Question 1

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 2

Fluctuations in employment and output result from changes in

Accepted Answer

A) aggregate demand only. 
B) aggregate supply only. 
C) aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply. 
A) aggregate demand only. 
B) aggregate supply only. 
C) aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl

Question 5

The time inconsistency of monetary policy means that

Accepted Answer

A) once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. 
B) at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low. 
C) monetary policy is not consistent across time because it is influenced by politics. 
D) monetary policy is not consistent across time because policymakers are incompetent. 
A) once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. 
B) at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low. 
C) monetary policy is not consistent across time because it is influenced by politics. 
D) monetary policy is not consistent across time because policymakers are incompetent.

Question 6

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not an argument against rules and for discretion?

Accepted Answer

A) The economy is subject to a variety of random shocks. 
B) Rules would eliminate time inconsistency. 
C) Historically, it is not clear how important political business cycles have been. 
D) Central banks can achieve credibility over time by backing up their words with deeds. 
A) The economy is subject to a variety of random shocks. 
B) Rules would eliminate time inconsistency. 
C) Historically, it is not clear how important political business cycles have been. 
D) Central banks can achieve credibility over time by backing up their words with deeds.

Question 8

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

The debt can grow because the economy gr

Question 10

How long have studies shown it takes for interest rate changes to lead to significant changes in spending?

Accepted Answer

A) A few days. 
B) A few weeks. 
C) A few months. 
D) A few years. 
A) A few days. 
B) A few weeks. 
C) A few months. 
D) A few years.

Question 11

A permanent reduction in inflation would

Accepted Answer

A) permanently reduce menu costs and permanently lower unemployment. 
B) permanently reduce menu costs and temporarily raise unemployment. 
C) temporarily reduce menu costs and temporarily lower unemployment. 
D) temporarily reduce menu costs and temporarily raise unemployment. 
A) permanently reduce menu costs and permanently lower unemployment. 
B) permanently reduce menu costs and temporarily raise unemployment. 
C) temporarily reduce menu costs and temporarily lower unemployment. 
D) temporarily reduce menu costs and temporarily raise unemployment.

Question 12

Part of the argument against deficits is that they

Accepted Answer

A) increase interest rates and investment. 
B) increase interest rates and decrease investment. 
C) decrease interest rates and investment. 
D) decrease interest rates and increase investment. 
A) increase interest rates and investment. 
B) increase interest rates and decrease investment. 
C) decrease interest rates and investment. 
D) decrease interest rates and increase investment.

Question 13

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Accepted Answer

A) both the tax cut and the increase in government expenditures would tend to increase output. 
B) only the tax cut would tend to increase output. 
C) only the increase in government expenditures would tend to increase output. 
D) neither the tax cut nor the increase in government expenditures would tend to increase output. 
A) both the tax cut and the increase in government expenditures would tend to increase output. 
B) only the tax cut would tend to increase output. 
C) only the increase in government expenditures would tend to increase output. 
D) neither the tax cut nor the increase in government expenditures would tend to increase output.

Question 14

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 15

The principal lag for monetary policy

Accepted Answer

A) and fiscal policy is the time it takes to implement policy. 
B) and fiscal policy is the time it takes for policy to change spending. 
C) is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending. 
D) is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it. 
A) and fiscal policy is the time it takes to implement policy. 
B) and fiscal policy is the time it takes for policy to change spending. 
C) is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending. 
D) is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it.

Question 16

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

Accepted Answer

A) interest rates and output would rise. 
B) interest rates would rise and output would fall. 
C) interest rates would fall and output would rise. 
D) interest rates and output would fall. 
A) interest rates and output would rise. 
B) interest rates would rise and output would fall. 
C) interest rates would fall and output would rise. 
D) interest rates and output would fall.

Question 17

If the budget deficit were reduced

Accepted Answer

A) interest rates and investment would increase. 
B) interest rates would increase and investment would decrease. 
C) interest rates and investment would decrease. 
D) interest rates would decrease and investment would increase. 
A) interest rates and investment would increase. 
B) interest rates would increase and investment would decrease. 
C) interest rates and investment would decrease. 
D) interest rates would decrease and investment would increase.

Question 18

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation.Sho

Question 19

Which of the following is not an argument against reforming the tax laws to encourage saving?

Accepted Answer

A) A public budget surplus can raise national saving. 
B) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C) Low-income households save a larger fraction of their income than high-income households. 
D) Tax cuts might cause a budget deficit. 
A) A public budget surplus can raise national saving. 
B) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C) Low-income households save a larger fraction of their income than high-income households. 
D) Tax cuts might cause a budget deficit.

Question 20

If in some year,real GDP rises by 4% and inflation is 3%,then the budget deficit could grow as much as

Accepted Answer

A) 12% without raising the ratio of debt to GDP. 
B) 7% without raising the ratio of debt to GDP. 
C) 4% without raising the ratio of debt to GDP. 
D) 1% without raising the ratio of debt to GDP. 
A) 12% without raising the ratio of debt to GDP. 
B) 7% without raising the ratio of debt to GDP. 
C) 4% without raising the ratio of debt to GDP. 
D) 1% without raising the ratio of debt to GDP.

Exam 36: Five Debates Over Macroeconomic Policy

All of the following are arguments against stabilization policy except

Fluctuations in employment and output result from changes in

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

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

The time inconsistency of monetary policy means that

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Which of the following is not an argument against rules and for discretion?

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

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

How long have studies shown it takes for interest rate changes to lead to significant changes in spending?

A permanent reduction in inflation would

Part of the argument against deficits is that they

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

The principal lag for monetary policy

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

If the budget deficit were reduced

Describe three costs of inflation.

Which of the following is not an argument against reforming the tax laws to encourage saving?

If in some year,real GDP rises by 4% and inflation is 3%,then the budget deficit could grow as much as

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: 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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

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