Question 1

Fluctuations in employment and output result from changes in

Accepted Answer

A)  aggregate demand only. 
B)  aggregate supply only. 
C)  aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply. 
A)  aggregate demand only. 
B)  aggregate supply only. 
C)  aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply.

Question 2

Over time, continued budget deficits lead to

Accepted Answer

A)  a higher capital stock and higher productivity. 
B)  a higher capital stock and lower productivity. 
C)  a lower capital stock and higher productivity. 
D)  a lower capital stock and lower productivity. 
A)  a higher capital stock and higher productivity. 
B)  a higher capital stock and lower productivity. 
C)  a lower capital stock and higher productivity. 
D)  a lower capital stock and lower productivity.

Question 3

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 decrease the money supply which would decrease output. 
B)  the central bank would have to decrease the money supply which would increase output. 
C)  the central bank would have to increase the money supply which would decrease output. 
D)  the central bank would have to increase the money supply which would increase output. 
A)  the central bank would have to decrease the money supply which would decrease output. 
B)  the central bank would have to decrease the money supply which would increase output. 
C)  the central bank would have to increase the money supply which would decrease output. 
D)  the central bank would have to increase the money supply which would increase output.

Question 4

When wages are fixed by contract, inflation reduces

Accepted Answer

A)  nominal wages; this likely makes labor markets more flexible. 
B)  nominal wages; this likely makes labor markets less flexible. 
C)  real wages; this likely makes labor markets more flexible. 
D)  real wages; this likely makes labor markets less flexible. 
A)  nominal wages; this likely makes labor markets more flexible. 
B)  nominal wages; this likely makes labor markets less flexible. 
C)  real wages; this likely makes labor markets more flexible. 
D)  real wages; this likely makes labor markets less flexible.

Question 5

Which of the following reduces 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)  some current government spending benefits future taxpayers 
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)  some current government spending benefits future taxpayers 
D)  All of the above are correct.

Question 6

Inflation reduction has the highest cost when the efforts are

Accepted Answer

A)  credible so that the sacrifice ratio is low. 
B)  credible so that the sacrifice ratio is high. 
C)  unexpected so that the sacrifice ratio is high. 
D)  unexpected so that the sacrifice ratio is low. 
A)  credible so that the sacrifice ratio is low. 
B)  credible so that the sacrifice ratio is high. 
C)  unexpected so that the sacrifice ratio is high. 
D)  unexpected so that the sacrifice ratio is low.

Question 7

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?

Accepted Answer

A)  High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation. 
B)  Inflation reduction works best when it is unexpected, and people in high inflation countries would quickly anticipate any change in monetary policy. 
C)  In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs. 
D)  In a country where inflation has been high for a long time, there are no costs to the inflation. 
A)  High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation. 
B)  Inflation reduction works best when it is unexpected, and people in high inflation countries would quickly anticipate any change in monetary policy. 
C)  In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs. 
D)  In a country where inflation has been high for a long time, there are no costs to the inflation.

Question 8

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

Accepted Answer

A)  the central bank would have to decrease the money supply which would decrease output. 
B)  the central bank would have to decrease the money supply which would increase output. 
C)  the central bank would have to increase the money supply which would decrease output. 
D)  the central bank would have to increase the money supply which would increase output. 
A)  the central bank would have to decrease the money supply which would decrease output. 
B)  the central bank would have to decrease the money supply which would increase output. 
C)  the central bank would have to increase the money supply which would decrease output. 
D)  the central bank would have to increase the money supply which would increase output.

Question 9

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)  Saving is a key determinant of long-run prosperity. 
B)  Current tax laws discourage saving for the purpose of leaving a large bequest. 
C)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D)  The tax code currently taxes some forms of capital income twice. 
A)  Saving is a key determinant of long-run prosperity. 
B)  Current tax laws discourage saving for the purpose of leaving a large bequest. 
C)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
D)  The tax code currently taxes some forms of capital income twice.

Question 10

Which of the following is true concerning IRA's, 401k) and 403b) plans?

