Question 1

For which of the following policies is there a significant implementation lag?

Accepted Answer

A) fiscal policy and monetary policy 
B) fiscal policy but not monetary policy 
C) monetary policy but not fiscal policy 
D) neither monetary policy nor fiscal policy 
A) fiscal policy and monetary policy 
B) fiscal policy but not monetary policy 
C) monetary policy but not fiscal policy 
D) neither monetary policy nor fiscal policy

Question 2

Zero inflation

Accepted Answer

A) might be dangerous because it could lead to rapidly increasing prices. 
B) would limit the flexibility of the labor market and so could at times raise unemployment. 
C) would make it easy for the Central bank to create negative real interest rates. 
D) is impossible to achieve in the real world. 
A) might be dangerous because it could lead to rapidly increasing prices. 
B) would limit the flexibility of the labor market and so could at times raise unemployment. 
C) would make it easy for the Central bank to create negative real interest rates. 
D) is impossible to achieve in the real world.

Question 3

In which cases were tax cuts followed by robust growth?

Accepted Answer

A) the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981 
B) the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981 
C) the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964 
D) neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981 
A) the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981 
B) the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981 
C) the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964 
D) neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981

Question 4

Which of the following is correct?

Accepted Answer

A) No forms of capital income are taxed twice. 
B) The tax code cannot be rewritten to provide greater incentive to save. 
C) Means-tested benefits increase the incentive to save. 
D) There is a correlation between national savings rates and measures of economic well-being. 
A) No forms of capital income are taxed twice. 
B) The tax code cannot be rewritten to provide greater incentive to save. 
C) Means-tested benefits increase the incentive to save. 
D) There is a correlation between national savings rates and measures of economic well-being.

Question 5

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A) The income effect, but not the substitution effect, would tend to reduce private saving. 
B) The substitution effect, but not the income effect, would tend to reduce private saving. 
C) Both the income and substitution effect would tend to reduce private saving. 
D) Neither the income nor the substitution effect would tend to reduce private saving. 
A) The income effect, but not the substitution effect, would tend to reduce private saving. 
B) The substitution effect, but not the income effect, would tend to reduce private saving. 
C) Both the income and substitution effect would tend to reduce private saving. 
D) Neither the income nor the substitution effect would tend to reduce private saving.

Question 6

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

A) .99 and 1.59. 
B) 1.59 and .99 
C) 1.3 and 1.7 
D) 1.7 and 1.3 
A) .99 and 1.59. 
B) 1.59 and .99 
C) 1.3 and 1.7 
D) 1.7 and 1.3

Question 7

Provide an example of how current expenditures might benefit future generations.

Accepted Answer

Expenditures on education rais

Question 8

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

Accepted Answer

A) increase the money supply, increase taxes 
B) increase the money supply, cut taxes 
C) decrease the money supply, increase taxes 
D) decrease the money supply, cut taxes 
A) increase the money supply, increase taxes 
B) increase the money supply, cut taxes 
C) decrease the money supply, increase taxes 
D) decrease the money supply, cut taxes

Question 9

When wages are set by contract, inflation

Accepted Answer

A) reduces real wages; this likely makes labor markets more flexible. 
B) reduces real wages; this likely makes labor markets less flexible. 
C) raises real wages; this likely makes labor markets more flexible. 
D) raises real wages; this likely makes labor markets less flexible. 
A) reduces real wages; this likely makes labor markets more flexible. 
B) reduces real wages; this likely makes labor markets less flexible. 
C) raises real wages; this likely makes labor markets more flexible. 
D) raises real wages; this likely makes labor markets less flexible.

Question 10

In fiscal year 2011, the U.S. government ran a deficit of about $1,300 billion. In fiscal year 2012, the government ran a deficit of about $1,087 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 11

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 12

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 13

"Leaning against the wind" is exemplified by a

Accepted Answer

A) tax cut when there is a recession. 
B) decrease in the money supply when there is a recession. 
C) decrease in government expenditures when there is a recession. 
D) All of the above are correct. 
A) tax cut when there is a recession. 
B) decrease in the money supply when there is a recession. 
C) decrease in government expenditures when there is a recession. 
D) All of the above are correct.

Question 14

The national debt

Accepted Answer

A) exists because of past government budget deficits. 
B) is the difference between the government's spending and revenue in a given year. 
C) is the amount households owe on credit cards, mortgages and other loans. 
D) is the amount household and firms have borrowed minus the amount they have saved. 
A) exists because of past government budget deficits. 
B) is the difference between the government's spending and revenue in a given year. 
C) is the amount households owe on credit cards, mortgages and other loans. 
D) is the amount household and firms have borrowed minus the amount they have saved.

Question 15

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Accepted Answer

A lag of six months

Question 16

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to-income ratio constant?

Accepted Answer

A) government spending equal to 30 billion units and tax collections equal to 25 billion units 
B) government spending equal to 30 billion units and tax collections equal to 20 billion units 
C) government spending equal to 30 billion units and tax collections equal to 10 billion units 
D) government spending equal to 30 billion units and tax collections equal to 5 billion units 
A) government spending equal to 30 billion units and tax collections equal to 25 billion units 
B) government spending equal to 30 billion units and tax collections equal to 20 billion units 
C) government spending equal to 30 billion units and tax collections equal to 10 billion units 
D) government spending equal to 30 billion units and tax collections equal to 5 billion units

Question 17

Which of the following is an argument against trying to use policy to stabilize the economy?

Accepted Answer

A) Recessions represent a waste of resources. 
B) Pessimism on the part of households and firms may become a self-fulfilling prophecy. 
C) "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. 
D) Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time. 
A) Recessions represent a waste of resources. 
B) Pessimism on the part of households and firms may become a self-fulfilling prophecy. 
C) "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. 
D) Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.

Question 18

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Accepted Answer

A) True 
 B)False

Question 19

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 to boost the economy when aggregate demand is inadequate to ensure full employment?

Accepted Answer

Policymakers can increase gove

Question 20

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

For which of the following policies is there a significant implementation lag?

Zero inflation

In which cases were tax cuts followed by robust growth?

Which of the following is correct?

Suppose the tax rate on interest income from saving were reduced.

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Provide an example of how current expenditures might benefit future generations.

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

When wages are set by contract, inflation

In fiscal year 2011, the U.S. government ran a deficit of about $1,300 billion. In fiscal year 2012, the government ran a deficit of about $1,087 billion. Other things the same, this change would be expected to have

A recession has no benefit to society-it represents a sheer waste of resources.

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

"Leaning against the wind" is exemplified by a

The national debt

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Which of the following is an argument against trying to use policy to stabilize the economy?

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

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 to boost the economy when aggregate demand is inadequate to ensure full employment?

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

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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