Question 1

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Accepted Answer

A)   Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes for increasing aggregate demand.
B)   Increased government spending on "shovel­ready" projects can be helpful to boost aggregate demand.
C)   Increases in government spending offer a greater "bang for the buck" than decreases in taxes.
D)   When the government gives a dollar in tax cuts to a household, that dollar immediately and fully adds to aggregate demand.E) A) and D)
F) A) and B)

Question 3

The time inconsistency of monetary policy means that

Accepted Answer

A)   once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment.
B)   at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low.
C)   monetary policy is not consistent across time because it is influenced by politics.
D)   monetary policy is not consistent across time because policymakers are incompetent.E) B) and C)
F) All of the above

Question 4

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)   changes in the interest rate to change aggregate demand.
B)   changes in the money supply to change interest rates.
C)   the Fed to make changes in policy.
D)   Congress and the President to approve Fed policy.E) All of the above
F) C) and D)

Question 5

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 B)
F) All of the above

Question 6

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

Accepted Answer

A temporar...

Question 7

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Accepted Answer

Policymakers can cut governmen...

Question 8

Inflation

Accepted Answer

A)   leads people to use more resources to reduce money holdings. There is no way it can make labor markets work more efficiently.
B)   leads people to use more resources to reduce money holdings. However, it can make labor markets work more efficiently.
C)   leads people to use fewer resources to reduce money holdings. There is no way it can make labor markets work more efficiently
D)   leads people to use fewer resources to reduce money holdings. However, it can make labor markets work more efficiently.E) None of the above
F) All of the above

Question 9

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 10

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) B) and C)
F) All of the above

Question 11

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Accepted Answer

An increase in government expe...

Question 12

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) A) and D)
F) B) and D)

Question 13

Which of the following things can a government do to lower the costs of inflation?

Accepted Answer

A)   sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed
B)   sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed
C)   rewrite tax laws so that real rather than nominal gains are taxed, but not sell inflation-indexed bonds
D)   neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxedE) A) and C)
F) A) and B)

Question 14

Consider the following rule for monetary policy: r = 2 percent + π + 1/2y - y*) /y* + 1/2π - π*) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)   1/2 percentage point
B)   1 percentage point
C)   1 and 1/2 percentage points
D)   3 and 1/2 percentage pointsE) C) and D)
F) B) and D)

Question 15

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

Accepted Answer

First, economists believe that inflation...

Question 16

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Accepted Answer

A)   Both the income effect and the substitution effect would tend to increase the amount of money a household saved.
B)   The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings.
C)   The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings.
D)   Both the income effect and the substitution effect would tend to decrease the amount of money a household saved.E) B) and D)
F) A) and B)

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 C)
F) B) and C)

Question 18

U.S. public policy discourages saving because

Accepted Answer

A)   other things the same, taxes increase the return from savings.
B)   means tested programs such as Medicaid provide lower benefits to those who did not save.
C)   none of parents' bequest to their children is taxed.
D)   some forms of capital income are taxed twice.E) B) and D)
F) All of the above

Question 19

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) None of the above
F) B) and D)

Question 20

Eliminating double-taxation would likely

Accepted Answer

A)   raise saving and primarily benefit people with lower incomes.
B)   raise saving but primarily benefit people with higher incomes.
C)   reduce saving but primarily benefit people with lower incomes.
D)   reduce saving and primarily benefit people with higher income.E) B) and D)
F) A) and C)

Exam 18: Six Debates Over Macroeconomic Policy

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

Inflation

Correct Answer
verified

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Correct Answer
verified
An increase in government expe...
View Answer

The time inconsistency of monetary policy means that

Correct Answer
verified

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

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Correct Answer
verified
Policymakers can cut governmen...
View Answer

Eliminating double-taxation would likely

Correct Answer
verified

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

Correct Answer
verified
A temporar...
View Answer

Inflation

Correct Answer
verified

Which of the following things can a government do to lower the costs of inflation?

Correct Answer
verified

U.S. public policy discourages saving because

Correct Answer
verified

A policymaker against stabilizing the economy would be likely to believe

Correct Answer
verified

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

Correct Answer
verified
First, economists believe that inflation...
View Answer

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Correct Answer
verified

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

Correct Answer
verified

The principal reason that monetary policy has lags is that it takes a long time for

Correct Answer
verified

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Correct Answer
verified

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct Answer
verified

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Correct Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

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

Inflation

Correct AnswerverifiedShow Answer

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Correct AnswerverifiedAn increase in government expe...View AnswerShow Answer

The time inconsistency of monetary policy means that

Correct AnswerverifiedShow Answer

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

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Correct AnswerverifiedPolicymakers can cut governmen...View AnswerShow Answer

Eliminating double-taxation would likely

Correct AnswerverifiedShow Answer

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

Correct AnswerverifiedA temporar...View AnswerShow Answer

Inflation

Correct AnswerverifiedShow Answer

Which of the following things can a government do to lower the costs of inflation?

Correct AnswerverifiedShow Answer

U.S. public policy discourages saving because

Correct AnswerverifiedShow Answer

A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

Correct AnswerverifiedFirst, economists believe that inflation...View AnswerShow Answer

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The principal reason that monetary policy has lags is that it takes a long time for

Correct AnswerverifiedShow Answer

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Correct AnswerverifiedShow Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct AnswerverifiedShow Answer

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Correct AnswerverifiedShow Answer

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Correct Answer
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An increase in government expe...
View Answer

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Correct Answer
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Correct Answer
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Policymakers can cut governmen...
View Answer

Correct Answer
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A temporar...
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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First, economists believe that inflation...
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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Correct Answer
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