Question 1

Fluctuations in employment and output result from changes in

Accepted Answer

A)  aggregate demand only.
B)  aggregate supply only.
C)  aggregate demand and aggregate supply.
D)  neither aggregate demand nor aggregate supply.E) A) and B)
F) None of the above

Question 2

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 3

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t...

Question 4

Proponents of zero inflation argue that a successful program to reduce inflation

Accepted Answer

A)  eventually reduces inflation expectations.
B)  eventually raises real interest rates.
C)  permanently decreases output.
D)  permanently raises unemployment.E) B) and C)
F) B) and D)

Question 5

If tax rates are raised to avoid a deficit during a recession, then

Accepted Answer

A)  real GDP and deadweight loss from taxes will rise.
B)  real GDP will rise and deadweight loss from taxes will fall.
C)  real GDP will fall and deadweight loss from taxes will rise.
D)  real GDP and deadweight loss from taxes will fall.E) None of the above
F) All of the above

Question 6

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Accepted Answer

A) True 
 B)False

Question 7

Part of the lag in monetary policy effects is due to

Accepted Answer

A)  the long political process of monetary policy decisions.
B)  precise economic forecasts.
C)  the time required for firms and households to alter their spending plans.
D)  changes in the unemployment rate.E) C) and D)
F) A) and D)

Question 8

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

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

The Federal Reserve

Accepted Answer

A)  does not have an inflation targe; if it did it would likely be 1% or less.
B)  does not have an inflation target; if it did it would likely be in the range of 2%.
C)  does have an inflation target; it is 1%.
D)  does have an inflation target; it is a range from 1-3%.E) A) and D)
F) B) and C)

Question 11

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

Question 12

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 C)
F) None of the above

Question 13

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Accepted Answer

A)  increase the money supply.
B)  decrease government expenditures.
C)  increase taxes.
D)  do nothing.E) B) and C)
F) A) and D)

Question 14

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

Question 15

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Accepted Answer

A)  small and an increase in private saving tends to have a small impact on the capital stock.
B)  small and an increase in private saving tends to have a large impact on the capital stock.
C)  large and an increase in private saving tends to have a small impact on the capital stock.
D)  large and an increase in private saving tends to have a large impact on the capital stock.E) None of the above
F) B) and C)

Question 16

If the budget deficit were reduced

Accepted Answer

A)  interest rates and investment would increase.
B)  interest rates would increase and investment would decrease.
C)  interest rates and investment would decrease.
D)  interest rates would decrease and investment would increase.E) C) and D)
F) A) and D)

Question 17

The Federal Reserve will tend to tighten monetary policy when

Accepted Answer

A)  interest rates are rising too rapidly.
B)  it thinks the unemployment rate is too high.
C)  the growth rate of real GDP is quite sluggish.
D)  it thinks inflation is too high today, or will become too high in the future.E) A) and D)
F) All of the above

Question 18

Means-tested government benefits base benefits on

Accepted Answer

A)  a household's wealth and are an incentive to save.
B)  a household's wealth and are a disincentive to save.
C)  the current interest rate and are an incentive to save.
D)  the current interest rate and are a disincentive to save.E) None of the above
F) A) and D)

Question 19

The cost of inflation reduction is a large, permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Accepted Answer

The benefits of the project ac...

Exam 23: Six Debates Over Macroeconomic Policy

If tax rates are raised to avoid a deficit during a recession, then

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Suppose aggregate demand fell. In order to stabilize the economy, the government might

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Part of the lag in monetary policy effects is due to

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

Proponents of zero inflation argue that a successful program to reduce inflation

Correct AnswerverifiedShow Answer

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

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

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct AnswerverifiedThe political business cycle describes t...View AnswerShow Answer

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

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Stimulus spending in 2009 was used for

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The cost of inflation reduction is a large, permanent increase in unemployment.

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Fluctuations in employment and output result from changes in

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A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

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The Federal Reserve will tend to tighten monetary policy when

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The Federal Reserve

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

Correct AnswerverifiedShow Answer

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Correct AnswerverifiedThe benefits of the project ac...View AnswerShow Answer

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct AnswerverifiedShow Answer

Means-tested government benefits base benefits on

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If the budget deficit were reduced

Correct AnswerverifiedShow Answer

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The political business cycle describes t...
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The benefits of the project ac...
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