Question 1

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Accepted Answer

A)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level.
B)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.
C)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level.
D)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.E) All of the above
F) A) and B)

Question 2

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax cut when there is a recession.
B)  decrease in the money supply when there is a recession.
C)  decrease in government expenditures when there is a recession.
D)  increasing money supply when there is a boom.E) A) and B)
F) A) and C)

Question 3

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A)  high and the reduction is unexpected.
B)  high and the reduction is expected.
C)  low and the reduction is unexpected.
D)  low and the reduction is expected.E) A) and D)
F) C) and D)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If there is an increase in the money supply, in the short run

Accepted Answer

A)  the interest rises. It takes several weeks for spending to fully respond to this change.
B)  the interest rises. It takes several months for spending to fully respond to this change.
C)  the interest falls. It takes several weeks for spending to fully respond to this change.
D)  the interest falls. It takes several months for spending to fully respond to this change.E) None of the above
F) All of the above

Question 6

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

Question 7

If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

Accepted Answer

A)  consumption and investment both rise.
B)  consumption will rise and investment will fall.
C)  investment will fall and consumption will rise.
D)  consumption and investment will both fall.E) B) and C)
F) C) and D)

Question 8

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) All of the above

Question 9

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Accepted Answer

A)  in the stock market.
B)  in the foreign exchange market.
C)  in the bond market.
D)  in the labor market.E) All of the above
F) B) and C)

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) A) and C)

Question 11

From the end of 2003 to the end of 2004, the United States ran a deficit of about $121 billion. The debt at the start of this period was about $3,924 billion. Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit and kept the ratio of real GDP to the deficit about the same?

Accepted Answer

A)  about 1% inflation and about 1% real GDP growth
B)  about 1% inflation and about 3% real GDP growth
C)  about 2% inflation and about 1% real GDP growth
D)  about 2% inflation and about 2% real GDP growthE) A) and D)
F) A) and B)

Question 12

Which inflation costs could the government take actions to reduce without reducing inflation?

Accepted Answer

A)  shoeleather and menu costs
B)  menu costs and relative price variability
C)  unintended changes in tax liabilities and arbitrary redistributions of wealth
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 13

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce shoeleather costs and permanently lower unemployment
B)  permanently reduce shoeleather costs and temporarily raise unemployment
C)  temporarily reduce shoeleather costs and temporarily lower unemployment
D)  temporarily reduce shoeleather costs and temporarily raise unemploymentE) A) and D)
F) A) and C)

Question 14

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 15

The argument that an increase in government expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that

Accepted Answer

A)  tax cuts have no multiplier affect.
B)  people will save part of a tax cut.
C)  an increase in consumption expenditures has a smaller effect on real GDP than an equal increase in government expenditures.
D)  None of the above is correct.E) A) and C)
F) B) and C)

Exam 23: Six Debates Over Macroeconomic Policy

The argument that an increase in government expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that

Correct Answer
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Correct Answer
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Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

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

Correct Answer
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If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

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

Correct Answer
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If there is an increase in the money supply, in the short run

Correct Answer
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"Leaning against the wind" is exemplified by a

Correct Answer
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If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Correct Answer
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A permanent reduction in inflation would

Correct Answer
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Which inflation costs could the government take actions to reduce without reducing inflation?

Correct Answer
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The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

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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A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

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

Correct Answer
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Exam 23: Six Debates Over Macroeconomic Policy

The argument that an increase in government expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If an increase in government expenditures makes taxpayers believe that taxes and the distortion then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If there is an increase in the money supply, in the short run

Correct AnswerverifiedShow Answer

"Leaning against the wind" is exemplified by a

Correct AnswerverifiedShow Answer

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

Which inflation costs could the government take actions to reduce without reducing inflation?

Correct AnswerverifiedShow Answer

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

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

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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