Question 1

Which of the following is not a cost of inflation identified by economists?

Accepted Answer

A) menu costs associated with more frequent adjustment of prices 
B) confusion and inconvenience resulting from a changing value of the unit of account 
C) reduced price flexibility 
D) arbitrary redistributions of wealth associated with dollar-denominated debts 
A) menu costs associated with more frequent adjustment of prices 
B) confusion and inconvenience resulting from a changing value of the unit of account 
C) reduced price flexibility 
D) arbitrary redistributions of wealth associated with dollar-denominated debts

Question 2

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

Accepted Answer

A) Ben Bernanke 
B) Alan Greenspan 
C) Paul Volcker 
D) Arthur Burns 
A) Ben Bernanke 
B) Alan Greenspan 
C) Paul Volcker 
D) Arthur Burns

Question 3

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A) economists disagree over basic issues such as the importance of saving for economic growth. 
B) there are tradeoffs and people disagree about the best way to deal with them. 
C) politicians offer misleading information. 
D) people fail to clearly see the benefits or the costs of most changes. 
A) economists disagree over basic issues such as the importance of saving for economic growth. 
B) there are tradeoffs and people disagree about the best way to deal with them. 
C) politicians offer misleading information. 
D) people fail to clearly see the benefits or the costs of most changes.

Question 4

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A) 16.7 trillion 
B) 10.0 trillion 
C) 6.25 trillion 
D) 3.85 trillion 
A) 16.7 trillion 
B) 10.0 trillion 
C) 6.25 trillion 
D) 3.85 trillion

Question 5

Which of the following support the idea that monetary policy should be made by a rule?

Accepted Answer

A) the political business cycle and the time-inconsistency problem 
B) the political business cycle but not the time-inconsistency problem 
C) the time-inconsistency problem, but not the political business cycle 
D) neither the political business cycle nor the time-inconsistency problem 
A) the political business cycle and the time-inconsistency problem 
B) the political business cycle but not the time-inconsistency problem 
C) the time-inconsistency problem, but not the political business cycle 
D) neither the political business cycle nor the time-inconsistency problem

Question 6

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 7

A reduction in inflation would lead to

Accepted Answer

A) more frequent price changes and increased variability of relative prices. 
B) more frequent price changes and decreased variability of relative prices. 
C) less frequent price changes and increased variability of relative prices. 
D) less frequent price changes and decreased variability of relative prices. 
A) more frequent price changes and increased variability of relative prices. 
B) more frequent price changes and decreased variability of relative prices. 
C) less frequent price changes and increased variability of relative prices. 
D) less frequent price changes and decreased variability of relative prices.

Question 8

From the end of 2005 to the end of 2006, the United States ran a deficit of about $309 billion. The debt at the start of this period was about $4,592 billion. Which of the following combinations of inflation and real GDP growth would have allowed the government to run this deficit while keeping the ratio of real GDP to the debt about the same?

Accepted Answer

A) about 3% inflation and about 2.2% real GDP growth 
B) about 3% inflation and about 3.2% real GDP growth 
C) about 3.4% inflation and about 3.3% real GDP growth 
D) about 3.4% inflation and about 4% real GDP growth 
A) about 3% inflation and about 2.2% real GDP growth 
B) about 3% inflation and about 3.2% real GDP growth 
C) about 3.4% inflation and about 3.3% real GDP growth 
D) about 3.4% inflation and about 4% real GDP growth

Question 9

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A) The cost of something is what you give up to get it (Principle 2). 
B) Trade can make everyone better off (Principle 5). 
C) Markets are usually a good way to organize economic activity (Principle 6). 
D) A country's standard of living depends on its ability to produce goods and services (Principle 8). 
A) The cost of something is what you give up to get it (Principle 2). 
B) Trade can make everyone better off (Principle 5). 
C) Markets are usually a good way to organize economic activity (Principle 6). 
D) A country's standard of living depends on its ability to produce goods and services (Principle 8).

Question 10

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 so interest rates rise. 
B) decrease the money supply so interest rates fall. 
C) increase the money supply so interest rates rise. 
D) increase the money supply so interest rates fall. 
A) decrease the money supply so interest rates rise. 
B) decrease the money supply so interest rates fall. 
C) increase the money supply so interest rates rise. 
D) increase the money supply so interest rates fall.

