Question 1

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 2

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

Accepted Answer

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

Question 3

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

Accepted Answer

A)  left,and the sacrifice ratio will be low. 
B)  left,and the sacrifice ratio will be high. 
C)  right,and the sacrifice ratio will be low. 
D)  right,and the sacrifice ratio will be high. 
A)  left,and the sacrifice ratio will be low. 
B)  left,and the sacrifice ratio will be high. 
C)  right,and the sacrifice ratio will be low. 
D)  right,and the sacrifice ratio will be high.

Question 4

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)  the government raise taxes or cut expenditures.This would increase the magnitude of economic fluctuations. 
B)  the government raise taxes or cut expenditures.This would decrease the magnitude of economic fluctuations. 
C)  the government cut taxes or raise expenditures.This would increase the magnitude of economic fluctuations. 
D)  the government cut taxes or raise expenditures.This would decrease the magnitude of economic fluctuations. 
A)  the government raise taxes or cut expenditures.This would increase the magnitude of economic fluctuations. 
B)  the government raise taxes or cut expenditures.This would decrease the magnitude of economic fluctuations. 
C)  the government cut taxes or raise expenditures.This would increase the magnitude of economic fluctuations. 
D)  the government cut taxes or raise expenditures.This would decrease the magnitude of economic fluctuations.

Question 5

Which of the following is not correct?

Accepted Answer

A)  Deficits give people the opportunity to consume at the expense of their children,but deficits do not require them to do so. 
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate. 
C)  The only times deficits have increased have been during times of war or economic downturns. 
D)  Reducing the budget deficit rather than funding more education spending could,all things considered,make future generations worse off. 
A)  Deficits give people the opportunity to consume at the expense of their children,but deficits do not require them to do so. 
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate. 
C)  The only times deficits have increased have been during times of war or economic downturns. 
D)  Reducing the budget deficit rather than funding more education spending could,all things considered,make future generations worse off.

Question 6

Means-tested government programs tend to reduce saving.What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance,or

Question 7

Which of the following is not an argument against requiring the government to balance its budget?

Accepted Answer

A)  Some economists believe that rules are better than discretion. 
B)  Per-capita debt is small relative to lifetime income. 
C)  The effect of deficit spending on future generations depends in part on what the government buys. 
D)  Other government policies also redistribute income across generations. 
A)  Some economists believe that rules are better than discretion. 
B)  Per-capita debt is small relative to lifetime income. 
C)  The effect of deficit spending on future generations depends in part on what the government buys. 
D)  Other government policies also redistribute income across generations.

Question 8

In effect,a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 9

Consider the following rule for monetary policy: r = 2 percent + F1F1F1S1F1F1F10 + 1/2(y - y*)/y* + 1/2(F1F1F1S1F1F1F10- F1F1F1S1F1F1F10*),where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output,F1F1F1S1F1F1F10 is the inflation rate,and F1F1F1S1F1F1F10* is the inflation target.Which of the following statements is not correct?

Accepted Answer

A)  If aggregate demand shifts right from long-run equilibrium,this rule unambiguously implies that the Fed increases the nominal interest rate. 
B)  If aggregate supply shifts right from long-run equilibrium at the inflation target,we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate. 
C)  If output is at its natural level,but inflation is above its target,the Fed must increase the nominal interest rate. 
D)  If inflation is at its targeted level,but output is above its natural rate,the Fed must decrease the federal funds rate. 
A)  If aggregate demand shifts right from long-run equilibrium,this rule unambiguously implies that the Fed increases the nominal interest rate. 
B)  If aggregate supply shifts right from long-run equilibrium at the inflation target,we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate. 
C)  If output is at its natural level,but inflation is above its target,the Fed must increase the nominal interest rate. 
D)  If inflation is at its targeted level,but output is above its natural rate,the Fed must decrease the federal funds rate.

Question 10

Which of the following is a cost of inflation?

Accepted Answer

A)  shoeleather costs 
B)  menu costs 
C)  relative price variability 
D)  All of the above are correct. 
A)  shoeleather costs 
B)  menu costs 
C)  relative price variability 
D)  All of the above are correct.

Question 11

Which of the following is not correct?

Accepted Answer

A)  A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth. 
B)  Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so. 
C)  The U.S.debt per-person is large compared with average lifetime income. 
D)  In 2005,the U.S.government ran a deficit. 
A)  A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth. 
B)  Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so. 
C)  The U.S.debt per-person is large compared with average lifetime income. 
D)  In 2005,the U.S.government ran a deficit.

Question 12

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 13

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock 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 14

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 15

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr

Question 16

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income

Question 17

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce shoeleather costs and permanently lower unemployment 
B)  permanently reduce shoeleather costs and temporarily raise unemployment 
C)  temporarily reduce shoeleather costs and temporarily lower unemployment 
D)  temporarily reduce shoeleather costs and temporarily raise unemployment 
A)  permanently reduce shoeleather costs and permanently lower unemployment 
B)  permanently reduce shoeleather costs and temporarily raise unemployment 
C)  temporarily reduce shoeleather costs and temporarily lower unemployment 
D)  temporarily reduce shoeleather costs and temporarily raise unemployment

Question 18

The average U.S.citizens' share of the government debt represents about 10 percent of her lifetime income.

Accepted Answer

A) True 
 B)False

Question 19

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th

Question 20

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Exam 36: Five Debates Over Macroeconomic Policy

Explain the main arguments in favor of economic stabilization.

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

A balanced budget would require that when real GDP was growing rapidly,

Which of the following is not correct?

Means-tested government programs tend to reduce saving.What are means-tested programs and how do they reduce saving?

Which of the following is not an argument against requiring the government to balance its budget?

In effect,a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Which of the following is a cost of inflation?

Which of the following is not correct?

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Explain how it is possible for the government debt to grow forever.

Why do many economists advocate a consumption tax rather than an income tax?

A permanent reduction in inflation would

The average U.S.citizens' share of the government debt represents about 10 percent of her lifetime income.

Explain the time inconsistency of monetary policy.

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

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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