Question 1

If inflation falls,

Accepted Answer

A) people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B) people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C) people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D) people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
A) people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B) people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C) people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D) people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

Question 2

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

A) credible so that the sacrifice ratio is low. 
B) credible so that the sacrifice ratio is high. 
C) unexpected so that the sacrifice ratio is high. 
D) unexpected so that the sacrifice ratio is low. 
A) credible so that the sacrifice ratio is low. 
B) credible so that the sacrifice ratio is high. 
C) unexpected so that the sacrifice ratio is high. 
D) unexpected so that the sacrifice ratio is low.

Question 3

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A) its substitution effect on saving and its effect on the government budget 
B) its substitution effect on saving but not its effect on the government budget 
C) its effect on the government budget but not its substitution effect on saving 
D) neither its substitution effect on saving nor its effect on the government budget 
A) its substitution effect on saving and its effect on the government budget 
B) its substitution effect on saving but not its effect on the government budget 
C) its effect on the government budget but not its substitution effect on saving 
D) neither its substitution effect on saving nor its effect on the government budget

Question 4

The average U.S. citizens' share of the government debt represents about 1 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 5

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

Accepted Answer

A) buy bonds. These purchases also move the price level closer to its original level. 
B) buy bonds. However these purchases move the price level farther from its original level. 
C) sell bonds. These purchases also move the price level closer to its original level. 
D) sell bonds. However these purchase move the price level farther from its original level. 
A) buy bonds. These purchases also move the price level closer to its original level. 
B) buy bonds. However these purchases move the price level farther from its original level. 
C) sell bonds. These purchases also move the price level closer to its original level. 
D) sell bonds. However these purchase move the price level farther from its original level.

Question 6

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Accepted Answer

A) increase the money supply, which causes output to move closer to its long-run equilibrium. 
B) increase the money supply, which causes output to move farther from long-run equilibrium. 
C) decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D) decrease the money supply, which causes output to move farther from long-run equilibrium. 
A) increase the money supply, which causes output to move closer to its long-run equilibrium. 
B) increase the money supply, which causes output to move farther from long-run equilibrium. 
C) decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D) decrease the money supply, which causes output to move farther from long-run equilibrium.

Question 7

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 8

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Accepted Answer

According to the traditional Keynesian m

Question 9

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 10

Studies have shown significant spending changes arise from interest rate changes after

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

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance, o

Question 12

In 2009 the federal debt was about

Accepted Answer

A) $17 billion. 
B) $710 billion. 
C) $7.6 trillion. 
D) $76 trillion. 
A) $17 billion. 
B) $710 billion. 
C) $7.6 trillion. 
D) $76 trillion.

Question 13

Time inconsistency will cause the

Accepted Answer

A) short-run Phillips curve to be higher than otherwise. 
B) short-run Phillips curve to be lower the otherwise. 
C) long-run Phillips curve to be farther to the right than otherwise. 
D) long-run Phillips curve to be farther left than otherwise. 
A) short-run Phillips curve to be higher than otherwise. 
B) short-run Phillips curve to be lower the otherwise. 
C) long-run Phillips curve to be farther to the right than otherwise. 
D) long-run Phillips curve to be farther left than otherwise.

Question 14

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A) changes in the interest rate to change aggregate demand. 
B) changes in the money supply to change interest rates. 
C) the Fed to make changes in policy. 
D) the federal government to change the tax code. 
A) changes in the interest rate to change aggregate demand. 
B) changes in the money supply to change interest rates. 
C) the Fed to make changes in policy. 
D) the federal government to change the tax code.

Question 15

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

A) .99 and 1.59. 
B) 1.59 and .99 
C) 1.3 and 1.7 
D) 1.7 and 1.3 
A) .99 and 1.59. 
B) 1.59 and .99 
C) 1.3 and 1.7 
D) 1.7 and 1.3

Question 16

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A) time inconsistency of policy 
B) flexibility to confront unforeseen circumstances 
C) political business cycle 
D) the ability to craft rules that account for all possible contingencies in advance 
A) time inconsistency of policy 
B) flexibility to confront unforeseen circumstances 
C) political business cycle 
D) the ability to craft rules that account for all possible contingencies in advance

Question 17

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A) the growth rate of output is high 
B) in response to increased debt, parents save more to leave their children larger bequests 
C) some of the current spending benefits future taxpayers 
D) All of the above are correct. 
A) the growth rate of output is high 
B) in response to increased debt, parents save more to leave their children larger bequests 
C) some of the current spending benefits future taxpayers 
D) All of the above are correct.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

In the Summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Accepted Answer

A) shift aggregate demand to the right. 
B) increase output. 
C) increase unemployment. 
D) increase prices. 
A) shift aggregate demand to the right. 
B) increase output. 
C) increase unemployment. 
D) increase prices.

Question 20

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Accepted Answer

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

Exam 23: Six Debates Over Macroeconomic Policy

If inflation falls,

Inflation reduction has the lowest cost when the efforts are

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

The average U.S. citizens' share of the government debt represents about 1 percent of a person's lifetime income.

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

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

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

A permanent reduction in inflation would

Studies have shown significant spending changes arise from interest rate changes after

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

In 2009 the federal debt was about

Time inconsistency will cause the

The principal reason that monetary policy has lags is that it takes a long time for

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Which of the following reduces the potential burden of an increase in debt on future generations?

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

In the Summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, 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 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

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