Question 1

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Accepted Answer

A) increases the interest rate and decreases spending on capital goods. 
B) increases the interest rate and increases spending on capital goods. 
C) decreases the interest rate and increases spending on capital goods. 
D) decreases the interest rate and decreases spending on capital goods. 
A) increases the interest rate and decreases spending on capital goods. 
B) increases the interest rate and increases spending on capital goods. 
C) decreases the interest rate and increases spending on capital goods. 
D) decreases the interest rate and decreases spending on capital goods.

Question 2

The political business cycle refers to

Accepted Answer

A) the fact that about every four years some politician advocates greater government control of the Fed. 
B) the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected. 
C) the part of the business cycle caused by the reluctance of politicians to smooth the business cycle. 
D) changes in output created by the monetary rule the Fed must follow. 
A) the fact that about every four years some politician advocates greater government control of the Fed. 
B) the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected. 
C) the part of the business cycle caused by the reluctance of politicians to smooth the business cycle. 
D) changes in output created by the monetary rule the Fed must follow.

Question 3

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Accepted Answer

A higher rate of return on saving means

Question 4

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Accepted Answer

A) the time inconsistency problem, but not political business cycles. 
B) the political business cycle, but not the time inconsistency problem. 
C) both the time inconsistency problem and political business cycles. 
D) neither the time inconsistency problem nor political business cycles. 
A) the time inconsistency problem, but not political business cycles. 
B) the political business cycle, but not the time inconsistency problem. 
C) both the time inconsistency problem and political business cycles. 
D) neither the time inconsistency problem nor political business cycles.

Question 5

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Accepted Answer

A) Saving is not very responsive to changes in the tax rate. 
B) Saving is not an important determinant of a nation's ability to produce output. 
C) Reducing the budget deficit instead of changing the tax laws could raise saving. 
D) Changes in the tax laws to induce saving would distribute the tax burden less fairly. 
A) Saving is not very responsive to changes in the tax rate. 
B) Saving is not an important determinant of a nation's ability to produce output. 
C) Reducing the budget deficit instead of changing the tax laws could raise saving. 
D) Changes in the tax laws to induce saving would distribute the tax burden less fairly.

Question 6

U.S.public policy discourages saving because

Accepted Answer

A) other things the same, taxes reduce the return from savings. 
B) means tested programs such as Medicaid provide greater benefits to those who did not save. 
C) at least some of the amount parents bequest to their children is taxed. 
D) All of the above are correct. 
A) other things the same, taxes reduce the return from savings. 
B) means tested programs such as Medicaid provide greater benefits to those who did not save. 
C) at least some of the amount parents bequest to their children is taxed. 
D) All of the above are correct.

Question 7

Which of the following is not an argument in favor of requiring the government to balance its budget?

Accepted Answer

A) Government debt imposes higher taxes or more borrowing on future generations. 
B) A balanced budget will smooth the business cycle. 
C) Deficits lower national saving. 
D) Recent history shows that Congress will run deficits even when deficits are not justified by war or recession. 
A) Government debt imposes higher taxes or more borrowing on future generations. 
B) A balanced budget will smooth the business cycle. 
C) Deficits lower national saving. 
D) Recent history shows that Congress will run deficits even when deficits are not justified by war or recession.

Question 8

From the end of 2003 to the end of 2004,the United States ran a deficit of about $121 billion.The debt at the start of this period was about $3,924 billion.Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit and kept the ratio of real GDP to the deficit about the same?

Accepted Answer

A) about 1% inflation and about 1% real GDP growth 
B) about 1% inflation and about 3% real GDP growth 
C) about 2% inflation and about 1% real GDP growth 
D) about 2% inflation and about 2% real GDP growth 
A) about 1% inflation and about 1% real GDP growth 
B) about 1% inflation and about 3% real GDP growth 
C) about 2% inflation and about 1% real GDP growth 
D) about 2% inflation and about 2% real GDP growth

Question 9

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 10

A reduction in the tax rate on income from saving would

Accepted Answer

A) most directly benefit the poor in the short run. 
B) increase real wages over time. 
C) decrease the capital stock over time. 
D) decrease productivity over time. 
A) most directly benefit the poor in the short run. 
B) increase real wages over time. 
C) decrease the capital stock over time. 
D) decrease productivity over time.

Question 11

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Accepted Answer

A) avoid unexpected changes in the inflation rate 
B) rewrite the tax laws so that nominal gains were taxed instead of real gains 
C) make policy that would discourage firms from issuing indexed bonds 
D) All of the above are correct. 
A) avoid unexpected changes in the inflation rate 
B) rewrite the tax laws so that nominal gains were taxed instead of real gains 
C) make policy that would discourage firms from issuing indexed bonds 
D) All of the above are correct.

Question 12

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Accepted Answer

A) lower the discount rate and sell bonds. 
B) lower the discount rate and buy bonds. 
C) raise the discount rate and sell bonds. 
D) raise the discount rate and buy bonds. 
A) lower the discount rate and sell bonds. 
B) lower the discount rate and buy bonds. 
C) raise the discount rate and sell bonds. 
D) raise the discount rate and buy bonds.

Question 13

Suppose aggregate demand fell.In order to stabilize the economy,the government might

Accepted Answer

A) increase the money supply. 
B) increase government expenditures. 
C) decrease taxes. 
D) All of the above are correct. 
A) increase the money supply. 
B) increase government expenditures. 
C) decrease taxes. 
D) All of the above are correct.

Question 14

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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

Accepted Answer

A) Saving is a key determinant of long-run prosperity. 
B) Current tax laws discourage saving for the purpose of leaving a large bequest. 
C) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D) The tax code currently taxes some forms of capital income twice. 
A) Saving is a key determinant of long-run prosperity. 
B) Current tax laws discourage saving for the purpose of leaving a large bequest. 
C) The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D) The tax code currently taxes some forms of capital income twice.

Question 17

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs,such as Social Security,ta

Question 18

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 19

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 20

A higher rate of return on saving has

Accepted Answer

A) an income effect that discourages saving and a substitution effect that encourages saving. 
B) an income effect that encourages saving and a substitution effect that discourages saving. 
C) income and substitution effects that both decrease saving. 
D) income and substitution effects that both increase saving. 
A) an income effect that discourages saving and a substitution effect that encourages saving. 
B) an income effect that encourages saving and a substitution effect that discourages saving. 
C) income and substitution effects that both decrease saving. 
D) income and substitution effects that both increase saving.

Exam 36: Five Debates Over Macroeconomic Policy

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

The political business cycle refers to

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

U.S.public policy discourages saving because

Which of the following is not an argument in favor of requiring the government to balance its budget?

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

A reduction in the tax rate on income from saving would

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Suppose aggregate demand fell.In order to stabilize the economy,the government might

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

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

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

Is it possible that deficits do not burden future generations?

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

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

A higher rate of return on saving has

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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