Question 1

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)   The cost of something is what you give up to get it Principle 2) .
B)   Trade can make everyone better off Principle 5) .
C)   Markets are usually a good way to organize economic activity Principle 6) .
D)   A country's standard of living depends on its ability to produce goods and services Principle 8) .E) All of the above
F) B) and C)

Question 2

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)   buy bonds to raise interest rates.
B)   buy bonds to reduce interest rates.
C)   sell bonds to raise interest rates.
D)   sell bonds to reduce interest rates.E) None of the above
F) A) and D)

Question 3

If tax rates are raised to avoid a deficit during a recession, then

Accepted Answer

A)   real GDP and deadweight loss from taxes will rise.
B)   real GDP will rise and deadweight loss from taxes will fall.
C)   real GDP will fall and deadweight loss from taxes will rise.
D)   real GDP and deadweight loss from taxes will fall.E) C) and D)
F) None of the above

Question 4

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) C) and D)
F) B) and C)

Question 5

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Accepted Answer

The benefits of the project ac...

Question 6

In the early 1980's the Fed tightened monetary policy. Over the next few years

Accepted Answer

A)   inflation remained high and unemployment rose.
B)   inflation fell but unemployment rose temporarily.
C)   inflation and unemployment fell.
D)   inflation and unemployment rose.E) All of the above
F) C) and D)

Question 7

Which of the following statements is not true?

Accepted Answer

A)   The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding.
B)   The U.S. federal debt in 2012 was about $11.3 trillion.
C)   Government debt per person represents more than 5 percent of a typical worker's lifetime resources.
D)   Forward-looking parents can reverse adverse effects of government debt on their children.E) A) and B)
F) C) and D)

Question 8

Which of the following does the U.S. currently have?

Accepted Answer

A)   means-tested government benefits and tax laws that tax capital income only once
B)   means-tested government benefits and tax laws that tax some capital income twice
C)   tax laws that tax capital income only once, but not means-tested government benefits
D)   tax laws that tax some capital income twice, but not means-tested government benefitsE) B) and C)
F) A) and B)

Question 9

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

Tax cuts affect aggregate demand quickly...

Question 11

A reduction in inflation would lead to

Accepted Answer

A)   more frequent price changes and increased variability of relative prices.
B)   more frequent price changes and decreased variability of relative prices.
C)   less frequent price changes and increased variability of relative prices.
D)   less frequent price changes and decreased variability of relative prices.E) None of the above
F) A) and B)

Question 12

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

Accepted Answer

A)   less than 1 percent.
B)   more than 1 percent but less than 2 percent
C)   about 4 percent
D)   over 6 percentE) B) and C)
F) A) and D)

Question 13

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Accepted Answer

A)   the central bank would have to decrease the money supply which would decrease output.
B)   the central bank would have to decrease the money supply which would increase output.
C)   the central bank would have to increase the money supply which would decrease output.
D)   the central bank would have to increase the money supply which would increase output.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

Inflation

Accepted Answer

A)   causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
B)   causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.
C)   causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
D)   causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.E) C) and D)
F) All of the above

Question 17

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)   policymakers should "do no harm".
B)   there are no obstacles to the practical application of policy in real life.
C)   policy lags are short enough that implementing policy changes in response to recession is not too risky.
D)   policy mitigates the magnitude of economic fluctuations.E) A) and D)
F) A) and C)

Question 18

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 19

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) B) and C)

Question 20

Which of the following can tax cuts influence?

Accepted Answer

A)   Aggregate demand
B)   Aggregate supply
C)   Investment spending
D)   All of the aboveE) B) and D)
F) B) and C)

Exam 23: Six Debates Over Macroeconomic Policy

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

A policymaker against stabilizing the economy would be likely to believe

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

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

Correct AnswerverifiedTax cuts affect aggregate demand quickly...View AnswerShow Answer

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Correct AnswerverifiedShow Answer

Which of the following does the U.S. currently have?

Correct AnswerverifiedShow Answer

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

Correct AnswerverifiedShow Answer

Zero inflation

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In the early 1980's the Fed tightened monetary policy. Over the next few years

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If tax rates are raised to avoid a deficit during a recession, then

Correct AnswerverifiedShow Answer

Which of the following can tax cuts influence?

Correct AnswerverifiedShow Answer

A reduction in inflation would lead to

Correct AnswerverifiedShow Answer

Inflation

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Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Correct AnswerverifiedThe benefits of the project ac...View AnswerShow Answer

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following are both correct?

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct AnswerverifiedShow Answer

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Tax cuts affect aggregate demand quickly...
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The benefits of the project ac...
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