Question 1

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Accepted Answer

The government cut taxes and raised expe

Question 2

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 3

Explain why fiscal policy actions typically work with a lag.

Accepted Answer

Fiscal policy works with a lag primarily

Question 4

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Accepted Answer

A) left, and the sacrifice ratio will be low. 
B) left, and the sacrifice ratio will be high. 
C) right, and the sacrifice ratio will be low. 
D) right, and the sacrifice ratio will be high. 
A) left, and the sacrifice ratio will be low. 
B) left, and the sacrifice ratio will be high. 
C) right, and the sacrifice ratio will be low. 
D) right, and the sacrifice ratio will be high.

Question 5

Investment tax credits

Accepted Answer

A) can increase investment, but stimulating investment is not a key to ending a recession. 
B) can increase investment, which is a key to ending a recession. 
C) cannot increase spending on investment goods, but stimulating investment is not a key to ending a recession. 
D) cannot increase spending on investment goods, but stimulating investment is a key to ending a recession. 
A) can increase investment, but stimulating investment is not a key to ending a recession. 
B) can increase investment, which is a key to ending a recession. 
C) cannot increase spending on investment goods, but stimulating investment is not a key to ending a recession. 
D) cannot increase spending on investment goods, but stimulating investment is a key to ending a recession.

Question 6

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 7

Means-tested programs tend to favor those with

Accepted Answer

A) high income as would a consumption tax. 
B) high income while a consumption tax would favor those with low income. 
C) low income as would a consumption tax. 
D) low income while a consumption tax would favor those with high income. 
A) high income as would a consumption tax. 
B) high income while a consumption tax would favor those with low income. 
C) low income as would a consumption tax. 
D) low income while a consumption tax would favor those with high income.

Question 8

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time

Question 9

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m

Question 10

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are

Question 11

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr

Question 12

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged. If the Fed is required to follow a rule that stabilizes the price level, what will the Fed do to the money supply and what impact will this have on total output in the economy?

Accepted Answer

To keep the price level stable

Question 13

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 14

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Accepted Answer

Reducing inflation is likely to result i

Question 15

If inflation falls, people choose to put in

Accepted Answer

A) more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B) more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C) less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D) less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
A) more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B) more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C) less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D) less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

Question 16

A year ago a country reduced the tax rate on all interest income from 40% to 10%. During the year private saving was $600 billion as compared to $500 billion the year before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in 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 17

If the public correctly perceives that the central bank will reduce inflation, then the short-run Phillips curve shifts

Accepted Answer

A) right, and unemployment will rise by more than otherwise. 
B) right, and unemployment will rise by less than otherwise. 
C) left, and unemployment will rise by more than otherwise. 
D) left, and unemployment will rise by less than otherwise. 
A) right, and unemployment will rise by more than otherwise. 
B) right, and unemployment will rise by less than otherwise. 
C) left, and unemployment will rise by more than otherwise. 
D) left, and unemployment will rise by less than otherwise.

Question 18

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

Accepted Answer

Taxing saving at a lower rate

Question 19

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

Accepted Answer

A) changes in the money supply to change interest rates. 
B) the Fed to make changes in policy. 
C) changes in the interest rate to change aggregate demand. 
D) Congress and the President to approve Fed policy. 
A) changes in the money supply to change interest rates. 
B) the Fed to make changes in policy. 
C) changes in the interest rate to change aggregate demand. 
D) Congress and the President to approve Fed policy.

Question 20

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

Exam 36: Six Debates Over Macroeconomic Policy

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Explain why fiscal policy actions typically work with a lag.

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Investment tax credits

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Means-tested programs tend to favor those with

Explain why policy lags could make stabilization policies counterproductive.

Approximately how often does the Federal Open Market Committee meet?

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Explain how it is possible for the government debt to grow forever.

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

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

If inflation falls, people choose to put in

If the public correctly perceives that the central bank will reduce inflation, then the short-run Phillips curve shifts

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

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

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

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 Nations 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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