Question 1

Which of the following statements is false concerning policies to reduce inflation?

Accepted Answer

A)  They are likely to have a lower cost if people think that the central bank is credible. 
B)  They have permanent benefits. 
C)  They are likely to be more credible if the government also makes an attempt to reduce the budget deficit. 
D)  The costs are likely to exceed the benefits. 
A)  They are likely to have a lower cost if people think that the central bank is credible. 
B)  They have permanent benefits. 
C)  They are likely to be more credible if the government also makes an attempt to reduce the budget deficit. 
D)  The costs are likely to exceed the benefits.

Question 2

Recall Application 1, "New Methods to Measure the Long-Term Fiscal Imbalances for the United States," to answer the
following questions:
-According to the application, the largest source of the fiscal imbalance is:

Accepted Answer

A)  education expenditures. 
B)  the spending on wars. 
C)  Medicare. 
D)  tax cuts. 
A)  education expenditures. 
B)  the spending on wars. 
C)  Medicare. 
D)  tax cuts.

Question 3

List the two ways in which the national debt can place a burden on future generations.

Accepted Answer

(1) The debt can lead to a reduction in

Question 4

Capital gains are profits of investors when they:

Accepted Answer

A)  sell used cars. 
B)  sell their services. 
C)  sell stocks and other assets. 
D)  sell their labor. 
A)  sell used cars. 
B)  sell their services. 
C)  sell stocks and other assets. 
D)  sell their labor.

Question 5

Explain the logic behind Ricardian equivalence.

Accepted Answer

If the government reduces taxes and fina

Question 6

What happens to investment and interest rates if the government runs a budget deficit in a closed economy? Assume that the Ricardian Equivalence holds. Explain.

Accepted Answer

A budget deficit does not reduce nationa

Question 7

In the United States in recent years, the national debt has been approximately _______ percent of GDP.

Accepted Answer

A)  25 
B)  50 
C)  100 
D)  150 
A)  25 
B)  50 
C)  100 
D)  150

Question 8

If the flat tax is 27 percent, a person who makes $3000 a month will pay _______ a month in income taxes.

Accepted Answer

A)  $270 
B)  $8100 
C)  $810 
D)  $2190 
A)  $270 
B)  $8100 
C)  $810 
D)  $2190

Question 9

If the economy goes into a recession, the automatic stabilizers are likely to increase the budget deficit. Why might such a deficit be beneficial?

Accepted Answer

By increasing aggregate demand

Question 10

Can the government experience a deficit yet experience a declining debt to GDP ratio? Explain.

Accepted Answer

Yes, it can. Though a deficit will incre

Question 11

Increases in the rate of return on saving will increase the level of saving in the economy.

Accepted Answer

A) True 
 B)False

Question 12

An example of a consumption tax in the US is the:

Accepted Answer

A)  property tax. 
B)  state income tax. 
C)  sales tax. 
D)  social security tax. 
A)  property tax. 
B)  state income tax. 
C)  sales tax. 
D)  social security tax.

Question 13

The government debt tends to rise when GDP rises, and tends to fall when GDP falls.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following are ways to save money and still limit your taxes?

Accepted Answer

A)  individual retirement accounts (IRAs) 
B)  Keogh plans 
C)  buying tax exempt bonds 
D)  All of the above are correct. 
A)  individual retirement accounts (IRAs) 
B)  Keogh plans 
C)  buying tax exempt bonds 
D)  All of the above are correct.

Question 15

In 1998, the city of Canfield collected $500,000 in taxes and spent $450,000. In 1998, the city of Canfield had a:

Accepted Answer

A)  budget surplus of $5,000. 
B)  budget surplus of $50,000. 
C)  budget deficit of $$50,000. 
D)  budget surplus of $450,000. 
A)  budget surplus of $5,000. 
B)  budget surplus of $50,000. 
C)  budget deficit of $$50,000. 
D)  budget surplus of $450,000.

Question 16

Part of the argument against budget deficits is that they _______ interest rates and _______ investment.

Accepted Answer

A)  increase; decrease 
B)  increase; increase 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; decrease 
B)  increase; increase 
C)  decrease; increase 
D)  decrease; decrease

Question 17

A government's budget deficit or surplus is the difference between what it spends and what it collects in taxes in a year.

