Question 1

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 unforeseen 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 unforeseen circumstances 
C)  political business cycle 
D)  the ability to craft rules that account for all possible contingencies in advance

Question 2

Economists

Accepted Answer

A)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
B)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
C)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
D)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
A)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
B)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
C)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
D)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.

Question 3

Which of the following are taxed?

Accepted Answer

A)  both corporate profits and dividends paid to stockholders 
B)  corporate profits but not dividends paid to stockholders 
C)  dividends paid to stockholders but not corporate profits 
D)  neither corporate profits nor dividends paid to stock holders 
A)  both corporate profits and dividends paid to stockholders 
B)  corporate profits but not dividends paid to stockholders 
C)  dividends paid to stockholders but not corporate profits 
D)  neither corporate profits nor dividends paid to stock holders

Question 4

An increase in the money supply

Accepted Answer

A)  reduces interest rates and shifts aggregate demand to the right. 
B)  reduces interest rates and shifts aggregate supply to the right 
C)  raises interest rates and shifts aggregate demand to the right. 
D)  raises interest rates and shifts aggregate supply to the right. 
A)  reduces interest rates and shifts aggregate demand to the right. 
B)  reduces interest rates and shifts aggregate supply to the right 
C)  raises interest rates and shifts aggregate demand to the right. 
D)  raises interest rates and shifts aggregate supply to the right.

Question 5

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

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

Why might reforms to encourage saving lead to a less egalitarian society?

Accepted Answer

Taxing saving at a lower rate

Question 7

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Accepted Answer

A)  cutting taxes and increasing expenditures. The effect of the tax cut is larger. 
B)  cutting taxes and increasing expenditures. The effect of the tax cut is smaller. 
C)  raising taxes and decreasing expenditures. The effect of the tax increase is larger. 
D)  raising taxes and decreasing expenditures. The effect of the tax increase is smaller. 
A)  cutting taxes and increasing expenditures. The effect of the tax cut is larger. 
B)  cutting taxes and increasing expenditures. The effect of the tax cut is smaller. 
C)  raising taxes and decreasing expenditures. The effect of the tax increase is larger. 
D)  raising taxes and decreasing expenditures. The effect of the tax increase is smaller.

Question 8

Stimulus spending in 2009 was used for

Accepted Answer

A)  building roads and bridges. 
B)  providing aid to local and state governments. 
C)  making payments to the unemployed. 
D)  All of the above are correct. 
A)  building roads and bridges. 
B)  providing aid to local and state governments. 
C)  making payments to the unemployed. 
D)  All of the above are correct.

Question 9

Which of the following is correct?

Accepted Answer

A)  No forms of capital income are taxed twice. 
B)  The tax code cannot be rewritten to provide greater incentive to save. 
C)  Means-tested benefits increase the incentive to save. 
D)  There is a correlation between national savings rates and measures of economic well-being. 
A)  No forms of capital income are taxed twice. 
B)  The tax code cannot be rewritten to provide greater incentive to save. 
C)  Means-tested benefits increase the incentive to save. 
D)  There is a correlation between national savings rates and measures of economic well-being.

Question 10

Which of the following can tax cuts influence?

Accepted Answer

A)  aggregate demand and aggregate supply 
B)  aggregate demand but not aggregate supply 
C)  aggregate supply but not aggregate demand 
D)  neither aggregate demand nor aggregate supply 
A)  aggregate demand and aggregate supply 
B)  aggregate demand but not aggregate supply 
C)  aggregate supply but not aggregate demand 
D)  neither aggregate demand nor aggregate supply

Question 11

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 12

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Accepted Answer

A)  5% 
B)  10% 
C)  15% 
D)  20% 
A)  5% 
B)  10% 
C)  15% 
D)  20%

Question 13

An added benefit 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 14

Explain how tax provisions to encourage private saving may reduce national saving.

Accepted Answer

Without careful planning it is possible

Question 15

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)  The income effect, but not the substitution effect, would tend to reduce private saving. 
B)  The substitution effect, but not the income effect, would tend to reduce private saving. 
C)  Both the income and substitution effect would tend to reduce private saving. 
D)  Neither the income nor the substitution effect would tend to reduce private saving. 
A)  The income effect, but not the substitution effect, would tend to reduce private saving. 
B)  The substitution effect, but not the income effect, would tend to reduce private saving. 
C)  Both the income and substitution effect would tend to reduce private saving. 
D)  Neither the income nor the substitution effect would tend to reduce private saving.

Question 16

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 shifts aggregate demand further right. 
B)  decrease the money supply, which shifts aggregate demand left. 
C)  increase the money supply, which shifts aggregate demand further right. 
D)  increase the money supply, which shifts aggregate demand left. 
A)  decrease the money supply, which shifts aggregate demand further right. 
B)  decrease the money supply, which shifts aggregate demand left. 
C)  increase the money supply, which shifts aggregate demand further right. 
D)  increase the money supply, which shifts aggregate demand left.

Question 17

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 so interest rates rise. 
B)  decrease the money supply so interest rates fall. 
C)  increase the money supply so interest rates rise. 
D)  increase the money supply so interest rates fall. 
A)  decrease the money supply so interest rates rise. 
B)  decrease the money supply so interest rates fall. 
C)  increase the money supply so interest rates rise. 
D)  increase the money supply so interest rates fall.

Question 18

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Accepted Answer

During this time the Fed achieved and ma

Question 19

If tax rates are raised to avoid a deficit during a recession, then

Accepted Answer

A)  real GDP and deadweight loss from taxes will rise. 
B)  real GDP will rise and deadweight loss from taxes will fall. 
C)  real GDP will fall and deadweight loss from taxes will rise. 
D)  real GDP and deadweight loss from taxes will fall. 
A)  real GDP and deadweight loss from taxes will rise. 
B)  real GDP will rise and deadweight loss from taxes will fall. 
C)  real GDP will fall and deadweight loss from taxes will rise. 
D)  real GDP and deadweight loss from taxes will fall.

Question 20

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  135 billion 
B)  143 billion 
C)  169 billion 
D)  175 billion 
A)  135 billion 
B)  143 billion 
C)  169 billion 
D)  175 billion

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

Economists

Which of the following are taxed?

An increase in the money supply

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

Why might reforms to encourage saving lead to a less egalitarian society?

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Stimulus spending in 2009 was used for

Which of the following is correct?

Which of the following can tax cuts influence?

Tax cuts affect only aggregate demand not aggregate supply.

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

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

Explain how tax provisions to encourage private saving may reduce national saving.

Suppose the tax rate on interest income from saving were reduced.

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

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

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

If tax rates are raised to avoid a deficit during a recession, then

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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

Exam 18: Six Debates Over Macroeconomic Policy

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

Economists

Which of the following are taxed?

An increase in the money supply

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

Why might reforms to encourage saving lead to a less egalitarian society?

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Stimulus spending in 2009 was used for

Which of the following is correct?

Which of the following can tax cuts influence?

Tax cuts affect only aggregate demand not aggregate supply.

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

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

Explain how tax provisions to encourage private saving may reduce national saving.

Suppose the tax rate on interest income from saving were reduced.

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

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

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

If tax rates are raised to avoid a deficit during a recession, then

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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