Question 1

Which of the following statements is not true?

Accepted Answer

A) All U.S. government budget deficits were due to war or recession. 
B) The U.S. federal debt in 2009 was about $7.6 trillion. 
C) Government debt represents about 1 percent of a typical worker's lifetime resources. 
D) Forward looking parents can reverse adverse effects of government debt. 
A) All U.S. government budget deficits were due to war or recession. 
B) The U.S. federal debt in 2009 was about $7.6 trillion. 
C) Government debt represents about 1 percent of a typical worker's lifetime resources. 
D) Forward looking parents can reverse adverse effects of government debt.

Question 2

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

Accepted Answer

Tax cuts affect aggregate demand quickly

Question 3

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 4

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 5

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following are both correct?

Accepted Answer

A) Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
B) Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
C) Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
D) Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
A) Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
B) Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
C) Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
D) Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.

Question 7

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 8

An individual would suffer higher losses from an unexpectedly higher inflation rate if

Accepted Answer

A) she held much currency and owned few bonds. 
B) she held much currency and owned many bonds. 
C) she held little currency and owned few bonds. 
D) she held little currency and owned many bonds. 
A) she held much currency and owned few bonds. 
B) she held much currency and owned many bonds. 
C) she held little currency and owned few bonds. 
D) she held little currency and owned many bonds.

Question 9

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Accepted Answer

A) True 
 B)False

Question 10

Real interest rates

Accepted Answer

A) cannot be negative. 
B) can be negative only if inflation is negative. 
C) can be negative only if inflation is zero. 
D) can be negative only if inflation is greater than zero. 
A) cannot be negative. 
B) can be negative only if inflation is negative. 
C) can be negative only if inflation is zero. 
D) can be negative only if inflation is greater than zero.

Question 11

Means-tested programs tend to favor

Accepted Answer

A) those with high income as would a consumption tax. 
B) those with high income while a consumption tax would favor those with low income. 
C) those with low income as would a consumption tax. 
D) those with low income while a consumption tax would favor those with high income. 
A) those with high income as would a consumption tax. 
B) those with high income while a consumption tax would favor those with low income. 
C) those with low income as would a consumption tax. 
D) those with low income while a consumption tax would favor those with high income.

Question 12

Over time continued budget deficits lead to

Accepted Answer

A) a higher capital stock and higher real wages. 
B) a higher capital stock and lower real wages. 
C) a lower capital stock and higher real wages. 
D) a lower capital stock and lower real wages. 
A) a higher capital stock and higher real wages. 
B) a higher capital stock and lower real wages. 
C) a lower capital stock and higher real wages. 
D) a lower capital stock and lower real wages.

Question 13

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

A government deficit means that the gove

Question 14

Economists

Accepted Answer

A) agree that the costs of moderate inflation are low and that the cost of reducing inflation is small. 
B) agree that the costs of moderate inflation are low, but disagree about the cost of reducing inflation. 
C) disagree about the costs of moderate inflation, but agree that the cost of reducing inflation is small. 
D) disagree about the costs of moderate inflation and disagree about the cost of reducing inflation. 
A) agree that the costs of moderate inflation are low and that the cost of reducing inflation is small. 
B) agree that the costs of moderate inflation are low, but disagree about the cost of reducing inflation. 
C) disagree about the costs of moderate inflation, but agree that the cost of reducing inflation is small. 
D) disagree about the costs of moderate inflation and disagree about the cost of reducing inflation.

Question 15

President Barrack Obama and Congress cut taxes and raised government expenditures during the recent financial crisis. According to the aggregate supply and aggregate demand model which of these policies would tend to reduce unemployment?

Accepted Answer

A) both the tax cut and the increase in government expenditures 
B) the tax cut but not the increase in government expenditures 
C) the increase in government expenditures but not the tax cut 
D) neither the increase in government expenditures nor the tax cut 
A) both the tax cut and the increase in government expenditures 
B) the tax cut but not the increase in government expenditures 
C) the increase in government expenditures but not the tax cut 
D) neither the increase in government expenditures nor the tax cut

Question 16

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A) Decrease the money supply. 
B) Decrease taxes. 
C) Decrease government expenditures. 
D) Do nothing and let markets correct themselves. 
A) Decrease the money supply. 
B) Decrease taxes. 
C) Decrease government expenditures. 
D) Do nothing and let markets correct themselves.

Question 17

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl

Question 18

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.

Question 19

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 20

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Exam 23: Six Debates Over Macroeconomic Policy

Which of the following statements is not true?

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

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

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Which of the following are both correct?

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

An individual would suffer higher losses from an unexpectedly higher inflation rate if

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Real interest rates

Means-tested programs tend to favor

Over time continued budget deficits lead to

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Economists

President Barrack Obama and Congress cut taxes and raised government expenditures during the recent financial crisis. According to the aggregate supply and aggregate demand model which of these policies would tend to reduce unemployment?

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

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

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

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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