Question 1

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Accepted Answer

A)  the growth rate of output is high 
B)  in response to increased debt, parents save more to leave their children larger bequests 
C)  budget deficits raise interest rates 
D)  All of the above are correct. 
A)  the growth rate of output is high 
B)  in response to increased debt, parents save more to leave their children larger bequests 
C)  budget deficits raise interest rates 
D)  All of the above are correct.

Question 2

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation. Sh

Question 3

According to the political business cycle, after an election, unless the central bank acts inflation is likely to

Accepted Answer

A)  have risen. To counter this the central bank would raise interest rates. 
B)  have risen. To counter this the central bank would lower interest rates. 
C)  have fallen. To counter this the central bank would raise interest rates. 
D)  have fallen. To counter this the central bank would lower interest rates. 
A)  have risen. To counter this the central bank would raise interest rates. 
B)  have risen. To counter this the central bank would lower interest rates. 
C)  have fallen. To counter this the central bank would raise interest rates. 
D)  have fallen. To counter this the central bank would lower interest rates.

Question 4

Proponents of zero inflation argue that a successful program to reduce inflation

Accepted Answer

A)  eventually reduces inflation expectations. 
B)  eventually raises real interest rates. 
C)  permanently decreases output. 
D)  permanently raises unemployment. 
A)  eventually reduces inflation expectations. 
B)  eventually raises real interest rates. 
C)  permanently decreases output. 
D)  permanently raises unemployment.

Question 5

Provide an example of how current expenditures might benefit future generations.

Accepted Answer

Expenditures on education rais

Question 6

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

Accepted Answer

First, tax cuts can influence both aggre

Question 7

In general, the longest lag for

Accepted Answer

A)  both fiscal and monetary policy is the time it takes to change policy. 
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C)  monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A)  both fiscal and monetary policy is the time it takes to change policy. 
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C)  monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 8

The Federal Open Market Committee

Accepted Answer

A)  by law must focus on maintaining low inflation rather than stabilizing output. 
B)  by law must focus on stabilizing output rather than maintaining low inflation. 
C)  by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target. 
D)  operates with almost complete discretion over monetary policy. 
A)  by law must focus on maintaining low inflation rather than stabilizing output. 
B)  by law must focus on stabilizing output rather than maintaining low inflation. 
C)  by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target. 
D)  operates with almost complete discretion over monetary policy.

Question 9

The cost of inflation reduction is a large, permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 10

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Accepted Answer

"Shovel ready" public works pr

Question 11

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Accepted Answer

Tax cuts affect aggregate demand quickly

Question 12

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 13

A country has a growth rate of 3%. Government spending is 60 billion units of currency and its tax revenues are 32 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt- to-income ratio unchanged?

Accepted Answer

A)  2% 
B)  3% 
C)  4% 
D)  5% 
A)  2% 
B)  3% 
C)  4% 
D)  5%

Question 14

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Accepted Answer

A)  setting a policy rule will limit the abuse of power of policymakers. 
B)  policymakers can better influence the political business cycle in their favor when following a policy rule. 
C)  a policy rule provides policymakers with the greatest flexibility to manage inflation. 
D)  if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment. 
A)  setting a policy rule will limit the abuse of power of policymakers. 
B)  policymakers can better influence the political business cycle in their favor when following a policy rule. 
C)  a policy rule provides policymakers with the greatest flexibility to manage inflation. 
D)  if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment.

Question 15

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand 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 16

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

A)  increased spending 
B)  increased aggregate demand 
C)  increased real GDP 
D)  an increase in the unemployment rate 
A)  increased spending 
B)  increased aggregate demand 
C)  increased real GDP 
D)  an increase in the unemployment rate

Question 17

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

Accepted Answer

A)  raise both consumption and investment. 
B)  raise consumption but reduce investment. 
C)  raise investment but reduce consumption. 
D)  reduce both consumption and investment. 
A)  raise both consumption and investment. 
B)  raise consumption but reduce investment. 
C)  raise investment but reduce consumption. 
D)  reduce both consumption and investment.

Question 18

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Accepted Answer

A)  0 percent 
B)  3 percent 
C)  5 percent 
D)  6 percent 
A)  0 percent 
B)  3 percent 
C)  5 percent 
D)  6 percent

Question 19

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 20

Which of the following raise the incentive for households to save?

Accepted Answer

A)  means-testing of government benefits and inheritance taxes 
B)  means-testing of government benefits but not inheritance taxes 
C)  inheritance taxes, but not means-testing of government benefits 
D)  neither means-testing of government benefits nor inheritance taxes 
A)  means-testing of government benefits and inheritance taxes 
B)  means-testing of government benefits but not inheritance taxes 
C)  inheritance taxes, but not means-testing of government benefits 
D)  neither means-testing of government benefits nor inheritance taxes

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Describe three costs of inflation.

According to the political business cycle, after an election, unless the central bank acts inflation is likely to

Proponents of zero inflation argue that a successful program to reduce inflation

Provide an example of how current expenditures might benefit future generations.

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

In general, the longest lag for

The Federal Open Market Committee

The cost of inflation reduction is a large, permanent increase in unemployment.

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Explain the main arguments in favor of economic stabilization.

A country has a growth rate of 3%. Government spending is 60 billion units of currency and its tax revenues are 32 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt- to-income ratio unchanged?

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand the central bank

Which of the following likely occurs when households and firms become more pessimistic?

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Which of the following is not correct?

Which of the following raise the incentive for households to save?

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

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Describe three costs of inflation.

According to the political business cycle, after an election, unless the central bank acts inflation is likely to

Proponents of zero inflation argue that a successful program to reduce inflation

Provide an example of how current expenditures might benefit future generations.

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

In general, the longest lag for

The Federal Open Market Committee

The cost of inflation reduction is a large, permanent increase in unemployment.

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Explain the main arguments in favor of economic stabilization.

A country has a growth rate of 3%. Government spending is 60 billion units of currency and its tax revenues are 32 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt- to-income ratio unchanged?

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand the central bank

Which of the following likely occurs when households and firms become more pessimistic?

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Which of the following is not correct?

Which of the following raise the incentive for households to save?

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