Question 1

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Accepted Answer

A) price level and real GDP change by more than otherwise. 
B) Price level change by more than otherwise and real GDP change by less than otherwise. 
C) price level change by less than otherwise and real GDP change by more than otherwise. 
D) Price level and real GDP change by more than otherwise 
A) price level and real GDP change by more than otherwise. 
B) Price level change by more than otherwise and real GDP change by less than otherwise. 
C) price level change by less than otherwise and real GDP change by more than otherwise. 
D) Price level and real GDP change by more than otherwise

Question 2

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 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 interest 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. Which of the following statements is not correct?

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

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security,

Question 5

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 6

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. This change would be expected to have

Accepted Answer

A) decreased interest rates and investment. 
B) decreased interest rates and increased investment. 
C) increased interest rates and investment. 
D) increased interest rates and decreased investment. 
A) decreased interest rates and investment. 
B) decreased interest rates and increased investment. 
C) increased interest rates and investment. 
D) increased interest rates and decreased investment.

Question 7

Part of the argument against deficits is that they

Accepted Answer

A) increase interest rates and investment. 
B) increase interest rates and decrease investment. 
C) decrease interest rates and investment. 
D) decrease interest rates and increase investment. 
A) increase interest rates and investment. 
B) increase interest rates and decrease investment. 
C) decrease interest rates and investment. 
D) decrease interest rates and increase investment.

Question 8

Explain how tax provisions to encourage private saving may reduce national saving.

Accepted Answer

Without careful planning it is possible

Question 9

Which of the following are taxed?

Accepted Answer

A) both corporate profits and dividends paid to stockholders 
B) corporate profits but not dividends paid to stockholders 
C) dividends paid to stockholders but not corporate profits 
D) neither corporate profits nor dividends paid to stock holders 
A) both corporate profits and dividends paid to stockholders 
B) corporate profits but not dividends paid to stockholders 
C) dividends paid to stockholders but not corporate profits 
D) neither corporate profits nor dividends paid to stock holders

Question 10

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 11

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Accepted Answer

A) True 
 B)False

Question 12

Supporters of using government expenditures to respond to recession

Accepted Answer

A) argue that monetary policy should be used first. An increase in the money supply will reduce interest rates. 
B) argue that monetary policy should be used first. An increase in the money supply will raise interest rates. 
C) argue that monetary policy should be used only after fiscal policy has been used. An increase in the money supply will reduce interest rates. 
D) argue that monetary policy should be used only after fiscal policy has been used. An increase in the money supply will raise interest rates. 
A) argue that monetary policy should be used first. An increase in the money supply will reduce interest rates. 
B) argue that monetary policy should be used first. An increase in the money supply will raise interest rates. 
C) argue that monetary policy should be used only after fiscal policy has been used. An increase in the money supply will reduce interest rates. 
D) argue that monetary policy should be used only after fiscal policy has been used. An increase in the money supply will raise interest rates.

Question 13

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Accepted Answer

A) interest rates and output would rise. 
B) interest rates would rise and output would fall. 
C) interest rates would fall and output would rise. 
D) interest rates and output would fall. 
A) interest rates and output would rise. 
B) interest rates would rise and output would fall. 
C) interest rates would fall and output would rise. 
D) interest rates and output would fall.

Question 14

As compared to spending generated by a tax cut, an increase in government expenditures is likely to affect aggregate demand

Accepted Answer

A) more quickly and more likely to be spent on projects with little benefit. 
B) more quickly but less likely to be spent on projects with little benefit. 
C) less quickly but more likely to be spent on projects with little benefit. 
D) less quickly and more likely to be spent on projects with little benefit. 
A) more quickly and more likely to be spent on projects with little benefit. 
B) more quickly but less likely to be spent on projects with little benefit. 
C) less quickly but more likely to be spent on projects with little benefit. 
D) less quickly and more likely to be spent on projects with little benefit.

Question 15

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 16

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5% then in the short run which of the following variables will the Fed's policy raise above their long-run levels?

Accepted Answer

A) the price level and real GDP 
B) the price level but not real GDP 
C) real GDP but not the price level 
D) neither real GDP nor the price level 
A) the price level and real GDP 
B) the price level but not real GDP 
C) real GDP but not the price level 
D) neither real GDP nor the price level

Question 17

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income

Question 18

Inflation

Accepted Answer

A) causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
B) causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
C) causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
D) causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
A) causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
B) causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
C) causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
D) causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.

Question 19

Government deficits mean that

Accepted Answer

A) national saving is negative so public saving is negative 
B) national saving is negative so public saving is lower than otherwise. 
C) public saving is negative so national saving is negative 
D) public saving is negative so national saving is lower than otherwise. 
A) national saving is negative so public saving is negative 
B) national saving is negative so public saving is lower than otherwise. 
C) public saving is negative so national saving is negative 
D) public saving is negative so national saving is lower than otherwise.

Question 20

Which of the following likely occurs when households and firms are pessimistic?

Accepted Answer

A) Increased spending, increased aggregate demand, rising real GDP and a falling unemployment rate. 
B) Decreased spending, increased aggregate demand, rising real GDP and a falling unemployment rate. 
C) Decreased spending, decreased aggregate demand, falling real GDP and a falling unemployment rate. 
D) Decreased spending, decreased aggregate demand, falling real GDP and a rising unemployment rate. 
A) Increased spending, increased aggregate demand, rising real GDP and a falling unemployment rate. 
B) Decreased spending, increased aggregate demand, rising real GDP and a falling unemployment rate. 
C) Decreased spending, decreased aggregate demand, falling real GDP and a falling unemployment rate. 
D) Decreased spending, decreased aggregate demand, falling real GDP and a rising unemployment rate.

Exam 23: Six Debates Over Macroeconomic Policy

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

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

Is it possible that deficits do not burden future generations?

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

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. This change would be expected to have

Part of the argument against deficits is that they

Explain how tax provisions to encourage private saving may reduce national saving.

Which of the following are taxed?

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

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Supporters of using government expenditures to respond to recession

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

As compared to spending generated by a tax cut, an increase in government expenditures is likely to affect aggregate demand

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5% then in the short run which of the following variables will the Fed's policy raise above their long-run levels?

Why do many economists advocate a consumption tax rather than an income tax?

Inflation

Government deficits mean that

Which of the following likely occurs when households and firms are pessimistic?

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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