Question 1

Policymakers following a "lean against the wind" policy would

Accepted Answer

A) increase government expenditures when output is low and decrease them when output is high. 
B) increase government expenditures when output is low and do nothing when output is high. 
C) decrease government expenditures when output is low and increase them when output is high. 
D) decrease government expenditures when output is high and do nothing when output is low. 
A) increase government expenditures when output is low and decrease them when output is high. 
B) increase government expenditures when output is low and do nothing when output is high. 
C) decrease government expenditures when output is low and increase them when output is high. 
D) decrease government expenditures when output is high and do nothing when output is low.

Question 2

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

Accepted Answer

A) Saving is a key determinant of long-run prosperity. 
B) Current tax laws discourage saving for the purpose of leaving a large bequest. 
C) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D) The tax code currently taxes some forms of capital income twice. 
A) Saving is a key determinant of long-run prosperity. 
B) Current tax laws discourage saving for the purpose of leaving a large bequest. 
C) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D) The tax code currently taxes some forms of capital income twice.

Question 3

Higher saving is associated with

Accepted Answer

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

Question 4

Why might reforms to encourage saving lead to a less egalitarian society?

Accepted Answer

Taxing saving at a lower rate

Question 5

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 shifts aggregate demand further right. 
B) decrease the money supply, which shifts aggregate demand left. 
C) increase the money supply, which shifts aggregate demand further right. 
D) increase the money supply, which shifts aggregate demand left. 
A) decrease the money supply, which shifts aggregate demand further right. 
B) decrease the money supply, which shifts aggregate demand left. 
C) increase the money supply, which shifts aggregate demand further right. 
D) increase the money supply, which shifts aggregate demand left.

Question 6

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 7

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected 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 8

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. 
A) every six days. 
B) every six weeks. 
C) every six months. 
D) every sixteen months.

Question 9

An economist would be more likely to argue for reducing inflation if she thought that

Accepted Answer

A) the central bank lacked credibility and if bonds were usually not indexed for inflation. 
B) the central bank lacked credibility and if bonds were usually indexed for inflation. 
C) the central bank had credibility and if bonds were usually not indexed for inflation. 
D) the central bank had credibility and if bonds were usually indexed for inflation. 
A) the central bank lacked credibility and if bonds were usually not indexed for inflation. 
B) the central bank lacked credibility and if bonds were usually indexed for inflation. 
C) the central bank had credibility and if bonds were usually not indexed for inflation. 
D) the central bank had credibility and if bonds were usually indexed for inflation.

Question 10

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

Accepted Answer

A) raise both consumption and investment. 
B) raise consumption but reduce investment. 
C) raise investment but reduce consumption. 
D) reduce both consumption and investment. 
A) raise both consumption and investment. 
B) raise consumption but reduce investment. 
C) raise investment but reduce consumption. 
D) reduce both consumption and investment.

Question 11

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. 
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.

Question 12

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. 
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.

Question 13

Why might policymakers attempts to stabilize the economy do more harm than good?

Accepted Answer

Policy works with a lag. By th

Question 14

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand 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. 
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.

Question 15

Suppose a 25-year-old worker purchases a $5,000 bond that pays 6% interest per year which she plans to withdraw when she retires in 40 years. How much will the $5,000 accumulate to in 40 years? If the worker faces a marginal tax rate of 30% on interest income, how much will the $5,000 accumulate to in 40 years?

Accepted Answer

In the absence of taxes, the b

Question 16

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. 
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.

Question 17

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re-election, what specific actions might it take?

Accepted Answer

If the Fed wanted to see the President r

Question 18

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Accepted Answer

A) both the tax cut and the increase in government expenditures would tend to increase output. 
B) only the tax cut would tend to increase output. 
C) only the increase in government expenditures would tend to increase output. 
D) neither the tax cut nor the increase in government expenditures would tend to increase output. 
A) both the tax cut and the increase in government expenditures would tend to increase output. 
B) only the tax cut would tend to increase output. 
C) only the increase in government expenditures would tend to increase output. 
D) neither the tax cut nor the increase in government expenditures would tend to increase output.

Question 19

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase 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 20

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Accepted Answer

A) about 414.9 billion 
B) about 404.8 billion 
C) about 253.0 billion 
D) about 161.9 billion 
A) about 414.9 billion 
B) about 404.8 billion 
C) about 253.0 billion 
D) about 161.9 billion

Exam 36: Six Debates Over Macroeconomic Policy

Policymakers following a "lean against the wind" policy would

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

Higher saving is associated with

Why might reforms to encourage saving lead to a less egalitarian society?

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

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

The Federal Open Market Committee meets about

An economist would be more likely to argue for reducing inflation if she thought that

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

Part of the lag in monetary policy effects is due to

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

Why might policymakers attempts to stabilize the economy do more harm than good?

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

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

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re-election, what specific actions might it take?

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

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

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

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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