Question 1

Which of the following is correct?

Accepted Answer

A)   No forms of capital income are taxed twice.
B)   The tax code cannot be rewritten to provide greater incentive to save.
C)   Means-tested benefits increase the incentive to save.
D)   There is a correlation between national savings rates and measures of economic well-being.E) A) and B)
F) C) and D)

Question 2

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl...

Question 3

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

Question 4

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 not currently the case in the United States.
D)   the profits of corporations and the dividends shareholders receive are taxed,which is currently the case in the United States.E) None of the above
F) A) and C)

Question 5

Paul Volcker's inflation reduction efforts

Accepted Answer

A)   failed to reduce inflation.
B)   failed to reduce expected inflation.
C)   resulted in the highest unemployment rate since the Great Depression.
D)   make hime reviled by central bankers.E) A) and D)
F) A) and C)

Question 6

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) A) and B)
F) All of the above

Question 7

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)   In a country where inflation has been high for a long time,there are no costs to the inflation.E) B) and C)
F) A) and D)

Question 8

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A)   Taxes are raised to provide better education.
B)   Taxes are raised to improve government infrastructure such as roads and bridges.
C)   Taxes are raised to provide more generous Social Security benefits.
D)   None of the above transfer wealth form the young to the old.E) C) and D)
F) A) and B)

Question 9

An individual would suffer higher losses by an unexpectedly higher inflation rate if

Accepted Answer

A)   she held much currency and owned few bonds.
B)   she held much currency and owned many bonds.
C)   she held little currency and owned few bonds.
D)   she held little currency and owned many bonds.E) A) and D)
F) None of the above

Question 10

Which of the following expressions best sums up the mandate of members of the Federal Open Market Committee?

Accepted Answer

A)   "Do the right thing".
B)   "Do no harm".
C)   "A penny saved is a penny earned".
D)   "A rising tide lifts all boats".E) B) and C)
F) A) and C)

Question 11

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)   decreasing government expenditures.E) B) and D)
F) None of the above

Question 12

Zero inflation

Accepted Answer

A)   might be dangerous because it could lead to rapidly increasing prices.
B)   would limit the flexibility of the labor market and so could at times raise unemployment.
C)   would make it easy for the Central bank to create negative real interest rates.
D)   is impossible to achieve in the real world.E) A) and B)
F) A) and D)

Question 13

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 14

The Federal Open Market Committee

Accepted Answer

A)   operates with almost complete discretion over monetary policy.
B)   is required to increase the money supply by a given growth rate each year.
C)   is required to keep the interest rate within a range set by Congress.
D)   is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.E) C) and D)
F) A) and B)

Question 15

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

Question 16

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 17

The time inconsistency of monetary policy means that

Accepted Answer

A)   once people have formed expectations of low inflation based on a promise by the central bank,the central bank is tempted to raise inflation to lower unemployment.
B)   at some times central banks think it is more important to keep unemployment low;at other times,they think it is more important to keep inflation low.
C)   monetary policy is not consistent across time because it is influenced by politics.
D)   monetary policy is not consistent across time because policymakers are incompetent.E) A) and B)
F) A) and C)

Question 18

The economy goes into recession.Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

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

Question 19

Alan Blinder believes

Accepted Answer

A)   we must attain zero percent inflation.
B)   the sacrifice for zero inflation is small.
C)   the costs from low inflation are modest.
D)   balanced budgets are essential to inflation targetting.E) A) and B)
F) A) and C)

Question 20

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Exam 36: Five Debates Over Macroeconomic Policy

Zero inflation

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The Federal Open Market Committee

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Paul Volcker's inflation reduction efforts

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Double taxation means that both

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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

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The economy goes into recession.Which of the following lists contains things policymakers could do to try to end the recession?

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Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

Which of the following expressions best sums up the mandate of members of the Federal Open Market Committee?

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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

An economist would be more likely to argue against reducing inflation if she thought that

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Alan Blinder believes

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The time inconsistency of monetary policy means that

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If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

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Which of the programs below would transfer wealth from the young to the old?

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Which of the following is correct?

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

Correct AnswerverifiedShow Answer

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

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

An individual would suffer higher losses by an unexpectedly higher inflation rate if

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

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If inflation is usually about what peopl...
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The political business cycle describes t...
View Answer

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