Question 1

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 2

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 demand shifts right,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 C)
F) B) and D)

Question 3

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Accepted Answer

A)   both the tax cut and the increase in government expenditures would tend to increase output.
B)   only the tax cut would tend to increase output.
C)   only the increase in government expenditures would tend to increase output.
D)   neither the tax cut nor the increase in government expenditures would tend to increase output.E) A) and B)
F) All of the above

Question 4

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 5

The principal lag for monetary policy

Accepted Answer

A)   and fiscal policy is the time it takes to implement policy.
B)   and fiscal policy is the time it takes for policy to change spending.
C)   is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending.
D)   is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it.E) A) and B)
F) A) and C)

Question 6

Which of the following likely occurs when households and firms are pessimistic?

Accepted Answer

A)   Increased spending.
B)   Increased aggregate demand.
C)   Real GDP rises.
D)   The unemployment rate increases.E) All of the above
F) C) and D)

Question 7

The five debates over macroeconomic policy exist mostly because

Accepted Answer

A)   economists disagree over basic issues such as the importance of saving for economic growth.
B)   there are tradeoffs and people disagree about the best way to deal with them.
C)   politicians offer misleading information.
D)   people fail to clearly see the benefits or the costs of most changes.E) A) and B)
F) A) and C)

Question 8

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

Accepted Answer

A)   increasing government spending.
B)   decreasing the money supply.
C)   increasing taxes.
D)   undertaking no policy action.E) None of the above
F) A) and B)

Question 9

In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.This change in sentiment would likely

Accepted Answer

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

Question 10

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Accepted Answer

A)   Saving is not very responsive to changes in the tax rate.
B)   Saving is not an important determinant of a nation's ability to produce output.
C)   Reducing the budget deficit instead of changing the tax laws could raise saving.
D)   Changes in the tax laws to induce saving would distribute the tax burden less fairly.E) None of the above
F) A) and C)

Question 11

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 14

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) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Means-tested programs tend to favor

Accepted Answer

A)   those with high income as would a consumption tax.
B)   those with high income while a consumption tax would favor those with low income.
C)   those with low income as would a consumption tax.
D)   those with low income while a consumption tax would favor those with high income.E) A) and B)
F) None of the above

Question 17

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Accepted Answer

A higher rate of return on saving means ...

Question 18

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   About $63 billion.
B)   About $165 billion.
C)   About $267 billion.
D)   About $429 billion.E) B) and D)
F) A) and D)

Question 19

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

Question 20

In 2008 the federal debt was

Accepted Answer

A)   $17 billion.
B)   $710 billion.
C)   $5.2 trillion.
D)   $52 trillion.E) B) and C)
F) B) and D)

Exam 36: Five Debates Over Macroeconomic Policy

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

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

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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 demand shifts right,the central bank must

Correct AnswerverifiedShow Answer

Means-tested programs tend to favor

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In general,the longest lag for

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A nation's saving rate is not a primary determinant of its long-run economic prosperity.

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In 2008 the federal debt was

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Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

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Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

The five debates over macroeconomic policy exist mostly because

Correct AnswerverifiedShow Answer

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.This change in sentiment would likely

Correct AnswerverifiedShow Answer

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

Correct AnswerverifiedShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

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

Which of the following likely occurs when households and firms are pessimistic?

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 principal lag for monetary policy

Correct AnswerverifiedShow Answer

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A higher rate of return on saving means ...
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