Question 1

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Question 2

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 3

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 4

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

Accepted Answer

High debt means that future taxpayers wi

Question 5

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

A) Increase the money supply, increase taxes, increase government spending 
B) Increase the money supply, increase taxes, decrease government spending 
C) Increase the money supply, decrease taxes, increase government spending 
D) Decrease the money supply, increase taxes, decrease government spending 
A) Increase the money supply, increase taxes, increase government spending 
B) Increase the money supply, increase taxes, decrease government spending 
C) Increase the money supply, decrease taxes, increase government spending 
D) Decrease the money supply, increase taxes, decrease government spending

Question 6

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Accepted Answer

A) The shift of aggregate demand, but not the shift of aggregate supply 
B) Both the shift of aggregate demand and the shift of aggregate supply 
C) The shift of aggregate supply, but not the shift of aggregate demand 
D) Neither the shift of aggregate demand nor the shift of aggregate supply 
A) The shift of aggregate demand, but not the shift of aggregate supply 
B) Both the shift of aggregate demand and the shift of aggregate supply 
C) The shift of aggregate supply, but not the shift of aggregate demand 
D) Neither the shift of aggregate demand nor the shift of aggregate supply

Question 9

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 10

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment

Question 11

A higher return on saving ______ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _______ effect. If the income effect is large enough, then a reduction in taxes on saving might ______ tax revenues.

Accepted Answer

reduces, i

Question 12

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security,

Question 13

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

Question 14

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 15

According to traditional Keynesian analysis, if the economy is in a recession,

Accepted Answer

A) increases in government purchases are more effective than decreases in taxes. 
B) decreases in government purchases are less effective than decreases in taxes. 
C) decreases in government purchases are more effective than increases in taxes. 
D) increases in government purchases are less effective than decreases in taxes. 
A) increases in government purchases are more effective than decreases in taxes. 
B) decreases in government purchases are less effective than decreases in taxes. 
C) decreases in government purchases are more effective than increases in taxes. 
D) increases in government purchases are less effective than decreases in taxes.

Question 16

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 17

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Accepted Answer

Reducing inflation leads to a temporary

Question 18

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 19

If U.S. net exports decrease, then those in favor of 'lean against the wind policies' would advocate

Accepted Answer

A) increasing the money supply and cutting taxes. 
B) decreasing the money supply and cutting taxes. 
C) decreasing the money supply and raising taxes. 
D) increasing the money supply and raising taxes. 
A) increasing the money supply and cutting taxes. 
B) decreasing the money supply and cutting taxes. 
C) decreasing the money supply and raising taxes. 
D) increasing the money supply and raising taxes.

Question 20

Explain what is meant by the time inconsistency of monetary policy.

Accepted Answer

The time inconsistency of monetary polic

Exam 36: Six Debates Over Macroeconomic Policy

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Some economists argue that since inflation

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

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

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Explain the main arguments in favor of economic stabilization.

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

A higher return on saving ______ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _______ effect. If the income effect is large enough, then a reduction in taxes on saving might ______ tax revenues.

Is it possible that deficits do not burden future generations?

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.

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

According to traditional Keynesian analysis, if the economy is in a recession,

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

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

If U.S. net exports decrease, then those in favor of 'lean against the wind policies' would advocate

Explain what is meant by the time inconsistency of monetary policy.

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

Filters

A higher return on saving __ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _ effect. If the income effect is large enough, then a reduction in taxes on saving might ____ tax revenues.