Question 1

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 2

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) C) and D)

Question 3

Paul Volcker, former chair of the Fed, implemented

Accepted Answer

A)   contractionary policy which increased the popularity of the U.S. president who had appointed him.
B)   contractionary policy which decreased the popularity of the U.S. president who had appointed him.
C)   expansionary policy which increased the popularity of the U.S. president who had appointed him.
D)   expansionary policy which decreased the popularity of the U.S. president who had appointed him.E) A) and C)
F) None of the above B

Question 4

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Accepted Answer

A)   inflation targeting.
B)   the monetary policy reaction lag.
C)   the time inconsistency of policy.
D)   the sacrifice ratio dilemma.E) A) and D)
F) B) and C)

Question 5

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) A) and B)

Question 6

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Accepted Answer

A)   decreasing the money supply and cutting taxes.
B)   decreasing the money supply and raising taxes.
C)   increasing the money supply and cutting taxes.
D)   increasing the money supply and raising taxes.E) A) and D)
F) A) and B) C

Question 7

"Leaning against the wind" is exemplified by an)

Accepted Answer

A)   tax increase when there is a recession.
B)   decrease in the money supply when there is a recession.
C)   increase in government expenditures when there is a recession.
D)   All of the above are correct.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) B) and C)

Question 9

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)   stabilizing the economy during a recession
B)   future generations will benefit from some current expenditures
C)   both a and b
D)   neither a nor bE) A) and B)
F) C) and D) B

Question 10

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 11

Which of the following is a cost of inflation?

Accepted Answer

A)   shoeleather costs
B)   menu costs
C)   relative price variability
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 12

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to-income ratio constant?

Accepted Answer

A)   government spending equal to 30 billion units and tax collections equal to 25 billion units
B)   government spending equal to 30 billion units and tax collections equal to 20 billion units
C)   government spending equal to 30 billion units and tax collections equal to 10 billion units
D)   government spending equal to 30 billion units and tax collections equal to 5 billion unitsE) None of the above
F) B) and C)

Question 13

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)   decrease the money supply
B)   increase taxes
C)   increase government expenditures
D)   Do nothing and let markets correct themselves.E) None of the above
F) B) and D)

Question 14

The political business cycle refers to

Accepted Answer

A)   the fact that about every four years some politician advocates greater government control of the Fed.
B)   the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)   the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)   changes in output created by the monetary rule the Fed must follow.E) B) and C)
F) A) and D)

Question 15

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 16

The average person's share of the U.S. government debt as a percentage of lifetime income is

Accepted Answer

A)   less than 2 percent.
B)   about 5 percent.
C)   about 10 percent.
D)   over 12 percent.E) A) and B)
F) None of the above

Question 17

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)   avoiding raising tax rates
B)   stabilizing an economy during a recession
C)   both a and b
D)   neither a nor bE) A) and D)
F) B) and C)

Question 18

Explain how tax cuts can increase aggregate supply.

Accepted Answer

When the government reduces marginal tax...

Question 19

Economists

Accepted Answer

A)   agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)   agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)   disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)   disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.E) None of the above
F) A) and D)

Question 20

Which of the following is true concerning IRA's, 401k)  and 403b)  plans?

Accepted Answer

A)   There are no limits on the amount of funds people can hold in them.
B)   Some people are not eligible to hold them.
C)   There are never penalties for withdrawals.
D)   All of the above are correct.E) B) and D)
F) All of the above

Exam 18: Six Debates Over Macroeconomic Policy

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Correct Answer
verified

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

Correct Answer
verified

Paul Volcker, former chair of the Fed, implemented

Correct Answer
verified
B

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Correct Answer
verified

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 Answer
verified

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Correct Answer
verified
C

"Leaning against the wind" is exemplified by an)

Correct Answer
verified

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

Correct Answer
verified

Which of the following are justifications for running a budget deficit?

Correct Answer
verified
B

Explain the time inconsistency of monetary policy.

Correct Answer
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Time inconsistency refers to the idea th...
View Answer

Which of the following is a cost of inflation?

Correct Answer
verified

Correct Answer
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Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Correct Answer
verified

The political business cycle refers to

Correct Answer
verified

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 Answer
verified
If inflation is usually about what peopl...
View Answer

The average person's share of the U.S. government debt as a percentage of lifetime income is

Correct Answer
verified

Which of the following are justifications for running a budget deficit?

Correct Answer
verified

Explain how tax cuts can increase aggregate supply.

Correct Answer
verified
When the government reduces marginal tax...
View Answer

Economists

Correct Answer
verified

Which of the following is true concerning IRA's, 401k) and 403b) plans?

Correct Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

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

Paul Volcker, former chair of the Fed, implemented

Correct AnswerverifiedB

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

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

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Correct AnswerverifiedC

"Leaning against the wind" is exemplified by an)

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

Which of the following are justifications for running a budget deficit?

Correct AnswerverifiedB

Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Which of the following is a cost of inflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Correct AnswerverifiedShow Answer

The political business cycle refers to

Correct AnswerverifiedShow Answer

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

The average person's share of the U.S. government debt as a percentage of lifetime income is

Correct AnswerverifiedShow Answer

Which of the following are justifications for running a budget deficit?

Correct AnswerverifiedShow Answer

Explain how tax cuts can increase aggregate supply.

Correct AnswerverifiedWhen the government reduces marginal tax...View AnswerShow Answer

Economists

Correct AnswerverifiedShow Answer

Which of the following is true concerning IRA's, 401k) and 403b) plans?

Correct AnswerverifiedShow Answer

Correct Answer
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B

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C

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B

Correct Answer
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Time inconsistency refers to the idea th...
View Answer

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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If inflation is usually about what peopl...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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When the government reduces marginal tax...
View Answer

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Correct Answer
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