Question 1

IRA,401(k),403(b),and Keogh plans

Accepted Answer

A)  impose added taxes on those who save. 
B)  place no limits on the amount people can deposit into these programs. 
C)  impose penalties for withdrawals except under certain circumstances. 
D)  None of the above is correct. 
A)  impose added taxes on those who save. 
B)  place no limits on the amount people can deposit into these programs. 
C)  impose penalties for withdrawals except under certain circumstances. 
D)  None of the above is correct.

Question 2

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 3

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A)  time inconsistency of policy 
B)  flexibility to confront unforseen circumstances 
C)  political business cycle 
D)  the ability to craft rules that account for all possible contingencies in advance 
A)  time inconsistency of policy 
B)  flexibility to confront unforseen circumstances 
C)  political business cycle 
D)  the ability to craft rules that account for all possible contingencies in advance

Question 4

Which of the programs below would not transfer wealth between young and old generations?

Accepted Answer

A)  Taxes are raised to provide better education. 
B)  Taxes are raised to improve government infrastructure such as roads and bridges. 
C)  Taxes are raised to provide more generous Social Security benefits. 
D)  Taxes are raised to provide more generous Medicare benefits. 
A)  Taxes are raised to provide better education. 
B)  Taxes are raised to improve government infrastructure such as roads and bridges. 
C)  Taxes are raised to provide more generous Social Security benefits. 
D)  Taxes are raised to provide more generous Medicare benefits.

Question 5

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004.One of their contributions was to argue that if a central bank could convince people to expect zero inflation,then the Fed would be tempted to raise output by increasing inflation.This possibility is known as

Accepted Answer

A)  inflation targeting. 
B)  the monetary policy reaction lag. 
C)  the time inconsistency of policy. 
D)  the sacrifice ratio dilemma. 
A)  inflation targeting. 
B)  the monetary policy reaction lag. 
C)  the time inconsistency of policy. 
D)  the sacrifice ratio dilemma.

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

Stephen Cecchetti argues that the Fed should

Accepted Answer

A)  follow a precise mechanical rule. 
B)  follow a rule that could vary some based on the economic forecasts of a forecasting model. 
C)  be allowed discretion but announce a numerical target for inflation. 
D)  have complete discretion without a rule and without needing to announce targets. 
A)  follow a precise mechanical rule. 
B)  follow a rule that could vary some based on the economic forecasts of a forecasting model. 
C)  be allowed discretion but announce a numerical target for inflation. 
D)  have complete discretion without a rule and without needing to announce targets.

Question 9

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Accepted Answer

A)  real GDP rose and the inflation rate were positive. 
B)  real GDP rose and the inflation rate were negative. 
C)  real GDP fell and the inflation rate were positive. 
D)  real GDP fell and the inflation rate were negative. 
A)  real GDP rose and the inflation rate were positive. 
B)  real GDP rose and the inflation rate were negative. 
C)  real GDP fell and the inflation rate were positive. 
D)  real GDP fell and the inflation rate were negative.

Question 10

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 11

Proponents of zero inflation argue that reducing inflation has

Accepted Answer

A)  permanent costs and temporary benefits. 
B)  temporary costs and permanent benefits. 
C)  permanent costs and benefits. 
D)  temporary costs and benefits. 
A)  permanent costs and temporary benefits. 
B)  temporary costs and permanent benefits. 
C)  permanent costs and benefits. 
D)  temporary costs and benefits.

Question 12

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Accepted Answer

A)  lower the discount rate and sell bonds. 
B)  lower the discount rate and buy bonds. 
C)  raise the discount rate and sell bonds. 
D)  raise the discount rate and buy bonds. 
A)  lower the discount rate and sell bonds. 
B)  lower the discount rate and buy bonds. 
C)  raise the discount rate and sell bonds. 
D)  raise the discount rate and buy bonds.

Question 13

The major driver of future federal spending is rising energy costs.

Accepted Answer

A) True 
 B)False

Question 14

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)  changes in the interest rate to change aggregate demand. 
B)  changes in the money supply to change interest rates. 
C)  the Fed to make changes in policy. 
D)  the federal government to change the tax code. 
A)  changes in the interest rate to change aggregate demand. 
B)  changes in the money supply to change interest rates. 
C)  the Fed to make changes in policy. 
D)  the federal government to change the tax code.

Question 15

Accumulated over a long span of time,the tax rate on interest income

Accepted Answer

A)  removes all benefits from saving. 
B)  reduces the benefits from saving by a small amount. 
C)  reduces the benefits from saving by a large amount. 
D)  does nor reduce any of the benefits from saving. 
A)  removes all benefits from saving. 
B)  reduces the benefits from saving by a small amount. 
C)  reduces the benefits from saving by a large amount. 
D)  does nor reduce any of the benefits from saving.

Question 16

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 17

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 18

An added benefit of low levels of inflation is that it allows for the possibility of

Accepted Answer

A)  menu costs. 
B)  aggregate supply shocks. 
C)  negative real interest rates. 
D)  recessions. 
A)  menu costs. 
B)  aggregate supply shocks. 
C)  negative real interest rates. 
D)  recessions.

Question 19

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 supply shifts left,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 20

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

Accepted Answer

A)  the short-run Phillips curve would shift up. 
B)  the short-run Phillips curve would shift down. 
C)  the long-run Phillips curve would shift right. 
D)  the long-run Phillips curve would shift left. 
A)  the short-run Phillips curve would shift up. 
B)  the short-run Phillips curve would shift down. 
C)  the long-run Phillips curve would shift right. 
D)  the long-run Phillips curve would shift left.

Exam 36: Five Debates Over Macroeconomic Policy

IRA,401(k),403(b),and Keogh plans

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.

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Which of the programs below would not transfer wealth between young and old generations?

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004.One of their contributions was to argue that if a central bank could convince people to expect zero inflation,then the Fed would be tempted to raise output by increasing inflation.This possibility is known as

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

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

Stephen Cecchetti argues that the Fed should

If a country had a rule that required the ratio of debt to GDP to be constant,it would necessarily have to run a surplus if

Inflation

Proponents of zero inflation argue that reducing inflation has

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

The major driver of future federal spending is rising energy costs.

The principal reason that monetary policy has lags is that it takes a long time for

Accumulated over a long span of time,the tax rate on interest income

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

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

An added benefit of low levels of inflation is that it allows for the possibility of

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 supply shifts left,the central bank must

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

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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