Question 1

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following would transfer wealth from old to young?

Accepted Answer

A)  Increases in the budget deficit. 
B)  Decreased building of highways and bridges. 
C)  More generous education subsidies. 
D)  Indexation of Social Security benefits to inflation. 
A)  Increases in the budget deficit. 
B)  Decreased building of highways and bridges. 
C)  More generous education subsidies. 
D)  Indexation of Social Security benefits to inflation. C

Question 3

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. B

Question 4

What grade did David Wessel give to the budget policy "wonks"?

Accepted Answer

A)  'A' for effort,'A' for results. 
B)  'A' for effort,'C' for results. 
C)  'C' for effort,'A' for results. 
D)  'D' for effort,'F' for results. 
A)  'A' for effort,'A' for results. 
B)  'A' for effort,'C' for results. 
C)  'C' for effort,'A' for results. 
D)  'D' for effort,'F' for results.

Question 5

Fluctuations in employment and output result from changes in

Accepted Answer

A)  aggregate demand only. 
B)  aggregate supply only. 
C)  aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply. 
A)  aggregate demand only. 
B)  aggregate supply only. 
C)  aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply.

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

Other policies that reduce the incentive for households to save include

Accepted Answer

A)  means-testing. 
B)  College and univeristy financial aid administration. 
C)  inheritance taxes. 
D)  All of the above. 
A)  means-testing. 
B)  College and univeristy financial aid administration. 
C)  inheritance taxes. 
D)  All of the above.

Question 8

Stephen Cecchetti argues that inflation targeting enhances long-term economic performance because

Accepted Answer

A)  it focuses the policy committee's debate. 
B)  discourages communication with politicians and the public at large. 
C)  it creates an environment where people believe inflation will be allowed to fluctuate. 
D)  it ignores fluctuations in employment. 
A)  it focuses the policy committee's debate. 
B)  discourages communication with politicians and the public at large. 
C)  it creates an environment where people believe inflation will be allowed to fluctuate. 
D)  it ignores fluctuations in employment.

Question 9

If aggregate demand shifts because of a wave irrational exuberance,those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

A)  Federal Reserve increase the money supply or the government increase taxes. 
B)  Federal Reserve increase the money supply or the government decrease taxes. 
C)  Federal Reserve decrease the money supply or the government increase taxes. 
D)  Federal Reserve decrease the money supply or the government decrease taxes. 
A)  Federal Reserve increase the money supply or the government increase taxes. 
B)  Federal Reserve increase the money supply or the government decrease taxes. 
C)  Federal Reserve decrease the money supply or the government increase taxes. 
D)  Federal Reserve decrease the money supply or the government decrease taxes.

Question 10

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply 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

Part of the lag in monetary policy effects is due to

Accepted Answer

A)  the long political process of monetary policy decisions. 
B)  precise economic forecasts. 
C)  the time required for firms and households to alter their spending plans. 
D)  changes in the unemployment rate. 
A)  the long political process of monetary policy decisions. 
B)  precise economic forecasts. 
C)  the time required for firms and households to alter their spending plans. 
D)  changes in the unemployment rate.

Question 12

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 13

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)  policymakers should "do no harm". 
B)  there are no obstacles to to the practical application of policy in real life. 
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky. 
D)  policy mitigates the magnitude of economic fluctuations. 
A)  policymakers should "do no harm". 
B)  there are no obstacles to to the practical application of policy in real life. 
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky. 
D)  policy mitigates the magnitude of economic fluctuations.

Question 14

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A)  neither fiscal nor monetary policy have much impact on aggregate demand. 
B)  attempts to stabilize the economy decrease the magnitude of economic fluctuations. 
C)  unemployment and inflation are not cause for much concern. 
D)  economic coditions can easily change between the start of policy action and when it takes effect. 
A)  neither fiscal nor monetary policy have much impact on aggregate demand. 
B)  attempts to stabilize the economy decrease the magnitude of economic fluctuations. 
C)  unemployment and inflation are not cause for much concern. 
D)  economic coditions can easily change between the start of policy action and when it takes effect.

Question 15

From the end of 2003 to the end of 2004,the United States ran a deficit of about $121 billion.The debt at the start of this period was about $3,924 billion.Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit and kept the ratio of real GDP to the deficit about the same?

Accepted Answer

A)  about 1% inflation and about 1% real GDP growth 
B)  about 1% inflation and about 3% real GDP growth 
C)  about 2% inflation and about 1% real GDP growth 
D)  about 2% inflation and about 2% real GDP growth 
A)  about 1% inflation and about 1% real GDP growth 
B)  about 1% inflation and about 3% real GDP growth 
C)  about 2% inflation and about 1% real GDP growth 
D)  about 2% inflation and about 2% real GDP growth

Question 16

Which of the following is correct?

Accepted Answer

A)  Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes. 
B)  Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. 
C)  Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. 
D)  Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag. 
A)  Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes. 
B)  Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. 
C)  Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. 
D)  Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.

Question 17

Which of the following is not an argument against reforming the tax laws to encourage saving?

Accepted Answer

A)  A public budget surplus can raise national saving. 
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C)  Low-income households save a larger fraction of their income than high-income households. 
D)  Tax cuts might cause a budget deficit. 
A)  A public budget surplus can raise national saving. 
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C)  Low-income households save a larger fraction of their income than high-income households. 
D)  Tax cuts might cause a budget deficit.

Question 18

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 19

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Accepted Answer

A)  increases the interest rate and decreases spending on capital goods. 
B)  increases the interest rate and increases spending on capital goods. 
C)  decreases the interest rate and increases spending on capital goods. 
D)  decreases the interest rate and decreases spending on capital goods. 
A)  increases the interest rate and decreases spending on capital goods. 
B)  increases the interest rate and increases spending on capital goods. 
C)  decreases the interest rate and increases spending on capital goods. 
D)  decreases the interest rate and decreases spending on capital goods.

Question 20

Suppose that the government goes into deficit in order to help local school districts build better schools.Does this burden future generations?

Accepted Answer

The benefits of the project ac

Exam 36: Five Debates Over Macroeconomic Policy

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Which of the following would transfer wealth from old to young?

A permanent reduction in inflation would

What grade did David Wessel give to the budget policy "wonks"?

Fluctuations in employment and output result from changes in

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

Other policies that reduce the incentive for households to save include

Stephen Cecchetti argues that inflation targeting enhances long-term economic performance because

If aggregate demand shifts because of a wave irrational exuberance,those who favor a policy that "leans against the wind" would advocate the

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Part of the lag in monetary policy effects is due to

The Federal Open Market Committee meets about

A policymaker against stabilizing the economy would be likely to believe

Opponents of using policy to stabilize the economy generally believe that

Which of the following is correct?

Which of the following is not an argument against reforming the tax laws to encourage saving?

Time inconsistency will cause the

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Suppose that the government goes into deficit in order to help local school districts build better schools.Does this burden future generations?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

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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