Question 1

In general,the longest lag for

Accepted Answer

A) both fiscal and monetary policy is the time it takes to change policy. 
B) both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C) monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D) fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A) both fiscal and monetary policy is the time it takes to change policy. 
B) both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C) monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D) fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 2

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Accepted Answer

A) real GDP rose and the inflation rate were positive. 
B) real GDP rose and the inflation rate were negative. 
C) real GDP fell and the inflation rate were positive. 
D) real GDP fell and the inflation rate were negative. 
A) real GDP rose and the inflation rate were positive. 
B) real GDP rose and the inflation rate were negative. 
C) real GDP fell and the inflation rate were positive. 
D) real GDP fell and the inflation rate were negative.

Question 3

Consider the following rule for monetary policy: r = 2 percent + π + 1/2(y - y*)/y* + 1/2(π- π*),where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output,π is the inflation rate,and π* is the inflation target.Which of the following statements is not correct?π

Accepted Answer

A) If aggregate demand shifts right from long-run equilibrium, this rule unambiguously implies that the Fed increases the nominal interest rate. 
B) If aggregate supply shifts right from long-run equilibrium at the inflation target, we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate. 
C) If output is at its natural level, but inflation is above its target, the Fed must increase the nominal interest rate. 
D) If inflation is at its targeted level, but output is above its natural rate, the Fed must decrease the federal funds rate. 
A) If aggregate demand shifts right from long-run equilibrium, this rule unambiguously implies that the Fed increases the nominal interest rate. 
B) If aggregate supply shifts right from long-run equilibrium at the inflation target, we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate. 
C) If output is at its natural level, but inflation is above its target, the Fed must increase the nominal interest rate. 
D) If inflation is at its targeted level, but output is above its natural rate, the Fed must decrease the federal funds rate.

Question 4

The Fed raised interest rates in 2004 and 2005.This implies,other things the same,that the Fed

Accepted Answer

A) increased the money supply because it was concerned about unemployment. 
B) increased the money supply because it was concerned about inflation. 
C) decreased the money supply because it was concerned about unemployment. 
D) decreased the money supply because it was concerned about inflation. 
A) increased the money supply because it was concerned about unemployment. 
B) increased the money supply because it was concerned about inflation. 
C) decreased the money supply because it was concerned about unemployment. 
D) decreased the money supply because it was concerned about inflation.

Question 5

"Leaning against the wind" is exemplified by a

Accepted Answer

A) tax increase when there is a recession. 
B) decrease in the money supply when there is an expansion. 
C) decrease in government expenditures when there is a recession. 
D) All of the above are correct. 
A) tax increase when there is a recession. 
B) decrease in the money supply when there is an expansion. 
C) decrease in government expenditures when there is a recession. 
D) All of the above are correct.

Question 6

If a central bank had to give ups its discretion and follow a rule that required it to keep inflation low,

Accepted Answer

A) the short-run Phillips curve would shift up. 
B) the short-run Phillips curve would shift down. 
C) the long-run Phillips curve would shift right. 
D) the long-run Phillips curve would shift left. 
A) the short-run Phillips curve would shift up. 
B) the short-run Phillips curve would shift down. 
C) the long-run Phillips curve would shift right. 
D) the long-run Phillips curve would shift left.

Question 7

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not correct?

Accepted Answer

A) Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so. 
B) Deficits and surpluses could be used to avoid fluctuations in the tax rate. 
C) The only times deficits have increased have been during times of war or economic downturns. 
D) Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off. 
A) Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so. 
B) Deficits and surpluses could be used to avoid fluctuations in the tax rate. 
C) The only times deficits have increased have been during times of war or economic downturns. 
D) Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.

Question 9

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Accepted Answer

A) High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation. 
B) Inflation reduction works best when it is unexpected, and people in high inflation countries would quickly anticipate any change in monetary policy. 
C) In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs. 
D) All of the above are correct. 
A) High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation. 
B) Inflation reduction works best when it is unexpected, and people in high inflation countries would quickly anticipate any change in monetary policy. 
C) In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs. 
D) All of the above are correct.

