Question 1

Which of the following is true of stimulus policy enacted in 2009?

Accepted Answer

A) We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression. 
B) We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression. 
C) We can not be sure that it reduced the severity of the recession, but the recession was less severe than the Great Depression. 
D) We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression. 
A) We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression. 
B) We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression. 
C) We can not be sure that it reduced the severity of the recession, but the recession was less severe than the Great Depression. 
D) We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression.

Question 2

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A) about $68.8 billion 
B) about $137.6 billion 
C) about $275.2 billion 
D) about $309.6 billion 
A) about $68.8 billion 
B) about $137.6 billion 
C) about $275.2 billion 
D) about $309.6 billion

Question 3

Higher saving is associated with

Accepted Answer

A) a larger capital stock and a higher standard of living. 
B) a larger capital stock but not a higher standard of living. 
C) a higher standard of living but not a larger capital stock. 
D) neither a higher standard of living nor a higher capital stock. 
A) a larger capital stock and a higher standard of living. 
B) a larger capital stock but not a higher standard of living. 
C) a higher standard of living but not a larger capital stock. 
D) neither a higher standard of living nor a higher capital stock.

Question 4

A consumption tax that replaces an income tax

Accepted Answer

A) only taxes a household on the money it spends. 
B) discourages saving. 
C) would likely result in a lower level of saving than an income tax. 
D) ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase. 
A) only taxes a household on the money it spends. 
B) discourages saving. 
C) would likely result in a lower level of saving than an income tax. 
D) ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase.

Question 5

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A) says the Federal Reserve should only promote maximum employment 
B) says the Federal Reserve should only promote price stability 
C) says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals. 
D) says the Federal Reserve should promote price stability and maximum employment, but specifies that it place more weight on promoting price stability. 
A) says the Federal Reserve should only promote maximum employment 
B) says the Federal Reserve should only promote price stability 
C) says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals. 
D) says the Federal Reserve should promote price stability and maximum employment, but specifies that it place more weight on promoting price stability.

Question 6

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

A) increased spending, increased aggregate demand, rising real GDP, and a rising unemployment rate 
B) decreased spending, increased aggregate demand, rising real GDP, and a falling unemployment rate 
C) decreased spending, decreased aggregate demand, falling real GDP, and a rising unemployment rate 
D) decreased spending, decreased aggregate demand, falling real GDP, and a falling unemployment rate 
A) increased spending, increased aggregate demand, rising real GDP, and a rising unemployment rate 
B) decreased spending, increased aggregate demand, rising real GDP, and a falling unemployment rate 
C) decreased spending, decreased aggregate demand, falling real GDP, and a rising unemployment rate 
D) decreased spending, decreased aggregate demand, falling real GDP, and a falling unemployment rate

Question 7

If the budget deficit were reduced,

Accepted Answer

A) interest rates and investment would increase. 
B) interest rates would increase and investment would decrease. 
C) interest rates and investment would decrease. 
D) interest rates would decrease and investment would increase. 
A) interest rates and investment would increase. 
B) interest rates would increase and investment would decrease. 
C) interest rates and investment would decrease. 
D) interest rates would decrease and investment would increase.

Question 8

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Accepted Answer

A) fall. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
B) fall. The increase in expenditures makes it likely that future taxes will create larger distortions. 
C) rise. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
D) rise. The increase in expenditures makes it likely that future taxes will create larger distortions. 
A) fall. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
B) fall. The increase in expenditures makes it likely that future taxes will create larger distortions. 
C) rise. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
D) rise. The increase in expenditures makes it likely that future taxes will create larger distortions.

Question 9

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Accepted Answer

Increase g

Question 10

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. 
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.

Question 11

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A) cutting government spending. 
B) raising taxes. 
C) having the Fed purchase government bonds. 
D) reducing the money supply. 
A) cutting government spending. 
B) raising taxes. 
C) having the Fed purchase government bonds. 
D) reducing the money supply.

