Question 1

U.S. public policy discourages saving because

Accepted Answer

A) other things the same, taxes increase the return from savings. 
B) means tested programs such as Medicaid provide lower benefits to those who did not save. 
C) none of parents' bequest to their children is taxed. 
D) some forms of capital income are taxed twice. 
A) other things the same, taxes increase the return from savings. 
B) means tested programs such as Medicaid provide lower benefits to those who did not save. 
C) none of parents' bequest to their children is taxed. 
D) some forms of capital income are taxed twice.

Question 2

Tax policy changes that favor people who save will

Accepted Answer

A) favor low-income households. 
B) favor people with high income. 
C) create a more egalitarian society. 
D) unambiguously increase national saving. 
A) favor low-income households. 
B) favor people with high income. 
C) create a more egalitarian society. 
D) unambiguously increase national saving.

Question 3

Consider the following rule for monetary policy: r = 2 percent + $\pi$ + 1/2(y - y*)/y* + 1/2($\pi$- $\pi$*), where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, $\pi$ is the inflation rate, and $\pi$* is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A) 1/2 percentage point 
B) 1 percentage point 
C) 1 and 1/2 percentage points 
D) 3 and 1/2 percentage points 
A) 1/2 percentage point 
B) 1 percentage point 
C) 1 and 1/2 percentage points 
D) 3 and 1/2 percentage points

Question 4

Zero inflation

Accepted Answer

A) might be dangerous because it could lead to rapidly increasing prices. 
B) would limit the flexibility of the labor market and so could at times raise unemployment. 
C) would make it easy for the Central bank to create negative real interest rates. 
D) is impossible to achieve in the real world. 
A) might be dangerous because it could lead to rapidly increasing prices. 
B) would limit the flexibility of the labor market and so could at times raise unemployment. 
C) would make it easy for the Central bank to create negative real interest rates. 
D) is impossible to achieve in the real world.

Question 5

A country has a growth rate of 2%. Government spending is 50 billion units of currency and its tax revenues are 30 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt to income ratio unchanged?

Accepted Answer

A) 2% 
B) 3% 
C) 5% 
D) 7% 
A) 2% 
B) 3% 
C) 5% 
D) 7%

Question 6

"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 7

Higher saving is associated with

Accepted Answer

A) a larger capital stock and a higher standard of living. 
B) a larger capital stock but not a higher standard of living. 
C) a higher standard of living but not a larger capital stock. 
D) neither a higher standard of living nor a higher capital stock. 
A) a larger capital stock and a higher standard of living. 
B) a larger capital stock but not a higher standard of living. 
C) a higher standard of living but not a larger capital stock. 
D) neither a higher standard of living nor a higher capital stock.

Question 8

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 9

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A) requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B) requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C) requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D) says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals. 
A) requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B) requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C) requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D) says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.

Question 10

Which of the programs below would not transfer wealth between young and old generations?

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) Taxes are raised to provide more generous Medicare benefits. 
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) Taxes are raised to provide more generous Medicare benefits.

Question 11

The Federal Reserve

Accepted Answer

A) requires little time to change policy and aggregate demand responds quickly. 
B) requires little time to change policy but aggregate demand responds slowly. 
C) usually requires a substantial time to change policy but aggregate demand responds quickly. 
D) usually requires a substantial time to change policy and aggregate demand responds slowly. 
A) requires little time to change policy and aggregate demand responds quickly. 
B) requires little time to change policy but aggregate demand responds slowly. 
C) usually requires a substantial time to change policy but aggregate demand responds quickly. 
D) usually requires a substantial time to change policy and aggregate demand responds slowly.

Question 12

Which of the following is an argument in favor of a balanced budget rule?

Accepted Answer

A) Some economists believe that rules are better than discretion. 
B) Per-capita debt is small relative to lifetime income. 
C) The effect of deficit spending on future generations depends in part on what the government buys. 
D) Other government policies also redistribute income across generations. 
A) Some economists believe that rules are better than discretion. 
B) Per-capita debt is small relative to lifetime income. 
C) The effect of deficit spending on future generations depends in part on what the government buys. 
D) Other government policies also redistribute income across generations.

Question 13

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 14

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Accepted Answer

A) True 
 B)False

Question 15

The Federal Open Market Committee meets about

Accepted Answer

A) every six days. 
B) every six weeks. 
C) every six months. 
D) every sixteen months. 
A) every six days. 
B) every six weeks. 
C) every six months. 
D) every sixteen months.

Question 16

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 19

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Accepted Answer

A) the income effect and the substitution effect 
B) the income effect but not the substitution effect 
C) the substitution effect but not the income effect 
D) neither the substitution effect nor the income effect 
A) the income effect and the substitution effect 
B) the income effect but not the substitution effect 
C) the substitution effect but not the income effect 
D) neither the substitution effect nor the income effect

Question 20

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.

Exam 23: Six Debates Over Macroeconomic Policy

U.S. public policy discourages saving because

Tax policy changes that favor people who save will

Zero inflation

A country has a growth rate of 2%. Government spending is 50 billion units of currency and its tax revenues are 30 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt to income ratio unchanged?

"Leaning against the wind" is exemplified by a

Higher saving is associated with

Social Security transfers wealth from younger generations to older generations.

A 1977 amendment to the Federal Reserve Act of 1913

Which of the programs below would not transfer wealth between young and old generations?

The Federal Reserve

Which of the following is an argument in favor of a balanced budget rule?

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

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

The Federal Open Market Committee meets about

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

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

Explain the main arguments in favor of economic stabilization.

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

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

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

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

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