Question 1

Policies that reduce the incentive for households to save include

Accepted Answer

A) means-testing. 
B) College and university financial aid administration. 
C) inheritance taxes. 
D) All of the above. 
A) means-testing. 
B) College and university financial aid administration. 
C) inheritance taxes. 
D) All of the above.

Question 2

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Accepted Answer

Because a decrease i

Question 3

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Accepted Answer

The Federal Open Mar

Question 4

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A) time inconsistency of policy 
B) flexibility to confront unforeseen circumstances 
C) political business cycle 
D) the ability to craft rules that account for all possible contingencies in advance 
A) time inconsistency of policy 
B) flexibility to confront unforeseen circumstances 
C) political business cycle 
D) the ability to craft rules that account for all possible contingencies in advance

Question 5

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t

Question 6

Real interest rates

Accepted Answer

A) cannot be negative. 
B) can be negative only if inflation is negative. 
C) can be negative only if inflation is zero. 
D) can be negative only if inflation is greater than zero. 
A) cannot be negative. 
B) can be negative only if inflation is negative. 
C) can be negative only if inflation is zero. 
D) can be negative only if inflation is greater than zero.

Question 7

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Accepted Answer

Government spending exceeds tax revenues

Question 8

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Accepted Answer

A) small and an increase in private saving tends to have a small impact on the capital stock. 
B) small and an increase in private saving tends to have a large impact on the capital stock. 
C) large and an increase in private saving tends to have a small impact on the capital stock. 
D) large and an increase in private saving tends to have a large impact on the capital stock. 
A) small and an increase in private saving tends to have a small impact on the capital stock. 
B) small and an increase in private saving tends to have a large impact on the capital stock. 
C) large and an increase in private saving tends to have a small impact on the capital stock. 
D) large and an increase in private saving tends to have a large impact on the capital stock.

Question 9

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 supply shifts left, 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 10

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A) the government raise taxes or cut expenditures. This would increase the magnitude of economic fluctuations. 
B) the government raise taxes or cut expenditures. This would decrease the magnitude of economic fluctuations. 
C) the government cut taxes or raise expenditures. This would increase the magnitude of economic fluctuations. 
D) the government cut taxes or raise expenditures. This would decrease the magnitude of economic fluctuations. 
A) the government raise taxes or cut expenditures. This would increase the magnitude of economic fluctuations. 
B) the government raise taxes or cut expenditures. This would decrease the magnitude of economic fluctuations. 
C) the government cut taxes or raise expenditures. This would increase the magnitude of economic fluctuations. 
D) the government cut taxes or raise expenditures. This would decrease the magnitude of economic fluctuations.

Question 11

If the public correctly perceives that the central bank will reduce inflation, then

Accepted Answer

A) the short-run Phillips curve shifts right, and the sacrifice ratio will be higher. 
B) the short-run Phillips curve shifts right, and the sacrifice ratio will be lower. 
C) the short-run Phillips curve shifts left, and the sacrifice ratio will be higher. 
D) the short-run Phillips curve shifts left, and the sacrifice ratio will be lower. 
A) the short-run Phillips curve shifts right, and the sacrifice ratio will be higher. 
B) the short-run Phillips curve shifts right, and the sacrifice ratio will be lower. 
C) the short-run Phillips curve shifts left, and the sacrifice ratio will be higher. 
D) the short-run Phillips curve shifts left, and the sacrifice ratio will be lower.

Question 12

Which of the programs below would not transfer wealth from young to old generations?

Accepted Answer

A) Taxes are reduced as a result of cutting expenditures on education. 
B) Taxes are raised to improve government infrastructure such as roads and bridges. 
C) Taxes are raised to provide more generous Social Security benefits. 
D) Taxes are raised to provide more generous Medicare benefits. 
A) Taxes are reduced as a result of cutting expenditures on education. 
B) Taxes are raised to improve government infrastructure such as roads and bridges. 
C) Taxes are raised to provide more generous Social Security benefits. 
D) Taxes are raised to provide more generous Medicare benefits.

Question 13

A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct?

Accepted Answer

A) the substitution effect was larger than the income effect; national saving rose 
B) the substitution effect was larger than the income effect; national saving fell 
C) the income effect was larger than the substitution effect; national saving rose 
D) the income effect was larger than the substitution effect; national saving fell 
A) the substitution effect was larger than the income effect; national saving rose 
B) the substitution effect was larger than the income effect; national saving fell 
C) the income effect was larger than the substitution effect; national saving rose 
D) the income effect was larger than the substitution effect; national saving fell

Question 14

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 15

Some economists argue that since inflation

Accepted Answer

A) raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
B) raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
C) reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
D) reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
A) raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
B) raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
C) reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
D) reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.

Question 16

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Accepted Answer

A) increases the interest rate and decreases spending on capital goods. 
B) increases the interest rate and increases spending on capital goods. 
C) decreases the interest rate and increases spending on capital goods. 
D) decreases the interest rate and decreases spending on capital goods. 
A) increases the interest rate and decreases spending on capital goods. 
B) increases the interest rate and increases spending on capital goods. 
C) decreases the interest rate and increases spending on capital goods. 
D) decreases the interest rate and decreases spending on capital goods.

Question 17

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Accepted Answer

A) increase the money supply, which causes output to move closer to its long-run equilibrium. 
B) increase the money supply, which causes output to move farther from long-run equilibrium. 
C) decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D) decrease the money supply, which causes output to move farther from long-run equilibrium. 
A) increase the money supply, which causes output to move closer to its long-run equilibrium. 
B) increase the money supply, which causes output to move farther from long-run equilibrium. 
C) decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D) decrease the money supply, which causes output to move farther from long-run equilibrium.

Question 18

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 19

Double taxation means that both

Accepted Answer

A) wage income and interest income are taxed, which is currently the case in the United States. 
B) wage income and interest income are taxed, which is not currently the case in the United States. 
C) the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States. 
D) the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States. 
A) wage income and interest income are taxed, which is currently the case in the United States. 
B) wage income and interest income are taxed, which is not currently the case in the United States. 
C) the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States. 
D) the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States.

Question 20

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A) about $226.0 billion 
B) about $248.6 billion 
C) about $474.6 billion 
D) about $561.8 billion 
A) about $226.0 billion 
B) about $248.6 billion 
C) about $474.6 billion 
D) about $561.8 billion

Exam 36: Six Debates Over Macroeconomic Policy

Policies that reduce the incentive for households to save include

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Real interest rates

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

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 supply shifts left, the central bank must

A balanced budget would require that when real GDP was growing rapidly,

If the public correctly perceives that the central bank will reduce inflation, then

Which of the programs below would not transfer wealth from young to old generations?

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Some economists argue that since inflation

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

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

Double taxation means that both

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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