benefits give assistance, o...View AnswerShow Answer

The Federal Open Market Committee

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

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Which costs of inflation could the government reduce without reducing inflation?

Correct AnswerverifiedShow Answer

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Some government benefits are m...
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Time inconsistency refers to the idea th...
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The government could run a def...
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Correct Answer
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Tax policies designed to encourage savin...
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Correct Answer
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The time inconsistency of monetary polic...
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Means-tested benefits give assistance, o...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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