Accepted Answer

A) True 
 B)False

Question 18

If the Fed enhances its credibility when it sets its own inflation targets,

Accepted Answer

A)  long term interest rates will be more responsive to changes in the short term interest rates. 
B)  long term interest rates will be less responsive to changes in the short term interest rates. 
C)  short term interest rates will be less responsive to changes in the long term interest rates. 
D)  short term interest rates will be more responsive to changes in the long term interest rates. 
A)  long term interest rates will be more responsive to changes in the short term interest rates. 
B)  long term interest rates will be less responsive to changes in the short term interest rates. 
C)  short term interest rates will be less responsive to changes in the long term interest rates. 
D)  short term interest rates will be more responsive to changes in the long term interest rates.

Question 19

In a closed economy, when the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls, holding all else constant.

Accepted Answer

A) True 
 B)False

Question 20

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Accepted Answer

A)  is effective only if done both by borrowing and by taxation. 
B)  is the better it is financed by borrowing instead of taxation. 
C)  is the same regardless on whether it is financed by borrowing or by taxation. 
D)  is the better it is financed by taxation instead of borrowing. 
A)  is effective only if done both by borrowing and by taxation. 
B)  is the better it is financed by borrowing instead of taxation. 
C)  is the same regardless on whether it is financed by borrowing or by taxation. 
D)  is the better it is financed by taxation instead of borrowing.

Which of the following statements is false concerning policies to reduce inflation?

Recall Application 1, "New Methods to Measure the Long-Term Fiscal Imbalances for the United States," to answer the following questions: -According to the application, the largest source of the fiscal imbalance is:

List the two ways in which the national debt can place a burden on future generations.

Capital gains are profits of investors when they:

Explain the logic behind Ricardian equivalence.

What happens to investment and interest rates if the government runs a budget deficit in a closed economy? Assume that the Ricardian Equivalence holds. Explain.

In the United States in recent years, the national debt has been approximately _______ percent of GDP.

If the flat tax is 27 percent, a person who makes $3000 a month will pay _______ a month in income taxes.

If the economy goes into a recession, the automatic stabilizers are likely to increase the budget deficit. Why might such a deficit be beneficial?

Can the government experience a deficit yet experience a declining debt to GDP ratio? Explain.

Increases in the rate of return on saving will increase the level of saving in the economy.

An example of a consumption tax in the US is the:

The government debt tends to rise when GDP rises, and tends to fall when GDP falls.

Which of the following are ways to save money and still limit your taxes?

In 1998, the city of Canfield collected $500,000 in taxes and spent $450,000. In 1998, the city of Canfield had a:

Part of the argument against budget deficits is that they _ interest rates and _ investment.

A government's budget deficit or surplus is the difference between what it spends and what it collects in taxes in a year.

If the Fed enhances its credibility when it sets its own inflation targets,

In a closed economy, when the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls, holding all else constant.

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

International Trade and Public Policy

The World of International Finance

Filters

Exam 17: Macroeconomic Policy Debates

Which of the following statements is false concerning policies to reduce inflation?

Recall Application 1, "New Methods to Measure the Long-Term Fiscal Imbalances for the United States," to answer the following questions: -According to the application, the largest source of the fiscal imbalance is:

List the two ways in which the national debt can place a burden on future generations.

Capital gains are profits of investors when they:

Explain the logic behind Ricardian equivalence.

What happens to investment and interest rates if the government runs a budget deficit in a closed economy? Assume that the Ricardian Equivalence holds. Explain.

In the United States in recent years, the national debt has been approximately _______ percent of GDP.

If the flat tax is 27 percent, a person who makes $3000 a month will pay _______ a month in income taxes.

If the economy goes into a recession, the automatic stabilizers are likely to increase the budget deficit. Why might such a deficit be beneficial?

Can the government experience a deficit yet experience a declining debt to GDP ratio? Explain.

Increases in the rate of return on saving will increase the level of saving in the economy.

An example of a consumption tax in the US is the:

The government debt tends to rise when GDP rises, and tends to fall when GDP falls.

Which of the following are ways to save money and still limit your taxes?

In 1998, the city of Canfield collected $500,000 in taxes and spent $450,000. In 1998, the city of Canfield had a:

Part of the argument against budget deficits is that they _______ interest rates and _______ investment.

A government's budget deficit or surplus is the difference between what it spends and what it collects in taxes in a year.

If the Fed enhances its credibility when it sets its own inflation targets,

In a closed economy, when the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls, holding all else constant.

If the Ricardian Equivalence were true, the effect of an increase in government expenditure

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

International Trade and Public Policy

The World of International Finance

Filters

Part of the argument against budget deficits is that they _ interest rates and _ investment.