Question 1

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 2

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo

Question 3

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 4

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time

Question 5

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)  requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B)  requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C)  requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals. 
A)  requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B)  requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C)  requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.

Question 6

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Accepted Answer

A)  the central bank would have to raise interest rates which would decrease output. 
B)  the central bank would have to raise interest rates which would increase output. 
C)  the central bank would have to reduce interest rates which would decrease output. 
D)  the central bank would have to reduce interest rates which would increase output. 
A)  the central bank would have to raise interest rates which would decrease output. 
B)  the central bank would have to raise interest rates which would increase output. 
C)  the central bank would have to reduce interest rates which would decrease output. 
D)  the central bank would have to reduce interest rates which would increase output.

Question 7

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Accepted Answer

A)  increases the interest rate and decreases spending on capital goods. 
B)  increases the interest rate and increases spending on capital goods. 
C)  decreases the interest rate and increases spending on capital goods. 
D)  decreases the interest rate and decreases spending on capital goods. 
A)  increases the interest rate and decreases spending on capital goods. 
B)  increases the interest rate and increases spending on capital goods. 
C)  decreases the interest rate and increases spending on capital goods. 
D)  decreases the interest rate and decreases spending on capital goods.

Question 8

Tax cuts

Accepted Answer

A)  can easily target investment spending, but investment spending falls by only a small percentage during recessions. 
B)  can easily target investment spending, which falls by a large percentage during recessions. 
C)  cannot easily target investment spending, but investment spending falls by only a small percentage during recessions. 
D)  cannot easily target investment spending, which falls by a large percentage during recessions. 
A)  can easily target investment spending, but investment spending falls by only a small percentage during recessions. 
B)  can easily target investment spending, which falls by a large percentage during recessions. 
C)  cannot easily target investment spending, but investment spending falls by only a small percentage during recessions. 
D)  cannot easily target investment spending, which falls by a large percentage during recessions.

Question 9

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Accepted Answer

Increase g

Question 10

Part of the lag in monetary policy effects is due to

Accepted Answer

A)  the long political process of monetary policy decisions. 
B)  precise economic forecasts. 
C)  the time required for firms and households to alter their spending plans. 
D)  changes in the unemployment rate. 
A)  the long political process of monetary policy decisions. 
B)  precise economic forecasts. 
C)  the time required for firms and households to alter their spending plans. 
D)  changes in the unemployment rate.

Question 11

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

Accepted Answer

A)  she held much currency and on net was a lender. 
B)  she held much currency and on net was a borrower. 
C)  she held little currency and on net was a lender. 
D)  she held little currency and on net was a borrower. 
A)  she held much currency and on net was a lender. 
B)  she held much currency and on net was a borrower. 
C)  she held little currency and on net was a lender. 
D)  she held little currency and on net was a borrower.

Question 12

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)  decreasing the money supply. 
B)  increasing taxes. 
C)  increasing government expenditures. 
D)  All of the above 
A)  decreasing the money supply. 
B)  increasing taxes. 
C)  increasing government expenditures. 
D)  All of the above

Question 13

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment

Question 14

A reduction in the tax rate on interest income

Accepted Answer

A)  would necessarily raise national saving. 
B)  would primarily benefit the wealthy. 
C)  both a and b are correct. 
D)  None of the above are correct. 
A)  would necessarily raise national saving. 
B)  would primarily benefit the wealthy. 
C)  both a and b are correct. 
D)  None of the above are correct.

Question 15

An individual would suffer lower losses from an unexpectedly higher inflation rate if

Accepted Answer

A)  she held much currency and owned few bonds. 
B)  she held much currency and owned many bonds. 
C)  she held little currency and owned few bonds. 
D)  she held little currency and owned many bonds. 
A)  she held much currency and owned few bonds. 
B)  she held much currency and owned many bonds. 
C)  she held little currency and owned few bonds. 
D)  she held little currency and owned many bonds.

Question 16

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this 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 17

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

Accepted Answer

A)  would have to increase the interest rate. This would move unemployment closer to the natural rate. 
B)  would have to increase the interest rate. This would move unemployment further from the natural rate. 
C)  would have to decrease the interest rate. This would move unemployment closer to the natural rate. 
D)  would have to decrease the interest rate. This would move unemployment further from the natural rate. 
A)  would have to increase the interest rate. This would move unemployment closer to the natural rate. 
B)  would have to increase the interest rate. This would move unemployment further from the natural rate. 
C)  would have to decrease the interest rate. This would move unemployment closer to the natural rate. 
D)  would have to decrease the interest rate. This would move unemployment further from the natural rate.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Accepted Answer

If the Fed wanted to see the President r

Question 20

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Accepted Answer

A)  A public budget surplus can raise national saving. 
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C)  Low-income households save a larger fraction of their income than high-income households. 
D)  Tax cuts might cause a budget deficit. 
A)  A public budget surplus can raise national saving. 
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C)  Low-income households save a larger fraction of their income than high-income households. 
D)  Tax cuts might cause a budget deficit.

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

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

A recession has no benefit to society-it represents a sheer waste of resources.

Explain why policy lags could make stabilization policies counterproductive.

A 1977 amendment to the Federal Reserve Act of 1913

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Tax cuts

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Part of the lag in monetary policy effects is due to

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

A reduction in the tax rate on interest income

An individual would suffer lower losses from an unexpectedly higher inflation rate if

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

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

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

According to political business cycle theory, if the Fed wanted to increase the chances of a President's reelection, what specific actions might it take?

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

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

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

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

A recession has no benefit to society-it represents a sheer waste of resources.

Explain why policy lags could make stabilization policies counterproductive.

A 1977 amendment to the Federal Reserve Act of 1913

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving

Tax cuts

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Part of the lag in monetary policy effects is due to

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

A reduction in the tax rate on interest income

An individual would suffer lower losses from an unexpectedly higher inflation rate if

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

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

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

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

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

According to political business cycle theory, if the Fed wanted to increase the chances of a President's reelection, what specific actions might it take?