Question 1

Which of the following is not correct?

Accepted Answer

A)  Some forms of capital income are taxed twice.
B)  The tax code could be rewritten to provide greater incentive to save.
C)  Means-tested benefits reduce the incentive to save.
D)  There is little correlation between national savings rates and measures of economic well-being.E) B) and C)
F) C) and D)

Question 2

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A)  high, and the reduction is unexpected.
B)  high, and the reduction is expected.
C)  low, and the reduction is unexpected.
D)  low, and the reduction is expected.E) A) and D)
F) A) and B)

Question 3

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 4

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 5

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 supply shifts left,the central bank must

Accepted Answer

A)  decrease the money supply, which will move output back towards its long-run level.
B)  decrease the money supply, which will move output farther from its long-run level.
C)  increase the money supply, which will move output back towards its long-run level.
D)  increase the money supply, which will move output farther from its long-run level.E) A) and B)
F) A) and C)

Question 6

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Accepted Answer

A)  the central bank would have to decrease the money supply which would decrease output.
B)  the central bank would have to decrease the money supply which would increase output.
C)  the central bank would have to increase the money supply which would decrease output.
D)  the central bank would have to increase the money supply which would increase output.E) None of the above
F) A) and B)

Question 7

In general,the longest lag for

Accepted Answer

A)  both fiscal and monetary policy is the time it takes to change policy.
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand.
C)  monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand.
D)  fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.E) C) and D)
F) B) and D)

Question 8

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Accepted Answer

A)  High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
B)  Inflation reduction works best when it is unexpected, and people in high inflation countries would quickly anticipate any change in monetary policy.
C)  In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 9

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 10

Consider the following rule for monetary policy: r = 2 percent + π + 1/2(y - y*) /y* + 1/2(π- π*) ,where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output,π is the inflation rate,and π* is the inflation target.Which of the following statements is not correct?π

Accepted Answer

A)  If aggregate demand shifts right from long-run equilibrium, this rule unambiguously implies that the Fed increases the nominal interest rate.
B)  If aggregate supply shifts right from long-run equilibrium at the inflation target, we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate.
C)  If output is at its natural level, but inflation is above its target, the Fed must increase the nominal interest rate.
D)  If inflation is at its targeted level, but output is above its natural rate, the Fed must decrease the federal funds rate.E) B) and D)
F) A) and C)

Question 11

If a central bank had to give ups its discretion and follow a rule that required it to keep inflation low,

Accepted Answer

A)  the short-run Phillips curve would shift up.
B)  the short-run Phillips curve would shift down.
C)  the long-run Phillips curve would shift right.
D)  the long-run Phillips curve would shift left.E) A) and D)
F) None of the above

Question 12

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Accepted Answer

A)  real GDP rose and the inflation rate were positive.
B)  real GDP rose and the inflation rate were negative.
C)  real GDP fell and the inflation rate were positive.
D)  real GDP fell and the inflation rate were negative.E) B) and C)
F) A) and C)

Question 13

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 14

Proponents of tax-law changes to encourage saving would

Accepted Answer

A)  argue that corporate tax rates should be increased.
B)  eliminate or reduce the means-tests for government benefits.
C)  argue that state sales tax should be replaced with state income tax.
D)  favor none of the above programs.E) All of the above
F) B) and C)

Question 15

Which of the following is not correct?

Accepted Answer

A)  Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)  The only times deficits have increased have been during times of war or economic downturns.
D)  Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.E) C) and D)
F) A) and C)

Question 16

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Accepted Answer

A)  sustainable, but the future burden on your children cannot be offset.
B)  sustainable, and the future burden on your children can be offset if you save for them.
C)  not sustainable, and the future burden on your children cannot be offset.
D)  not sustainable, but the future burden on your children can be offset if you save for them.E) C) and D)
F) B) and C)

Question 17

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

Question 18

If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)  decreasing the money supply.
B)  increasing taxes.
C)  increasing government expenditures.
D)  None of the above is correct.E) None of the above
F) C) and D)

Question 19

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax increase when there is a recession.
B)  decrease in the money supply when there is an expansion.
C)  decrease in government expenditures when there is a recession.
D)  All of the above are correct.E) C) and D)
F) A) and C)

Question 20

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

Accepted Answer

A)  would have to increase the money supply.This would move unemployment closer to the natural rate.
B)  would have to increase the money supply.This would move unemployment further from the natural rate.
C)  would have to decrease the money supply.This would move unemployment closer to the natural rate.
D)  would have to decrease the money supply.This would move unemployment further from the natural rate.E) B) and C)
F) A) and C)

Exam 36: Five Debates Over Macroeconomic Policy

"Leaning against the wind" is exemplified by a

Correct Answer
verified

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Correct Answer
verified

Social Security transfers wealth from younger generations to older generations.

Correct Answer
verified

Proponents of tax-law changes to encourage saving would

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 is not correct?

Correct Answer
verified

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Correct Answer
verified

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

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

Which of the following is not correct?

Correct Answer
verified

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 supply shifts left,the central bank must

Correct Answer
verified

If a central bank had to give ups its discretion and follow a rule that required it to keep inflation low,

Correct Answer
verified

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Correct Answer
verified

If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Correct Answer
verified

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

Correct Answer
verified

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Correct Answer
verified

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct Answer
verified

In general,the longest lag for

Correct Answer
verified

Correct Answer
verified

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Correct Answer
verified

Exam 36: Five Debates Over Macroeconomic Policy

"Leaning against the wind" is exemplified by a

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Correct AnswerverifiedShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

Proponents of tax-law changes to encourage saving would

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 is not correct?

Correct AnswerverifiedShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Correct AnswerverifiedShow Answer

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

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

Which of the following is not correct?

Correct AnswerverifiedShow 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 supply shifts left,the central bank must

Correct AnswerverifiedShow Answer

If a central bank had to give ups its discretion and follow a rule that required it to keep inflation low,

Correct AnswerverifiedShow Answer

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Correct AnswerverifiedShow Answer

If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Correct AnswerverifiedShow Answer

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

Correct AnswerverifiedShow Answer

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Correct AnswerverifiedShow Answer

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct AnswerverifiedShow Answer

In general,the longest lag for

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Correct AnswerverifiedShow 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
Those who oppose stabilization policy mo...
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