Question 1

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m

Question 2

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 3

A reduction in inflation would lead to

Accepted Answer

A)  more frequent price changes and increased variability of relative prices. 
B)  more frequent price changes and decreased variability of relative prices. 
C)  less frequent price changes and increased variability of relative prices. 
D)  less frequent price changes and decreased variability of relative prices. 
A)  more frequent price changes and increased variability of relative prices. 
B)  more frequent price changes and decreased variability of relative prices. 
C)  less frequent price changes and increased variability of relative prices. 
D)  less frequent price changes and decreased variability of relative prices.

Question 4

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate provides mo

Question 5

As it is usually practiced, inflation targeting sets

Accepted Answer

A)  a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number. 
B)  a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number. 
C)  sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range. 
D)  sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range. 
A)  a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number. 
B)  a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number. 
C)  sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range. 
D)  sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range.

Question 6

Higher saving is associated with

Accepted Answer

A)  a larger capital stock and higher productivity. 
B)  a larger capital stock but not higher productivity. 
C)  higher productivity but not a higher capital stock. 
D)  neither a higher capital stock nor higher productivity. 
A)  a larger capital stock and higher productivity. 
B)  a larger capital stock but not higher productivity. 
C)  higher productivity but not a higher capital stock. 
D)  neither a higher capital stock nor higher productivity.

Question 7

If there is an increase in the money supply, in the short run

Accepted Answer

A)  the interest rises. It takes several weeks for spending to fully respond to this change. 
B)  the interest rises. It takes several months for spending to fully respond to this change. 
C)  the interest falls. It takes several weeks for spending to fully respond to this change. 
D)  the interest falls. It takes several months for spending to fully respond to this change. 
A)  the interest rises. It takes several weeks for spending to fully respond to this change. 
B)  the interest rises. It takes several months for spending to fully respond to this change. 
C)  the interest falls. It takes several weeks for spending to fully respond to this change. 
D)  the interest falls. It takes several months for spending to fully respond to this change.

Question 8

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 in debt 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 in debt it must be running a deficit currently. 
D)  The current government debt is a large share of lifetime income.

Question 9

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. Other things the same, 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 10

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged. If the Fed is required to follow a rule that stabilizes the price level, what will the Fed do to the money supply and what impact will this have on total output in the economy?

Accepted Answer

To keep the price level stable

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

A)  the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations. 
B)  the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations. 
C)  the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations. 
D)  the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations. 
A)  the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations. 
B)  the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations. 
C)  the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations. 
D)  the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.

Question 13

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Accepted Answer

To counter a recession, a central bank r

Question 14

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)  Current spending may benefit future generations. 
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)  Current spending may benefit future generations.

Question 15

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $68.8 billion 
B)  about $137.6 billion 
C)  about $275.2 billion 
D)  about $309.6 billion 
A)  about $68.8 billion 
B)  about $137.6 billion 
C)  about $275.2 billion 
D)  about $309.6 billion

Question 16

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Accepted Answer

A)  buy bonds. These purchases also move the price level closer to its original level. 
B)  buy bonds. However these purchases move the price level farther from its original level. 
C)  sell bonds. These sales also move the price level closer to its original level. 
D)  sell bonds. However these sales move the price level farther from its original level. 
A)  buy bonds. These purchases also move the price level closer to its original level. 
B)  buy bonds. However these purchases move the price level farther from its original level. 
C)  sell bonds. These sales also move the price level closer to its original level. 
D)  sell bonds. However these sales move the price level farther from its original level.

Question 17

Which of the following is not a cost of inflation identified by economists?

Accepted Answer

A)  menu costs associated with more frequent adjustment of prices 
B)  confusion and inconvenience resulting from a changing value of the unit of account 
C)  reduced price flexibility 
D)  arbitrary redistributions of wealth associated with dollar-denominated debts 
A)  menu costs associated with more frequent adjustment of prices 
B)  confusion and inconvenience resulting from a changing value of the unit of account 
C)  reduced price flexibility 
D)  arbitrary redistributions of wealth associated with dollar-denominated debts

Question 18

Which of the following does the U.S. currently have?

Accepted Answer

A)  means-tested government benefits and tax laws that tax capital income only once 
B)  means-tested government benefits and tax laws that tax some capital income twice 
C)  tax laws that tax capital income only once, but not means-tested government benefits 
D)  tax laws that tax some capital income twice, but not means-tested government benefits 
A)  means-tested government benefits and tax laws that tax capital income only once 
B)  means-tested government benefits and tax laws that tax some capital income twice 
C)  tax laws that tax capital income only once, but not means-tested government benefits 
D)  tax laws that tax some capital income twice, but not means-tested government benefits

Question 19

The national debt

Accepted Answer

A)  exists because of past government budget deficits. 
B)  is the difference between the government's spending and revenue in a given year. 
C)  is the amount households owe on credit cards, mortgages and other loans. 
D)  is the amount household and firms have borrowed minus the amount they have saved. 
A)  exists because of past government budget deficits. 
B)  is the difference between the government's spending and revenue in a given year. 
C)  is the amount households owe on credit cards, mortgages and other loans. 
D)  is the amount household and firms have borrowed minus the amount they have saved.

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

Approximately how often does the Federal Open Market Committee meet?

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

A reduction in inflation would lead to

What is the benefit of a high saving rate?

As it is usually practiced, inflation targeting sets

Higher saving is associated with

If there is an increase in the money supply, in the short run

Which of the following is correct?

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. Other things the same, this change would be expected to have

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

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Which of the following is not correct?

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Which of the following is not a cost of inflation identified by economists?

Which of the following does the U.S. currently have?

The national debt

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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

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Exam 18: Six Debates Over Macroeconomic Policy

Approximately how often does the Federal Open Market Committee meet?

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

A reduction in inflation would lead to

What is the benefit of a high saving rate?

As it is usually practiced, inflation targeting sets

Higher saving is associated with

If there is an increase in the money supply, in the short run

Which of the following is correct?

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. Other things the same, this change would be expected to have

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

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Which of the following is not correct?

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Which of the following is not a cost of inflation identified by economists?

Which of the following does the U.S. currently have?

The national debt

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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Filters