Question 1

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 2

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $68.8 billion
B)   about $137.6 billion
C)   about $275.2 billion
D)   about $309.6 billionE) C) and D)
F) A) and D)

Question 3

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 4

An economist would be more likely to argue for reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) A) and B)
F) A) and C)

Question 5

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation, it is likely that

Accepted Answer

A)   the short-run Phillips curve would shift right and the cost of disinflation would rise.
B)   the short-run Phillips curve would shift right and the cost of disinflation would fall.
C)   the short-run Phillips curve would shift left and the cost of disinflation would rise.
D)   the short-run Phillips curve would shift left and the cost of disinflation would fall.E) C) and D)
F) All of the above

Question 6

Economists

Accepted Answer

A)   agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)   agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)   disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)   disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.E) A) and B)
F) A) and C)

Question 7

Which of the following support the idea that monetary policy should be made by a rule?

Accepted Answer

A)   the political business cycle and the time-inconsistency problem
B)   the political business cycle but not the time-inconsistency problem
C)   the time-inconsistency problem, but not the political business cycle
D)   neither the political business cycle nor the time-inconsistency problemE) A) and B)
F) A) and C)

Question 8

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)   The income effect, but not the substitution effect, would tend to reduce private saving.
B)   The substitution effect, but not the income effect, would tend to reduce private saving.
C)   Both the income and substitution effect would tend to reduce private saving.
D)   Neither the income nor the substitution effect would tend to reduce private saving.E) A) and C)
F) A) and B)

Question 9

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 B)
F) None of the above

Question 10

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Question 11

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Accepted Answer

A)   0 percent
B)   3 percent
C)   5 percent
D)   6 percentE) All of the above
F) A) and B)

Question 12

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Accepted Answer

A)   price level and real GDP change by more than otherwise.
B)   price level change by more than otherwise and real GDP change by less than otherwise.
C)   price level change by less than otherwise and real GDP change by more than otherwise.
D)   price level and real GDP change by more than otherwise.E) A) and C)
F) C) and D)

Question 13

In 2012 the federal debt was about

Accepted Answer

A)   11.3 trillion
B)   9.3 trillion
C)   1.13 trillion
D)   930 billionE) All of the above
F) C) and D)

Question 14

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A)   increasing government spending.
B)   expanding the money supply.
C)   lowering taxes.
D)   the Fed sell government bonds.E) A) and C)
F) A) and B)

Question 15

Which of the programs below would not transfer wealth from young to old generations?

Accepted Answer

A)   Taxes are reduced as a result of cutting expenditures on 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)   Taxes are raised to provide more generous Medicare benefits.E) All of the above
F) None of the above

Question 16

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 shifts aggregate demand further right.
B)   decrease the money supply, which shifts aggregate demand left.
C)   increase the money supply, which shifts aggregate demand further right.
D)   increase the money supply, which shifts aggregate demand left.E) A) and D)
F) A) and C)

Question 17

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

Question 18

Proponents of zero inflation argue that reducing inflation has

Accepted Answer

A)   permanent costs and temporary benefits.
B)   temporary costs and permanent benefits.
C)   permanent costs and benefits.
D)   temporary costs and benefits.E) A) and B)
F) A) and C)

Question 19

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Accepted Answer

A)   about 414.9 billion
B)   about 404.8 billion
C)   about 253.0 billion
D)   about 161.9 billionE) C) and D)
F) A) and D)

Question 20

Double taxation means that both

Accepted Answer

A)   the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States.
B)   the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the U.S.
C)   wage income and employee benefits are taxed, which is not currently the case in the United States.
D)   wage income and employee benefits are taxed, which is currently the case in the United States.E) All of the above
F) C) and D)

Exam 36: Six Debates Over Macroeconomic Policy

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Correct Answer
verified

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct Answer
verified

A policymaker against stabilizing the economy would be likely to believe

Correct Answer
verified

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation, it is likely that

Correct Answer
verified

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct Answer
verified

Proponents of zero inflation argue that reducing inflation has

Correct Answer
verified

Correct Answer
verified

Which of the programs below would not transfer wealth from young to old generations?

Correct Answer
verified

Suppose the tax rate on interest income from saving were reduced.

Correct Answer
verified

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Correct Answer
verified

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 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

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Correct Answer
verified

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Correct Answer
verified

Double taxation means that both

Correct Answer
verified

Economists

Correct Answer
verified

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Correct Answer
verified

An economist would be more likely to argue for reducing inflation if she thought that

Correct Answer
verified

Which of the following support the idea that monetary policy should be made by a rule?

Correct Answer
verified

In 2012 the federal debt was about

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Correct AnswerverifiedShow Answer

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct AnswerverifiedShow Answer

A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation, it is likely that

Correct AnswerverifiedShow Answer

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that reducing inflation has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the programs below would not transfer wealth from young to old generations?

Correct AnswerverifiedShow Answer

Suppose the tax rate on interest income from saving were reduced.

Correct AnswerverifiedShow Answer

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Correct AnswerverifiedShow Answer

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

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

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Correct AnswerverifiedShow Answer

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Correct AnswerverifiedShow Answer

Double taxation means that both

Correct AnswerverifiedShow Answer

Economists

Correct AnswerverifiedShow Answer

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Correct AnswerverifiedShow Answer

An economist would be more likely to argue for reducing inflation if she thought that

Correct AnswerverifiedShow Answer

Which of the following support the idea that monetary policy should be made by a rule?

Correct AnswerverifiedShow Answer

In 2012 the federal debt was about

Correct AnswerverifiedShow Answer

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

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