Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 3

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A) Taxes are raised to provide better education. 
B) Taxes are raised to improve government infrastructure such as roads and bridges. 
C) Taxes are raised to provide more generous Social Security benefits. 
D) None of the above transfer wealth form the young to the old. 
A) Taxes are raised to provide better education. 
B) Taxes are raised to improve government infrastructure such as roads and bridges. 
C) Taxes are raised to provide more generous Social Security benefits. 
D) None of the above transfer wealth form the young to the old.

Question 4

Economists agree that if a monetary policy rule is to be used,the best one is one that makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following lowers the rate of return on saving?

Accepted Answer

A) means-tested programs and IRA's 
B) means-tested programs, but not IRA's 
C) IRA's but not means-tested programs 
D) neither means-tested program, or IRA's 
A) means-tested programs and IRA's 
B) means-tested programs, but not IRA's 
C) IRA's but not means-tested programs 
D) neither means-tested program, or IRA's

Question 6

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 demand shifts right,the central bank must

Accepted Answer

A) decrease the money supply, which will move output back towards its long-run level. 
B) decrease the money supply, which will move output farther from its long-run level. 
C) increase the money supply, which will move output back towards its long-run level. 
D) increase the money supply, which will move output farther from its long-run level. 
A) decrease the money supply, which will move output back towards its long-run level. 
B) decrease the money supply, which will move output farther from its long-run level. 
C) increase the money supply, which will move output back towards its long-run level. 
D) increase the money supply, which will move output farther from its long-run level.

Question 7

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A) the central bank lacked credibility and if bonds were usually not indexed for inflation. 
B) the central bank lacked credibility and if bonds were usually indexed for inflation. 
C) the central bank had credibility and if bonds were usually not indexed for inflation. 
D) the central bank had credibility and if bonds were usually indexed for inflation. 
A) the central bank lacked credibility and if bonds were usually not indexed for inflation. 
B) the central bank lacked credibility and if bonds were usually indexed for inflation. 
C) the central bank had credibility and if bonds were usually not indexed for inflation. 
D) the central bank had credibility and if bonds were usually indexed for inflation.

Question 8

The time inconsistency of policy implies that

Accepted Answer

A) what policymakers say they will do is generally what they will do, but people don't believe them because of current policy. 
B) when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply. 
C) people will believe Fed policy will be more inflationary than the Fed claims. 
D) None of the above is correct. 
A) what policymakers say they will do is generally what they will do, but people don't believe them because of current policy. 
B) when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply. 
C) people will believe Fed policy will be more inflationary than the Fed claims. 
D) None of the above is correct.

Question 9

Which of the following is a cost of inflation?

Accepted Answer

A) shoeleather costs 
B) menu costs 
C) relative price variability 
D) All of the above are correct. 
A) shoeleather costs 
B) menu costs 
C) relative price variability 
D) All of the above are correct.

Question 10

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 11

"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 12

The average person's share of the U.S.government debt as a percentage of lifetime income is

Accepted Answer

A) less than 2 percent. 
B) about 5 percent. 
C) about 10 percent. 
D) over 12 percent. 
A) less than 2 percent. 
B) about 5 percent. 
C) about 10 percent. 
D) over 12 percent.

Question 13

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 14

The five 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 15

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 16

Paul Volcker's inflation reduction efforts

Accepted Answer

A) failed to reduce inflation. 
B) failed to reduce expected inflation. 
C) resulted in the highest unemployment rate since the Great Depression. 
D) All of the above are correct. 
A) failed to reduce inflation. 
B) failed to reduce expected inflation. 
C) resulted in the highest unemployment rate since the Great Depression. 
D) All of the above are correct.

Question 17

Stephen Cecchetti argues that the Fed should

Accepted Answer

A) follow a precise mechanical rule. 
B) follow a rule that could vary some based on the economic forecasts of a forecasting model. 
C) Be allowed discretion but announce a numerical target for inflation. 
D) Have complete discretion without a rule and without needing to announce targets. 
A) follow a precise mechanical rule. 
B) follow a rule that could vary some based on the economic forecasts of a forecasting model. 
C) Be allowed discretion but announce a numerical target for inflation. 
D) Have complete discretion without a rule and without needing to announce targets.

Question 18

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A) neither fiscal nor monetary policy have much impact on aggregate demand. 
B) attempts to stabilize the economy can increase the magnitude of economic fluctuations. 
C) unemployment and inflation are not cause for much concern. 
D) All of the above are correct. 
A) neither fiscal nor monetary policy have much impact on aggregate demand. 
B) attempts to stabilize the economy can increase the magnitude of economic fluctuations. 
C) unemployment and inflation are not cause for much concern. 
D) All of the above are correct.

Question 19

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 20

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income

Exam 36: Five Debates Over Macroeconomic Policy

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

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Which of the programs below would transfer wealth from the young to the old?

Economists agree that if a monetary policy rule is to be used,the best one is one that makes the growth rate of the money supply constant.

Which of the following lowers the rate of return on saving?

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 demand shifts right,the central bank must

An economist would be more likely to argue against reducing inflation if she thought that

The time inconsistency of policy implies that

Which of the following is a cost of inflation?

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

"Leaning against the wind" is exemplified by a

The average person's share of the U.S.government debt as a percentage of lifetime income is

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

The five debates over macroeconomic policy exist mostly because

Explain the main arguments in favor of economic stabilization.

Paul Volcker's inflation reduction efforts

Stephen Cecchetti argues that the Fed should

Opponents of using policy to stabilize the economy generally believe that

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

Why do many economists advocate a consumption tax rather than an income tax?

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

Filters