Question 1

If a reduction in taxes on savings reduced the amount of saving,then the

Accepted Answer

A)  income effect equaled the substitution effect. 
B)  income effect outweighed the substitution effect. 
C)  the substitution effect outweighed the income effect. 
D)  None of the above. 
A)  income effect equaled the substitution effect. 
B)  income effect outweighed the substitution effect. 
C)  the substitution effect outweighed the income effect. 
D)  None of the above.

Question 2

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 3

The major driver of future federal spending is rising health care costs.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Saving is a key determinant of long-run prosperity. 
B)  Current tax laws discourage saving for the purpose of leaving a large bequest. 
C)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D)  The tax code currently taxes some forms of capital income twice. 
A)  Saving is a key determinant of long-run prosperity. 
B)  Current tax laws discourage saving for the purpose of leaving a large bequest. 
C)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D)  The tax code currently taxes some forms of capital income twice.

Question 5

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains,it takes time t

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

A higher rate of return on saving has

Accepted Answer

A)  an income effect that discourages saving and a substitution effect that encourages saving. 
B)  an income effect that encourages saving and a substitution effect that discourages saving. 
C)  income and substitution effects that both decrease saving. 
D)  income and substitution effects that both increase saving. 
A)  an income effect that discourages saving and a substitution effect that encourages saving. 
B)  an income effect that encourages saving and a substitution effect that discourages saving. 
C)  income and substitution effects that both decrease saving. 
D)  income and substitution effects that both increase saving.

Question 8

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 9

An individual would suffer lower 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 10

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A)  high,and the reduction is unexpected. 
B)  high,and the reduction is expected. 
C)  low,and the reduction is unexpected. 
D)  low,and the reduction is expected. 
A)  high,and the reduction is unexpected. 
B)  high,and the reduction is expected. 
C)  low,and the reduction is unexpected. 
D)  low,and the reduction is expected.

Question 11

Of means tested programs and IRA's,which lower the rate of return on saving?

Accepted Answer

A)  Both means-tested programs and IRA's. 
B)  Means-tested programs,but not IRA's. 
C)  IRA's but not means-tested programs. 
D)  Neither means-tested program,or IRA's. 
A)  Both means-tested programs and IRA's. 
B)  Means-tested programs,but not IRA's. 
C)  IRA's but not means-tested programs. 
D)  Neither means-tested program,or IRA's.

Question 12

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax cut when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  decrease in government expenditures when there is a recession. 
D)  increasing money supply when there is a boom. 
A)  tax cut when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  decrease in government expenditures when there is a recession. 
D)  increasing money supply when there is a boom.

Question 13

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 14

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Accepted Answer

A)  high,and the reduction is unexpected. 
B)  high,and the reduction is expected. 
C)  low,and the reduction is unexpected. 
D)  low,and the reduction is expected. 
A)  high,and the reduction is unexpected. 
B)  high,and the reduction is expected. 
C)  low,and the reduction is unexpected. 
D)  low,and the reduction is expected.

Question 15

Tax laws do not give preferential treatment to some kinds of retirement saving.

Accepted Answer

A) True 
 B)False

Question 16

Identify three government policies that discourage saving.

Accepted Answer

First,the returns to saving are heavily

Question 17

A reduction in the tax rate on income from saving would

Accepted Answer

A)  most directly benefit the poor in the short run. 
B)  increase real wages over time. 
C)  decrease the capital stock over time. 
D)  decrease productivity over time. 
A)  most directly benefit the poor in the short run. 
B)  increase real wages over time. 
C)  decrease the capital stock over time. 
D)  decrease productivity over time.

Question 18

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 1 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency.Which of the following government spending and taxation figures will not raise the debt-to-income ratio?

Accepted Answer

A)  government spending equal to 20 billion units and tax collections equal to 16 billion units 
B)  government spending equal to 20 billion units and tax collections equal to 14 billion units 
C)  government spending equal to 20 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 20 billion units and tax collections equal to 8 billion units 
A)  government spending equal to 20 billion units and tax collections equal to 16 billion units 
B)  government spending equal to 20 billion units and tax collections equal to 14 billion units 
C)  government spending equal to 20 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 20 billion units and tax collections equal to 8 billion units

Question 19

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo

Question 20

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Accepted Answer

A)  6 percent of GDP without raising the debt-to-income ratio. 
B)  5 percent of GDP without raising the debt-to-income ratio. 
C)  1.5 percent of GDP without raising the debt-to-income ratio. 
D)  1 percent of GDP without raising the debt-to-income ratio. 
A)  6 percent of GDP without raising the debt-to-income ratio. 
B)  5 percent of GDP without raising the debt-to-income ratio. 
C)  1.5 percent of GDP without raising the debt-to-income ratio. 
D)  1 percent of GDP without raising the debt-to-income ratio.

Exam 36: Five Debates Over Macroeconomic Policy

If a reduction in taxes on savings reduced the amount of saving,then the

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

The major driver of future federal spending is rising health care costs.

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

Explain why policy lags could make stabilization policies counterproductive.

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

A higher rate of return on saving has

Part of the argument against deficits is that they

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

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Of means tested programs and IRA's,which lower the rate of return on saving?

"Leaning against the wind" is exemplified by a

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

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Tax laws do not give preferential treatment to some kinds of retirement saving.

Identify three government policies that discourage saving.

A reduction in the tax rate on income from saving would

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

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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