Question 1

In general, the longest lag for

Accepted Answer

A) both fiscal and monetary policy is the time it takes to change policy. 
B) both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C) monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D) fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A) both fiscal and monetary policy is the time it takes to change policy. 
B) both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C) monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D) fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

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 "shovel-ready" 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. 
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 "shovel-ready" 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.

Question 3

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Accepted Answer

A) the central bank would have to decrease the money supply which would decrease output. 
B) the central bank would have to decrease the money supply which would increase output. 
C) the central bank would have to increase the money supply which would decrease output. 
D) the central bank would have to increase the money supply which would increase output. 
A) the central bank would have to decrease the money supply which would decrease output. 
B) the central bank would have to decrease the money supply which would increase output. 
C) the central bank would have to increase the money supply which would decrease output. 
D) the central bank would have to increase the money supply which would increase output.

Question 4

An individual would suffer lower losses from an unexpectedly higher inflation rate if

Accepted Answer

A) she held much currency and owned few bonds. 
B) she held much currency and owned many bonds. 
C) she held little currency and owned few bonds. 
D) she held little currency and owned many bonds. 
A) she held much currency and owned few bonds. 
B) she held much currency and owned many bonds. 
C) she held little currency and owned few bonds. 
D) she held little currency and owned many bonds.

Question 5

Which of the following can tax cuts influence?

Accepted Answer

A) Aggregate demand 
B) Aggregate supply 
C) Investment spending 
D) All of the above 
A) Aggregate demand 
B) Aggregate supply 
C) Investment spending 
D) All of the above

Question 6

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 7

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate provides mo

Question 8

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 will move output back towards its long-run level. 
B) decrease the money supply, which will move output farther from its long-run level. 
C) increase the money supply, which will move output back towards its long-run level. 
D) increase the money supply, which will move output farther from its long-run level. 
A) decrease the money supply, which will move output back towards its long-run level. 
B) decrease the money supply, which will move output farther from its long-run level. 
C) increase the money supply, which will move output back towards its long-run level. 
D) increase the money supply, which will move output farther from its long-run level.

Question 9

Over time, continued budget deficits lead to

Accepted Answer

A) a higher capital stock and higher productivity. 
B) a higher capital stock and lower productivity. 
C) a lower capital stock and higher productivity. 
D) a lower capital stock and lower productivity. 
A) a higher capital stock and higher productivity. 
B) a higher capital stock and lower productivity. 
C) a lower capital stock and higher productivity. 
D) a lower capital stock and lower productivity.

Question 10

When the Federal Open Market Committee meets it

Accepted Answer

A) looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
B) looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
C) looks only at the state of the economy to determine the target it will set for the federal funds rate. 
D) looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate. 
A) looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
B) looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
C) looks only at the state of the economy to determine the target it will set for the federal funds rate. 
D) looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate.

Question 11

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

Accepted Answer

A) decreased interest rates and investment. 
B) decreased interest rates and increased investment. 
C) increased interest rates and investment. 
D) increased interest rates and decreased investment. 
A) decreased interest rates and investment. 
B) decreased interest rates and increased investment. 
C) increased interest rates and investment. 
D) increased interest rates and decreased investment.

Question 12

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 13

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Accepted Answer

A) the price level and real GDP 
B) the price level but not real GDP 
C) real GDP but not the price level 
D) neither real GDP nor the price level 
A) the price level and real GDP 
B) the price level but not real GDP 
C) real GDP but not the price level 
D) neither real GDP nor the price level

Question 14

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Accepted Answer

A) sustainable, but the future burden on your children cannot be offset. 
B) sustainable, and the future burden on your children can be offset if you save for them. 
C) not sustainable, and the future burden on your children cannot be offset. 
D) not sustainable, but the future burden on your children can be offset if you save for them. 
A) sustainable, but the future burden on your children cannot be offset. 
B) sustainable, and the future burden on your children can be offset if you save for them. 
C) not sustainable, and the future burden on your children cannot be offset. 
D) not sustainable, but the future burden on your children can be offset if you save for them.

Question 15

Which of the following is correct? In the 1990's

Accepted Answer

A) the Fed maintained low inflation because it had to follow a policy rule. 
B) the Fed maintained low inflation even without being required to follow a policy rule. 
C) the Fed was not required to follow a policy rule and let inflation move higher. 
D) the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher. 
A) the Fed maintained low inflation because it had to follow a policy rule. 
B) the Fed maintained low inflation even without being required to follow a policy rule. 
C) the Fed was not required to follow a policy rule and let inflation move higher. 
D) the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher.

Question 16

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Accepted Answer

A) inflation will raise their real wage and so increase the number of available workers. 
B) inflation will raise their real wage and so decrease the number of available workers 
C) inflation will reduce their real wage and so increase the number of available workers. 
D) inflation will reduce their real wage and so decrease the number of available workers. 
A) inflation will raise their real wage and so increase the number of available workers. 
B) inflation will raise their real wage and so decrease the number of available workers 
C) inflation will reduce their real wage and so increase the number of available workers. 
D) inflation will reduce their real wage and so decrease the number of available workers.

Question 17

List two costs of inflation.

Accepted Answer

shoeleather costs, menu costs,

Question 18

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income

Question 19

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 36: Six Debates Over Macroeconomic Policy

In general, the longest lag for

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?

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

An individual would suffer lower losses from an unexpectedly higher inflation rate if

Which of the following can tax cuts influence?

Social Security transfers wealth from younger generations to older generations.

What is the benefit of a high saving rate?

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

Over time, continued budget deficits lead to

When the Federal Open Market Committee meets it

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Which of the following is correct? In the 1990's

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

List two costs of inflation.

Why do many economists advocate a consumption tax rather than an income tax?

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

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?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

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