Question 1

As it is usually practiced, inflation targeting sets

Accepted Answer

A)   a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number.
B)   a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number.
C)   sets some range of inflation rates for the central bank to target but prohibits it from deviating from that range even when some shock pushes inflation outside the range.
D)   sets some range of inflation rates for the central bank to target but allows it to deviate from that range even when some shock pushes inflation outside the range.E) C) and D)
F) All of the above

Question 2

U.S. public policy discourages saving because

Accepted Answer

A)   other things the same, taxes increase the return from savings.
B)   means tested programs such as Medicaid provide lower benefits to those who did not save.
C)   none of parents' bequest to their children is taxed.
D)   some forms of capital income are taxed twice.E) A) and B)
F) All of the above

Question 3

Which of the following is not correct?

Accepted Answer

A)   A potential cost of deficits is that they reduce national saving, thereby reducing growth of the capital stock and output growth.
B)   Deficits give people the opportunity to consume at the expense of their children, but they do not require them to do so.
C)   The U.S. debt per-person is large compared with average lifetime income.
D)   Current spending may benefit future generations.E) A) and D)
F) A) and B)

Question 4

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 5

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Accepted Answer

A) True 
 B)False

Question 6

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 7

Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 percent per year. Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency. Which of the following government spending and taxation figures will not raise the debt-to-income ratio?

Accepted Answer

A)   government spending equal to 50 billion units and tax collections equal to 76 billion units
B)   government spending equal to 50 billion units and tax collections equal to 14 billion units
C)   government spending equal to 50 billion units and tax collections equal to 10 billion units
D)   government spending equal to 50 billion units and tax collections equal to 8 billion unitsE) C) and D)
F) A) and B)

Question 8

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)   the government raise taxes or cut expenditures. This would increase the magnitude of economic fluctuations.
B)   the government raise taxes or cut expenditures. This would decrease the magnitude of economic fluctuations.
C)   the government cut taxes or raise expenditures. This would increase the magnitude of economic fluctuations.
D)   the government cut taxes or raise expenditures. This would decrease the magnitude of economic fluctuations.E) B) and D)
F) None of the above

Question 9

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 10

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3.2% and inflation were 1.6%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $150.4 billion
B)   about $188.0 billion
C)   about $451.2 billion
D)   about $481.3 billionE) A) and B)
F) C) and D)

Question 11

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 12

Real interest rates

Accepted Answer

A)   cannot be negative.
B)   can be negative only if inflation is negative.
C)   can be negative only if inflation is zero.
D)   can be negative only if inflation is greater than zero.E) C) and D)
F) B) and C)

Question 13

The Federal Reserve

Accepted Answer

A)   requires little time to change policy and aggregate demand responds quickly.
B)   requires little time to change policy but aggregate demand responds slowly.
C)   usually requires a substantial time to change policy but aggregate demand responds quickly.
D)   usually requires a substantial time to change policy and aggregate demand responds slowly.E) A) and C)
F) A) and B)

Question 14

As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

Accepted Answer

A)   more quickly and more likely to be spent on projects with little benefit.
B)   more quickly but less likely to be spent on projects with little benefit.
C)   less quickly but more likely to be spent on projects with little benefit.
D)   less quickly and more likely to be spent on projects with little benefit.E) A) and D)
F) All of the above

Question 15

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)   None of the above are correct.E) A) and B)
F) None of the above

Question 16

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 17

If a reduction in taxes on savings reduced the amount of private saving, then the

Accepted Answer

A)   income effect equaled the substitution effect.
B)   income effect outweighed the substitution effect.
C)   the substitution effect outweighed the income effect.
D)   None of the above.E) A) and B)
F) None of the above

Question 18

A higher rate of return on saving has

Accepted Answer

A)   an income effect that discourages saving and a substitution effect that encourages saving.
B)   an income effect that encourages saving and a substitution effect that discourages saving.
C)   income and substitution effects that both decrease saving.
D)   income and substitution effects that both increase saving.E) B) and C)
F) C) and D)

Question 19

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Accepted Answer

A)   increases the interest rate and decreases spending on capital goods.
B)   increases the interest rate and increases spending on capital goods.
C)   decreases the interest rate and increases spending on capital goods.
D)   decreases the interest rate and decreases spending on capital goods.E) A) and C)
F) C) and D)

Question 20

Which of the following is not correct?

Accepted Answer

A)   Government debt can continue to rise forever.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   Social Security does not transfer wealth from younger generations to older generations.
D)   The average U.S. citizens' share of the government debt represents about 1 percent of her lifetime income.E) None of the above
F) B) and C)

Exam 18: Six Debates Over Macroeconomic Policy

A higher rate of return on saving has

Correct Answer
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Correct Answer
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Real interest rates

Correct Answer
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A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Correct Answer
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At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3.2% and inflation were 1.6%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
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U.S. public policy discourages saving because

Correct Answer
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The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct Answer
verified

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Correct Answer
verified

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

Correct Answer
verified
The political business cycle describes t...
View Answer

A balanced budget would require that when real GDP was growing rapidly,

Correct Answer
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As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

Correct Answer
verified

The Federal Reserve

Correct Answer
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If a reduction in taxes on savings reduced the amount of private saving, then the

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

As it is usually practiced, inflation targeting sets

Correct Answer
verified

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct Answer
verified

Paul Volcker's inflation reduction efforts

Correct Answer
verified

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Correct Answer
verified

Which of the following is not correct?

Correct Answer
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Tax cuts affect only aggregate demand not aggregate supply.

Correct Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

A higher rate of return on saving has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Real interest rates

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Correct AnswerverifiedShow Answer

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3.2% and inflation were 1.6%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

U.S. public policy discourages saving because

Correct AnswerverifiedShow Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct AnswerverifiedShow Answer

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

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

A balanced budget would require that when real GDP was growing rapidly,

Correct AnswerverifiedShow Answer

As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

If a reduction in taxes on savings reduced the amount of private saving, then the

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

As it is usually practiced, inflation targeting sets

Correct AnswerverifiedShow Answer

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct AnswerverifiedShow Answer

Paul Volcker's inflation reduction efforts

Correct AnswerverifiedShow Answer

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Tax cuts affect only aggregate demand not aggregate supply.

Correct AnswerverifiedShow Answer

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Correct Answer
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The political business cycle describes t...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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