Question 12

Which of the following is true concerning IRA's, 401(k) and 403(b) plans?

Accepted Answer

A) Not everyone is eligible to put funds into them. 
B) There are restrictions on the amount of funds that can be put into them. 
C) Except under unusual circumstances, there are penalties for withdrawals before retirement. 
D) All of the above are correct. 
A) Not everyone is eligible to put funds into them. 
B) There are restrictions on the amount of funds that can be put into them. 
C) Except under unusual circumstances, there are penalties for withdrawals before retirement. 
D) All of the above are correct.

Question 13

The principal lag for monetary policy

Accepted Answer

A) and fiscal policy is the time it takes to implement policy. 
B) and fiscal policy is the time it takes for policy to change spending. 
C) is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending. 
D) is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it. 
A) and fiscal policy is the time it takes to implement policy. 
B) and fiscal policy is the time it takes for policy to change spending. 
C) is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending. 
D) is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.

Question 14

Which of the following is correct?

Accepted Answer

A) Deficits always require people to consume at the expense of their children. 
B) If the government uses funds to pay for investment programs, on net the debt need not burden future generations. 
C) If the government is in debt it must be running a deficit currently. 
D) The current government debt is a large share of lifetime income. 
A) Deficits always require people to consume at the expense of their children. 
B) If the government uses funds to pay for investment programs, on net the debt need not burden future generations. 
C) If the government is in debt it must be running a deficit currently. 
D) The current government debt is a large share of lifetime income.

Question 15

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Accepted Answer

A) True 
 B)False

Question 16

A higher return on saving ______ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _______ effect. If the income effect is large enough, then a reduction in taxes on saving might ______ tax revenues.

Accepted Answer

reduces, i

Question 17

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Accepted Answer

A) raise the money supply. It could do this to counter high unemployment. 
B) raise the money supply. It could do this to counter high inflation. 
C) reduce the money supply. It could do this to counter high unemployment. 
D) reduce the money supply. It could do this to counter high inflation. 
A) raise the money supply. It could do this to counter high unemployment. 
B) raise the money supply. It could do this to counter high inflation. 
C) reduce the money supply. It could do this to counter high unemployment. 
D) reduce the money supply. It could do this to counter high inflation.

Question 18

A higher rate of return on saving has

Accepted Answer

A) an income effect that discourages saving and a substitution effect that encourages saving. 
B) an income effect that encourages saving and a substitution effect that discourages saving. 
C) income and substitution effects that both decrease saving. 
D) income and substitution effects that both increase saving. 
A) an income effect that discourages saving and a substitution effect that encourages saving. 
B) an income effect that encourages saving and a substitution effect that discourages saving. 
C) income and substitution effects that both decrease saving. 
D) income and substitution effects that both increase saving.

Question 19

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. 
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.

Question 20

Part of the argument against deficits is that they

Accepted Answer

A) increase interest rates and investment. 
B) increase interest rates and decrease investment. 
C) decrease interest rates and investment. 
D) decrease interest rates and increase investment. 
A) increase interest rates and investment. 
B) increase interest rates and decrease investment. 
C) decrease interest rates and investment. 
D) decrease interest rates and increase investment.

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following is true of stimulus policy enacted in 2009?

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Higher saving is associated with

A consumption tax that replaces an income tax

A 1977 amendment to the Federal Reserve Act of 1913

Which of the following likely occurs when households and firms become more pessimistic?

If the budget deficit were reduced,

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

A policymaker against stabilizing the economy would be likely to believe

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Which of the following is true concerning IRA's, 401(k) and 403(b) plans?

The principal lag for monetary policy

Which of the following is correct?

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

A higher return on saving ______ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _______ effect. If the income effect is large enough, then a reduction in taxes on saving might ______ tax revenues.

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

A higher rate of return on saving has

A permanent reduction in inflation would

Part of the argument against deficits is that they

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

Filters

A higher return on saving __ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _ effect. If the income effect is large enough, then a reduction in taxes on saving might ____ tax revenues.