Question 1

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A)   neither fiscal nor monetary policy have much impact on aggregate demand.
B)   attempts to stabilize the economy decrease the magnitude of economic fluctuations.
C)   unemployment and inflation are not cause for much concern.
D)   economic coditions can easily change between the start of policy action and when it takes effect.E) B) and D)
F) C) and D)

Question 2

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 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 C)
F) A) and D)

Question 3

What grade did David Wessel give to the budget policy "wonks"?

Accepted Answer

A)   'A' for effort,'A' for results.
B)   'A' for effort,'C' for results.
C)   'C' for effort,'A' for results.
D)   'D' for effort,'F' for results.E) A) and B)
F) A) and C)

Question 4

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

Accepted Answer

A) True 
 B)False  False

Question 5

If aggregate demand shifts because of a wave irrational exuberance,those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

A)   Federal Reserve increase the money supply or the government increase taxes.
B)   Federal Reserve increase the money supply or the government decrease taxes.
C)   Federal Reserve decrease the money supply or the government increase taxes.
D)   Federal Reserve decrease the money supply or the government decrease taxes.E) A) and B)
F) A) and C)

Question 6

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices.If the economy starts at long-run equilibrium and then aggregate supply shifts right the central bank would have to

Accepted Answer

A)   increase the money supply,which causes output to move closer to its long-run equilibrium.
B)   increase the money supply,which causes output to move farther from long-run equilibrium.
C)   decrease the money supply,which causes output to move closer to its long-run equilibrium.
D)   decrease the money supply,which causes output to move farther from long-run equilibrium.E) C) and D)
F) All of the above

Question 7

The Federal Open Market Committee meets about

Accepted Answer

A)   every six days.
B)   every six weeks.
C)   every six months.
D)   every sixteen months.E) A) and D)
F) All of the above

Question 8

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

Question 9

Which of the following would transfer wealth from old to young?

Accepted Answer

A)   Increases in the budget deficit.
B)   Decreased building of highways and bridges.
C)   More generous education subsidies.
D)   Indexation of Social Security benefits to inflation.E) All of the above
F) C) and D) C

Question 10

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Accepted Answer

A)   would have to increase the money supply.This would move unemployment closer to the natural rate.
B)   would have to increase the money supply.This would move unemployment further from the natural rate.
C)   would have to decrease the money supply.This would move unemployment closer to the natural rate.
D)   would have to decrease the money supply.This would move unemployment further from the natural rate.E) All of the above
F) C) and D)

Question 11

Fluctuations in employment and output result from changes in

Accepted Answer

A)   aggregate demand only.
B)   aggregate supply only.
C)   aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) B) and C)
F) None of the above

Question 12

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 13

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 C)
F) A) and D)

Question 14

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) C) and D)
F) A) and D)

Question 15

Other policies that reduce the incentive for households to save include

Accepted Answer

A)   means-testing.
B)   College and univeristy financial aid administration.
C)   inheritance taxes.
D)   All of the above.E) A) and D)
F) A) and C)

Question 16

Stephen Cecchetti argues that inflation targeting enhances long-term economic performance because

Accepted Answer

A)   it focuses the policy committee's debate.
B)   discourages communication with politicians and the public at large.
C)   it creates an environment where people believe inflation will be allowed to fluctuate.
D)   it ignores fluctuations in employment.E) None of the above
F) C) and D)

Question 17

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Accepted Answer

A)   increases the interest rate and decreases spending on capital goods.
B)   increases the interest rate and increases spending on capital goods.
C)   decreases the interest rate and increases spending on capital goods.
D)   decreases the interest rate and decreases spending on capital goods.E) All of the above
F) C) and D)

Question 18

Part of the lag in monetary policy effects is due to

Accepted Answer

A)   the long political process of monetary policy decisions.
B)   precise economic forecasts.
C)   the time required for firms and households to alter their spending plans.
D)   changes in the unemployment rate.E) C) and D)
F) B) and D)

Question 19

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

Accepted Answer

A)   A public budget surplus can raise national saving.
B)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
C)   Low-income households save a larger fraction of their income than high-income households.
D)   Tax cuts might cause a budget deficit.E) C) and D)
F) A) and B)

Question 20

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce menu costs and permanently lower unemployment.
B)   permanently reduce menu costs and temporarily raise unemployment.
C)   temporarily reduce menu costs and temporarily lower unemployment.
D)   temporarily reduce menu costs and temporarily raise unemployment.E) None of the above
F) B) and C) B

Exam 36: Five Debates Over Macroeconomic Policy

Opponents of using policy to stabilize the economy generally believe that

Correct Answer
verified

A policymaker against stabilizing the economy would be likely to believe

Correct Answer
verified

What grade did David Wessel give to the budget policy "wonks"?

Correct Answer
verified

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

Correct Answer
verified
False

If aggregate demand shifts because of a wave irrational exuberance,those who favor a policy that "leans against the wind" would advocate the

Correct Answer
verified

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices.If the economy starts at long-run equilibrium and then aggregate supply shifts right the central bank would have to

Correct Answer
verified

The Federal Open Market Committee meets about

Correct Answer
verified

Correct Answer
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Which of the following would transfer wealth from old to young?

Correct Answer
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C

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Correct Answer
verified

Fluctuations in employment and output result from changes in

Correct Answer
verified

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

Correct Answer
verified
The benefits of the project ac...
View Answer

Time inconsistency will cause the

Correct Answer
verified

Which of the following is correct?

Correct Answer
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Other policies that reduce the incentive for households to save include

Correct Answer
verified

Stephen Cecchetti argues that inflation targeting enhances long-term economic performance because

Correct Answer
verified

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Correct Answer
verified

Part of the lag in monetary policy effects is due to

Correct Answer
verified

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

Correct Answer
verified

A permanent reduction in inflation would

Correct Answer
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B

Exam 36: Five Debates Over Macroeconomic Policy

Opponents of using policy to stabilize the economy generally believe that

Correct AnswerverifiedShow Answer

A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

What grade did David Wessel give to the budget policy "wonks"?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

If aggregate demand shifts because of a wave irrational exuberance,those who favor a policy that "leans against the wind" would advocate the

Correct AnswerverifiedShow Answer

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices.If the economy starts at long-run equilibrium and then aggregate supply shifts right the central bank would have to

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets about

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would transfer wealth from old to young?

Correct AnswerverifiedC

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Correct AnswerverifiedShow Answer

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

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

Time inconsistency will cause the

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Other policies that reduce the incentive for households to save include

Correct AnswerverifiedShow Answer

Stephen Cecchetti argues that inflation targeting enhances long-term economic performance because

Correct AnswerverifiedShow Answer

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Correct AnswerverifiedShow Answer

Part of the lag in monetary policy effects is due to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedB

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False

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C

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The benefits of the project ac...
View Answer

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B