Question 10

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

Accepted Answer

A) would have to increase the money supply.This would move unemployment closer to the natural rate. 
B) would have to increase the money supply.This would move unemployment further from the natural rate. 
C) would have to decrease the money supply.This would move unemployment closer to the natural rate. 
D) would have to decrease the money supply.This would move unemployment further from the natural rate. 
A) would have to increase the money supply.This would move unemployment closer to the natural rate. 
B) would have to increase the money supply.This would move unemployment further from the natural rate. 
C) would have to decrease the money supply.This would move unemployment closer to the natural rate. 
D) would have to decrease the money supply.This would move unemployment further from the natural rate.

Question 11

Which of the following is not correct?

Accepted Answer

A) Some forms of capital income are taxed twice. 
B) The tax code could be rewritten to provide greater incentive to save. 
C) Means-tested benefits reduce the incentive to save. 
D) There is little correlation between national savings rates and measures of economic well-being. 
A) Some forms of capital income are taxed twice. 
B) The tax code could be rewritten to provide greater incentive to save. 
C) Means-tested benefits reduce the incentive to save. 
D) There is little correlation between national savings rates and measures of economic well-being.

Question 12

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A) high, and the reduction is unexpected. 
B) high, and the reduction is expected. 
C) low, and the reduction is unexpected. 
D) low, and the reduction is expected. 
A) high, and the reduction is unexpected. 
B) high, and the reduction is expected. 
C) low, and the reduction is unexpected. 
D) low, and the reduction is expected.

Question 13

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 14

Proponents of tax-law changes to encourage saving would

Accepted Answer

A) argue that corporate tax rates should be increased. 
B) eliminate or reduce the means-tests for government benefits. 
C) argue that state sales tax should be replaced with state income tax. 
D) favor none of the above programs. 
A) argue that corporate tax rates should be increased. 
B) eliminate or reduce the means-tests for government benefits. 
C) argue that state sales tax should be replaced with state income tax. 
D) favor none of the above programs.

Question 15

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo

Question 16

If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A) decreasing the money supply. 
B) increasing taxes. 
C) increasing government expenditures. 
D) None of the above is correct. 
A) decreasing the money supply. 
B) increasing taxes. 
C) increasing government expenditures. 
D) None of the above is correct.

Question 17

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

Accepted Answer

A) sustainable, but the future burden on your children cannot be offset. 
B) sustainable, and the future burden on your children can be offset if you save for them. 
C) not sustainable, and the future burden on your children cannot be offset. 
D) not sustainable, but the future burden on your children can be offset if you save for them. 
A) sustainable, but the future burden on your children cannot be offset. 
B) sustainable, and the future burden on your children can be offset if you save for them. 
C) not sustainable, and the future burden on your children cannot be offset. 
D) not sustainable, but the future burden on your children can be offset if you save for them.

Question 18

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 19

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 supply shifts left,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 20

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Accepted Answer

A) the central bank would have to decrease the money supply which would decrease output. 
B) the central bank would have to decrease the money supply which would increase output. 
C) the central bank would have to increase the money supply which would decrease output. 
D) the central bank would have to increase the money supply which would increase output. 
A) the central bank would have to decrease the money supply which would decrease output. 
B) the central bank would have to decrease the money supply which would increase output. 
C) the central bank would have to increase the money supply which would decrease output. 
D) the central bank would have to increase the money supply which would increase output.

Exam 36: Five Debates Over Macroeconomic Policy

In general,the longest lag for

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

The Fed raised interest rates in 2004 and 2005.This implies,other things the same,that the Fed

"Leaning against the wind" is exemplified by a

If a central bank had to give ups its discretion and follow a rule that required it to keep inflation low,

Social Security transfers wealth from younger generations to older generations.

Which of the following is not correct?

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

Which of the following is not correct?

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Proponents of tax-law changes to encourage saving would

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.The debt created by these continuing deficits is

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

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 supply shifts left,the central bank must

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

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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