Accepted Answer

A)  Not everyone is eligible to put funds into them. 
B)  There are restrictions on the amount of funds that can be put into them. 
C)  Except under unusual circumstances, there are penalties for withdrawals before retirement. 
D)  All of the above are correct. 
A)  Not everyone is eligible to put funds into them. 
B)  There are restrictions on the amount of funds that can be put into them. 
C)  Except under unusual circumstances, there are penalties for withdrawals before retirement. 
D)  All of the above are correct.

Question 11

Consider the following rule for monetary policy: r = 2 percent +  $\pi$ + 1/2y - y*)/y* + 1/2y- y*), where r is the nominal interest rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* 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 12

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 13

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 14

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce the frequency of price changes and permanently lower unemployment. 
B)  permanently reduce the frequency of price changes and temporarily raise unemployment. 
C)  temporarily reduce the frequency of price changes and temporarily lower unemployment. 
D)  temporarily reduce the frequency of price changes and temporarily raise unemployment. 
A)  permanently reduce the frequency of price changes and permanently lower unemployment. 
B)  permanently reduce the frequency of price changes and temporarily raise unemployment. 
C)  temporarily reduce the frequency of price changes and temporarily lower unemployment. 
D)  temporarily reduce the frequency of price changes and temporarily raise unemployment.

Question 15

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Accepted Answer

The government cut taxes and raised expe

Question 16

Why is there a lag between the Fed's actions and the economy's response?

Accepted Answer

Monetary policy is supposed to

Question 17

In response to recession, who primarily cut taxes rather than raised expenditures?

Accepted Answer

A)  President George W. Bush and President Barack Obama 
B)  President George W. Bush but not President Barack Obama 
C)  President Barack Obama but not President George W. Bush 
D)  neither President George W. Bush nor President Barack Obama 
A)  President George W. Bush and President Barack Obama 
B)  President George W. Bush but not President Barack Obama 
C)  President Barack Obama but not President George W. Bush 
D)  neither President George W. Bush nor President Barack Obama

Question 18

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax cut when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  decrease in government expenditures when there is a recession. 
D)  All of the above are correct. 
A)  tax cut when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  decrease in government expenditures when there is a recession. 
D)  All of the above are correct.

Question 19

If inflation falls,

Accepted Answer

A)  people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B)  people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C)  people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D)  people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
A)  people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
B)  people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. 
C)  people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. 
D)  people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

Question 20

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Accepted Answer

A)  inflation will raise their real wage and so increase the number of available workers. 
B)  inflation will raise their real wage and so decrease the number of available workers 
C)  inflation will reduce their real wage and so increase the number of available workers. 
D)  inflation will reduce their real wage and so decrease the number of available workers. 
A)  inflation will raise their real wage and so increase the number of available workers. 
B)  inflation will raise their real wage and so decrease the number of available workers 
C)  inflation will reduce their real wage and so increase the number of available workers. 
D)  inflation will reduce their real wage and so decrease the number of available workers.

Fluctuations in employment and output result from changes in

Over time, continued budget deficits lead to

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

When wages are fixed by contract, inflation reduces

Which of the following reduces the potential burden of an increase in debt on future generations?

Inflation reduction has the highest cost when the efforts are

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?

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

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Which of the following is true concerning IRA's, 401k) and 403b) plans?

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

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

A permanent reduction in inflation would

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Why is there a lag between the Fed's actions and the economy's response?

In response to recession, who primarily cut taxes rather than raised expenditures?

"Leaning against the wind" is exemplified by a

If inflation falls,

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

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

Fluctuations in employment and output result from changes in

Over time, continued budget deficits lead to

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

When wages are fixed by contract, inflation reduces

Which of the following reduces the potential burden of an increase in debt on future generations?

Inflation reduction has the highest cost when the efforts are

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?

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

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Which of the following is true concerning IRA's, 401k) and 403b) plans?

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

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

A permanent reduction in inflation would

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Why is there a lag between the Fed's actions and the economy's response?

In response to recession, who primarily cut taxes rather than raised expenditures?

"Leaning against the wind" is exemplified by a

If inflation falls,

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

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