Question 1

The Fed lowered interest rates in 2001 and 2002.This implies,other things the same,that the Fed

Accepted Answer

A)  increased the money supply because it was concerned about unemployment. 
B)  increased the money supply because it was concerned about inflation. 
C)  decreased the money supply because it was concerned about unemployment. 
D)  decreased the money supply because it was concerned about inflation. 
A)  increased the money supply because it was concerned about unemployment. 
B)  increased the money supply because it was concerned about inflation. 
C)  decreased the money supply because it was concerned about unemployment. 
D)  decreased the money supply because it was concerned about inflation.

Question 2

The five debates over macroeconomic policy exist mostly because

Accepted Answer

A)  economists disagree over basic issues such as the importance of saving for economic growth. 
B)  there are tradeoffs and people disagree about the best way to deal with them. 
C)  politicians offer misleading information. 
D)  people fail to clearly see the benefits or the costs of most changes. 
A)  economists disagree over basic issues such as the importance of saving for economic growth. 
B)  there are tradeoffs and people disagree about the best way to deal with them. 
C)  politicians offer misleading information. 
D)  people fail to clearly see the benefits or the costs of most changes.

Question 3

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 4

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 5

In general,the longest lag for

Accepted Answer

A)  both fiscal and monetary policy is the time it takes to change policy. 
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C)  monetary policy is the time it takes to change policy,while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  fiscal policy is the time it takes to change policy,while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A)  both fiscal and monetary policy is the time it takes to change policy. 
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C)  monetary policy is the time it takes to change policy,while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  fiscal policy is the time it takes to change policy,while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 8

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 9

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  About $63 billion. 
B)  About $165 billion. 
C)  About $267 billion. 
D)  About $429 billion. 
A)  About $63 billion. 
B)  About $165 billion. 
C)  About $267 billion. 
D)  About $429 billion.

Question 10

Suppose aggregate demand fell.In order to stabilize the economy,the government might

Accepted Answer

A)  increase the money supply. 
B)  decrease government expenditures. 
C)  increase taxes. 
D)  do nothing. 
A)  increase the money supply. 
B)  decrease government expenditures. 
C)  increase taxes. 
D)  do nothing.

Question 11

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Accepted Answer

A higher rate of return on saving means

Question 12

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,the central bank must

Accepted Answer

A)  decrease the money supply,which will move output back towards its long-run level. 
B)  decrease the money supply,which will move output farther from its long-run level. 
C)  increase the money supply,which will move output back towards its long-run level. 
D)  increase the money supply,which will move output farther from its long-run level. 
A)  decrease the money supply,which will move output back towards its long-run level. 
B)  decrease the money supply,which will move output farther from its long-run level. 
C)  increase the money supply,which will move output back towards its long-run level. 
D)  increase the money supply,which will move output farther from its long-run level.

Question 13

The principal lag for monetary policy

Accepted Answer

A)  and fiscal policy is the time it takes to implement policy. 
B)  and fiscal policy is the time it takes for policy to change spending. 
C)  is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending. 
D)  is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it. 
A)  and fiscal policy is the time it takes to implement policy. 
B)  and fiscal policy is the time it takes for policy to change spending. 
C)  is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending. 
D)  is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it.

Question 14

In 2008 the federal debt was

Accepted Answer

A)  $17 billion. 
B)  $710 billion. 
C)  $5.2 trillion. 
D)  $52 trillion. 
A)  $17 billion. 
B)  $710 billion. 
C)  $5.2 trillion. 
D)  $52 trillion.

Question 15

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

Accepted Answer

A)  increasing government spending. 
B)  decreasing the money supply. 
C)  increasing taxes. 
D)  undertaking no policy action. 
A)  increasing government spending. 
B)  decreasing the money supply. 
C)  increasing taxes. 
D)  undertaking no policy action.

Question 16

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

Accepted Answer

A)  Increased spending. 
B)  Increased aggregate demand. 
C)  Real GDP rises. 
D)  The unemployment rate increases. 
A)  Increased spending. 
B)  Increased aggregate demand. 
C)  Real GDP rises. 
D)  The unemployment rate increases.

Question 17

The cost of inflation reduction is a large,permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 18

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 19

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Accepted Answer

A)  both the tax cut and the increase in government expenditures would tend to increase output. 
B)  only the tax cut would tend to increase output. 
C)  only the increase in government expenditures would tend to increase output. 
D)  neither the tax cut nor the increase in government expenditures would tend to increase output. 
A)  both the tax cut and the increase in government expenditures would tend to increase output. 
B)  only the tax cut would tend to increase output. 
C)  only the increase in government expenditures would tend to increase output. 
D)  neither the tax cut nor the increase in government expenditures would tend to increase output.

Question 20

In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.This change in sentiment would likely

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.

Exam 36: Five Debates Over Macroeconomic Policy

The Fed lowered interest rates in 2001 and 2002.This implies,other things the same,that the Fed

The five debates over macroeconomic policy exist mostly because

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

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

In general,the longest lag for

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

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Means-tested programs tend to favor

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Suppose aggregate demand fell.In order to stabilize the economy,the government might

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,the central bank must

The principal lag for monetary policy

In 2008 the federal debt was

The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by

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

The cost of inflation reduction is a large,permanent increase in unemployment.

Social Security transfers wealth from younger generations to older generations.

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.This change in sentiment would likely

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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