Question 1

Which of the following are both correct?

Accepted Answer

A)   Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
B)   Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.
C)   Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
D)   Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.E) C) and D)
F) B) and D)

Question 2

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

Question 3

Some economists argue that since inflation

Accepted Answer

A)   raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
B)   raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.
C)   reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
D)   reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.E) A) and C)
F) None of the above

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

Question 5

Which of the following is correct?

Accepted Answer

A)   Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)   Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)   Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)   Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.E) A) and D)
F) None of the above

Question 6

Time inconsistency will cause the

Accepted Answer

A)   short-run Phillips curve to be higher than otherwise.
B)   short-run Phillips curve to be lower the otherwise.
C)   long-run Phillips curve to be farther to the right than otherwise.
D)   long-run Phillips curve to be farther left than otherwise.E) B) and D)
F) A) and D)

Question 7

An individual would suffer higher losses from 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) All of the above
F) A) and B)

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)   In a country where inflation has been high for a long time, there are no costs to the inflation.E) None of the above
F) B) and D)

Question 9

Which of the following is an argument in favor of a balanced budget rule?

Accepted Answer

A)   Some economists believe that rules are better than discretion.
B)   Per-capita debt is small relative to lifetime income.
C)   The effect of deficit spending on future generations depends in part on what the government buys.
D)   Other government policies also redistribute income across generations.E) None of the above
F) A) and C)

Question 10

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) All of the above

Question 11

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

A)   .99 and 1.59.
B)   1.59 and .99
C)   1.3 and 1.7
D)   1.7 and 1.3E) B) and C)
F) C) and D)

Question 12

If the public correctly perceives that the central bank will reduce inflation, then

Accepted Answer

A)   the short-run Phillips curve shifts right, and the sacrifice ratio will be higher.
B)   the short-run Phillips curve shifts right, and the sacrifice ratio will be lower.
C)   the short-run Phillips curve shifts left, and the sacrifice ratio will be higher.
D)   the short-run Phillips curve shifts left, and the sacrifice ratio will be lower.E) A) and B)
F) None of the above

Question 13

The Fed lowered interest rates in 2007 and 2008. 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) C) and D)
F) None of the above

Question 14

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

Accepted Answer

A)   Increased spending, increased aggregate demand, rising real GDP and a falling unemployment rate.
B)   Decreased spending, increased aggregate demand, rising real GDP and a falling unemployment rate.
C)   Decreased spending, decreased aggregate demand, falling real GDP and a falling unemployment rate.
D)   Decreased spending, decreased aggregate demand, falling real GDP and a rising unemployment rate.E) B) and D)
F) B) and C)

Question 15

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Accepted Answer

A)   some forms of capital income are taxed twice
B)   if they are large enough, bequests are taxed
C)   both a and b
D)   neither a nor bE) C) and D)
F) B) and D)

Question 16

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time ...

Question 17

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

A)   credible so that the sacrifice ratio is low.
B)   credible so that the sacrifice ratio is high.
C)   unexpected so that the sacrifice ratio is high.
D)   unexpected so that the sacrifice ratio is low.E) C) and D)
F) None of the above

Question 18

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Accepted Answer

According to the traditional Keynesian m...

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

Question 20

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)   Saving is a key determinant of long-run prosperity.
B)   Current tax laws discourage saving for the purpose of leaving a large bequest.
C)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
D)   The tax code currently taxes some forms of capital income twice.E) C) and D)
F) A) and B)

Exam 18: Six Debates Over Macroeconomic Policy

The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

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Explain why policy lags could make stabilization policies counterproductive.

Correct AnswerverifiedAs the textbook explains, it takes time ...View AnswerShow Answer

Time inconsistency will cause the

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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

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

Correct AnswerverifiedShow Answer

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Correct AnswerverifiedAccording to the traditional Keynesian m...View AnswerShow Answer

Some economists argue that since inflation

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Inflation reduction has the lowest cost when the efforts are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following are both correct?

Correct AnswerverifiedShow Answer

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

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

Which of the following is an argument in favor of a balanced budget rule?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If the public correctly perceives that the central bank will reduce inflation, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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As the textbook explains, it takes time ...
View Answer

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According to the traditional Keynesian m...
View Answer

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