Question 1

Which of the following statements is not true?

Accepted Answer

A)  The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding. 
B)  The U.S. federal debt in 2012 was about $11.3 trillion. 
C)  Government debt per person represents more than 5 percent of a typical worker's lifetime resources. 
D)  Forward-looking parents can reverse adverse effects of government debt on their children. 
A)  The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding. 
B)  The U.S. federal debt in 2012 was about $11.3 trillion. 
C)  Government debt per person represents more than 5 percent of a typical worker's lifetime resources. 
D)  Forward-looking parents can reverse adverse effects of government debt on their children.

Question 2

The average person's share of the U.S. government debt as a percentage of lifetime income is

Accepted Answer

A)  less than 1 percent. 
B)  more than 1 percent but less than 2 percent 
C)  about 4 percent 
D)  over 6 percent 
A)  less than 1 percent. 
B)  more than 1 percent but less than 2 percent 
C)  about 4 percent 
D)  over 6 percent

Question 3

If a reduction in taxes on savings reduced the amount of private saving, then the

Accepted Answer

A)  income effect equaled the substitution effect. 
B)  income effect outweighed the substitution effect. 
C)  the substitution effect outweighed the income effect. 
D)  None of the above. 
A)  income effect equaled the substitution effect. 
B)  income effect outweighed the substitution effect. 
C)  the substitution effect outweighed the income effect. 
D)  None of the above.

Question 4

Inflation

Accepted Answer

A)  causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
B)  causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
C)  causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
D)  causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
A)  causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
B)  causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. 
C)  causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. 
D)  causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.

Question 5

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 6

In the early 1980's the Fed tightened monetary policy. Over the next few years

Accepted Answer

A)  inflation remained high and unemployment rose. 
B)  inflation fell but unemployment rose temporarily. 
C)  inflation and unemployment fell. 
D)  inflation and unemployment rose. 
A)  inflation remained high and unemployment rose. 
B)  inflation fell but unemployment rose temporarily. 
C)  inflation and unemployment fell. 
D)  inflation and unemployment rose.

Question 7

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 8

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)  The cost of something is what you give up to get it Principle 2). 
B)  Trade can make everyone better off Principle 5). 
C)  Markets are usually a good way to organize economic activity Principle 6). 
D)  A country's standard of living depends on its ability to produce goods and services Principle 8). 
A)  The cost of something is what you give up to get it Principle 2). 
B)  Trade can make everyone better off Principle 5). 
C)  Markets are usually a good way to organize economic activity Principle 6). 
D)  A country's standard of living depends on its ability to produce goods and services Principle 8).

Question 9

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 10

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following can tax cuts influence?

Accepted Answer

A)  Aggregate demand 
B)  Aggregate supply 
C)  Investment spending 
D)  All of the above 
A)  Aggregate demand 
B)  Aggregate supply 
C)  Investment spending 
D)  All of the above

Question 13

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to reduce interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to reduce interest rates. 
A)  buy bonds to raise interest rates. 
B)  buy bonds to reduce interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to reduce interest rates.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Zero inflation

Accepted Answer

A)  might be dangerous because it could lead to rapidly increasing prices. 
B)  would limit the flexibility of the labor market and so could at times raise unemployment. 
C)  would make it easy for the Central bank to create negative real interest rates. 
D)  is impossible to achieve in the real world. 
A)  might be dangerous because it could lead to rapidly increasing prices. 
B)  would limit the flexibility of the labor market and so could at times raise unemployment. 
C)  would make it easy for the Central bank to create negative real interest rates. 
D)  is impossible to achieve in the real world.

Question 16

Which of the following are both correct?

Accepted Answer

A)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
B)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
C)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
D)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
A)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
B)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
C)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
D)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.

Question 17

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 18

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 19

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)  policymakers should "do no harm". 
B)  there are no obstacles to the practical application of policy in real life. 
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky. 
D)  policy mitigates the magnitude of economic fluctuations. 
A)  policymakers should "do no harm". 
B)  there are no obstacles to the practical application of policy in real life. 
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky. 
D)  policy mitigates the magnitude of economic fluctuations.

Question 20

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Accepted Answer

The benefits of the project ac

Exam 23: Six Debates Over Macroeconomic Policy

Which of the following statements is not true?

The average person's share of the U.S. government debt as a percentage of lifetime income is

If a reduction in taxes on savings reduced the amount of private saving, then the

Inflation

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

In the early 1980's the Fed tightened monetary policy. Over the next few years

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

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

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

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

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

Which of the following can tax cuts influence?

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

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

Zero inflation

Which of the following are both correct?

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

A reduction in inflation would lead to

A policymaker against stabilizing the economy would be likely to believe

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade-Off Between Inflation and Unemployment

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