Question 11

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 12

All of the following are arguments against stabilization policy except

Accepted Answer

A) Economic forecasting is highly imprecise. 
B) Long lags may cause stabilization policies to in fact destabilize the economy. 
C) Monetary policy affects aggregate demand by changing interest rates. 
D) Fiscal policy must go through a long political process. 
A) Economic forecasting is highly imprecise. 
B) Long lags may cause stabilization policies to in fact destabilize the economy. 
C) Monetary policy affects aggregate demand by changing interest rates. 
D) Fiscal policy must go through a long political process.

Question 13

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

A) increase taxes, increase government spending 
B) increase taxes, decrease government spending 
C) decrease taxes, increase government spending 
D) decrease taxes, decrease government spending 
A) increase taxes, increase government spending 
B) increase taxes, decrease government spending 
C) decrease taxes, increase government spending 
D) decrease taxes, decrease government spending

Question 14

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A) the growth rate of output is high 
B) in response to increased debt, parents save more to leave their children larger bequests 
C) some current government spending benefits future taxpayers 
D) All of the above are correct. 
A) the growth rate of output is high 
B) in response to increased debt, parents save more to leave their children larger bequests 
C) some current government spending benefits future taxpayers 
D) All of the above are correct.

Question 15

Between 1980 and 1995 government debt as a percentage of GDP

Accepted Answer

A) increased from about 25% to 50%. 
B) decreased from about 50% to 25%. 
C) decreased from about 25% to almost zero. 
D) increased from about 10% to 20%. 
A) increased from about 25% to 50%. 
B) decreased from about 50% to 25%. 
C) decreased from about 25% to almost zero. 
D) increased from about 10% to 20%.

Question 16

Explain what is meant by saying that capital income is taxed twice.

Accepted Answer

Shareholders are part owners o

Question 17

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Accepted Answer

According to the traditional Keynesian m

Question 18

If a central bank were required to target inflation at zero, then when there was a positive aggregate supply shock the central bank

Accepted Answer

A) would have to increase the interest rate. This would move unemployment closer to the natural rate. 
B) would have to increase the interest rate. This would move unemployment further from the natural rate. 
C) would have to decrease the interest rate. This would move unemployment closer to the natural rate. 
D) would have to decrease the interest rate. This would move unemployment further from the natural rate. 
A) would have to increase the interest rate. This would move unemployment closer to the natural rate. 
B) would have to increase the interest rate. This would move unemployment further from the natural rate. 
C) would have to decrease the interest rate. This would move unemployment closer to the natural rate. 
D) would have to decrease the interest rate. This would move unemployment further from the natural rate.

Question 19

An increase in the money supply

Accepted Answer

A) reduces interest rates and shifts aggregate demand to the right. 
B) reduces interest rates and shifts aggregate supply to the right 
C) raises interest rates and shifts aggregate demand to the right. 
D) raises interest rates and shifts aggregate supply to the right. 
A) reduces interest rates and shifts aggregate demand to the right. 
B) reduces interest rates and shifts aggregate supply to the right 
C) raises interest rates and shifts aggregate demand to the right. 
D) raises interest rates and shifts aggregate supply to the right.

Question 20

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A) its substitution effect on saving and its effect on the government budget 
B) its substitution effect on saving but not its effect on the government budget 
C) its effect on the government budget but not its substitution effect on saving 
D) neither its substitution effect on saving nor its effect on the government budget 
A) its substitution effect on saving and its effect on the government budget 
B) its substitution effect on saving but not its effect on the government budget 
C) its effect on the government budget but not its substitution effect on saving 
D) neither its substitution effect on saving nor its effect on the government budget

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following is not a cost of inflation identified by economists?

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

The six debates over macroeconomic policy exist mostly because

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Which of the following support the idea that monetary policy should be made by a rule?

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

A reduction in inflation would lead to

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

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

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

All of the following are arguments against stabilization policy except

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Which of the following reduces the potential burden of an increase in debt on future generations?

Between 1980 and 1995 government debt as a percentage of GDP

Explain what is meant by saying that capital income is taxed twice.

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

If a central bank were required to target inflation at zero, then when there was a positive aggregate supply shock the central bank

An increase in the money supply

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

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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