Question 1

If inflation falls it

Accepted Answer

A)  causes people to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B)  causes people to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C)  causes people to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D)  causes people to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
A)  causes people to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B)  causes people to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C)  causes people to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D)  causes people to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

Question 2

Some economists beleive that there are positives from a little inflation and that it may "grease the wheels"

Accepted Answer

A)  in the stock market. 
B)  in the foreign exchange market. 
C)  in the bond market. 
D)  in the labor market. 
A)  in the stock market. 
B)  in the foreign exchange market. 
C)  in the bond market. 
D)  in the labor market.

Question 3

Which of the following is correct?

Accepted Answer

A)  Deficits always require people to consume at the expense of their children. 
B)  If the government uses funds to pay for investment programs,on net the debt need not burden future generations. 
C)  If the government is indebt it must be running a deficit currently. 
D)  The current government debt is a large share of lifetime income. 
A)  Deficits always require people to consume at the expense of their children. 
B)  If the government uses funds to pay for investment programs,on net the debt need not burden future generations. 
C)  If the government is indebt it must be running a deficit currently. 
D)  The current government debt is a large share of lifetime income.

Question 4

Which of the following would likely increase private saving?

Accepted Answer

A)  Both expansion of IRA type accounts and a consumption tax. 
B)  Expansion of IRA type accounts,but not a consumption tax. 
C)  A consumption tax,but not expansion of IRA type accounts. 
D)  Neither expansion of IRA type accounts nor a consumption tax. 
A)  Both expansion of IRA type accounts and a consumption tax. 
B)  Expansion of IRA type accounts,but not a consumption tax. 
C)  A consumption tax,but not expansion of IRA type accounts. 
D)  Neither expansion of IRA type accounts nor a consumption tax.

Question 5

In fiscal year 2001,the U.S.government ran a surplus of about $127 billion.In fiscal year 2002,the government ran a deficit of $159 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 6

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Accepted Answer

A) True 
 B)False

Question 7

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags,but the lags are

Question 8

Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 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 50 billion units and tax collections equal to 76 billion units 
B)  government spending equal to 50 billion units and tax collections equal to 14 billion units 
C)  government spending equal to 50 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 50 billion units and tax collections equal to 8 billion units 
A)  government spending equal to 50 billion units and tax collections equal to 76 billion units 
B)  government spending equal to 50 billion units and tax collections equal to 14 billion units 
C)  government spending equal to 50 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 50 billion units and tax collections equal to 8 billion units

Question 9

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax increase when there is a recession. 
B)  decrease in the money supply when there is an expansion. 
C)  decrease in government expenditures when there is a recession. 
D)  All of the above are correct. 
A)  tax increase when there is a recession. 
B)  decrease in the money supply when there is an expansion. 
C)  decrease in government expenditures when there is a recession. 
D)  All of the above are correct.

Question 10

Which of the following statements is not true?

Accepted Answer

A)  All budget deficits can be justified as being due to war or recession. 
B)  The U.S.federal debt in 2008 was $5.2 trillion. 
C)  Government debt represets about 1 percent of a typical worker's lifetime resources. 
D)  Forward looking parents can reverse adverse effects of government debt. 
A)  All budget deficits can be justified as being due to war or recession. 
B)  The U.S.federal debt in 2008 was $5.2 trillion. 
C)  Government debt represets about 1 percent of a typical worker's lifetime resources. 
D)  Forward looking parents can reverse adverse effects of government debt.

Question 11

The time inconsistency of policy implies that

Accepted Answer

A)  what policymakers say they will do is generally what they will do,but people don't believe them because of current policy. 
B)  when people expect that inflation will be low,it is harder for the Fed to increase output by increasing the money supply. 
C)  people will believe Fed policy will be more inflationary than the Fed claims. 
D)  what policymakers say they will do is usually not what they do,but people believe them anyway. 
A)  what policymakers say they will do is generally what they will do,but people don't believe them because of current policy. 
B)  when people expect that inflation will be low,it is harder for the Fed to increase output by increasing the money supply. 
C)  people will believe Fed policy will be more inflationary than the Fed claims. 
D)  what policymakers say they will do is usually not what they do,but people believe them anyway.

Question 12

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 13

If the budget deficit were reduced

Accepted Answer

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

Question 14

The laws that created the Fed give the institution only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 15

The average person's share of the U.S.government debt as a percentage of lifetime income is

Accepted Answer

A)  less than 2 percent. 
B)  about 5 percent. 
C)  about 10 percent. 
D)  over 12 percent. 
A)  less than 2 percent. 
B)  about 5 percent. 
C)  about 10 percent. 
D)  over 12 percent.

Question 16

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 17

If the unemployment rate rises,which policies would be appropriate to reduce it?

Accepted Answer

A)  increase the money supply,increase taxes 
B)  increase the money supply,cut taxes 
C)  decrease the money supply,increase taxes 
D)  decrease the money supply,cut taxes 
A)  increase the money supply,increase taxes 
B)  increase the money supply,cut taxes 
C)  decrease the money supply,increase taxes 
D)  decrease the money supply,cut taxes

Question 18

Forward looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 19

The Fed raised interest rates in 2004 and 2005.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 20

Economists agree that if a monetary policy rule is to be used,the best one makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Exam 36: Five Debates Over Macroeconomic Policy

If inflation falls it

Some economists beleive that there are positives from a little inflation and that it may "grease the wheels"

Which of the following is correct?

Which of the following would likely increase private saving?

In fiscal year 2001,the U.S.government ran a surplus of about $127 billion.In fiscal year 2002,the government ran a deficit of $159 billion.This change would be expected to have

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

"Leaning against the wind" is exemplified by a

Which of the following statements is not true?

The time inconsistency of policy implies that

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

If the budget deficit were reduced

The laws that created the Fed give the institution only vague recommendations about what goals it should pursue,and they do not tell the Fed how to pursue whatever goals it might choose.

The average person's share of the U.S.government debt as a percentage of lifetime income is

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

If the unemployment rate rises,which policies would be appropriate to reduce it?

Forward looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

The Fed raised interest rates in 2004 and 2005.This implies,other things the same,that the Fed

Economists agree that if a monetary policy rule is to be used,the best one makes the growth rate of the money supply constant.

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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