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

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m

Question 3

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Accepted Answer

A)  the price level and real GDP 
B)  the price level but not real GDP 
C)  real GDP but not the price level 
D)  neither real GDP nor the price level 
A)  the price level and real GDP 
B)  the price level but not real GDP 
C)  real GDP but not the price level 
D)  neither real GDP nor the price level

Question 4

"Leaning against the wind" is exemplified by an)

Accepted Answer

A)  tax increase when there is a recession. 
B)  increase 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 increase when there is a recession. 
B)  increase 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 5

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Accepted Answer

A)  Both the income effect and the substitution effect would tend to increase the amount of money a household saved. 
B)  The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings. 
C)  The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings. 
D)  Both the income effect and the substitution effect would tend to decrease the amount of money a household saved. 
A)  Both the income effect and the substitution effect would tend to increase the amount of money a household saved. 
B)  The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings. 
C)  The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings. 
D)  Both the income effect and the substitution effect would tend to decrease the amount of money a household saved.

Question 6

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 7

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 8

In which cases were tax cuts followed by robust growth?

Accepted Answer

A)  the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981 
B)  the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981 
C)  the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964 
D)  neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981 
A)  the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981 
B)  the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981 
C)  the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964 
D)  neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981

Question 9

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)  avoiding raising tax rates 
B)  stabilizing an economy during a recession 
C)  both a and b 
D)  neither a nor b 
A)  avoiding raising tax rates 
B)  stabilizing an economy during a recession 
C)  both a and b 
D)  neither a nor b

Question 10

A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct?

Accepted Answer

A)  the substitution effect was larger than the income effect; national saving rose 
B)  the substitution effect was larger than the income effect; national saving fell 
C)  the income effect was larger than the substitution effect; national saving rose 
D)  the income effect was larger than the substitution effect; national saving fell 
A)  the substitution effect was larger than the income effect; national saving rose 
B)  the substitution effect was larger than the income effect; national saving fell 
C)  the income effect was larger than the substitution effect; national saving rose 
D)  the income effect was larger than the substitution effect; national saving fell

Question 11

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce shoeleather costs and permanently lower unemployment 
B)  permanently reduce shoeleather costs and temporarily raise unemployment 
C)  temporarily reduce shoeleather costs and temporarily lower unemployment 
D)  temporarily reduce shoeleather costs and temporarily raise unemployment 
A)  permanently reduce shoeleather costs and permanently lower unemployment 
B)  permanently reduce shoeleather costs and temporarily raise unemployment 
C)  temporarily reduce shoeleather costs and temporarily lower unemployment 
D)  temporarily reduce shoeleather costs and temporarily raise unemployment

Question 12

Economists

Accepted Answer

A)  agree that the costs of moderate inflation are low and that the cost of reducing inflation is small. 
B)  agree that the costs of moderate inflation are low, but disagree about the cost of reducing inflation. 
C)  disagree about the costs of moderate inflation, but agree that the cost of reducing inflation is small. 
D)  disagree about the costs of moderate inflation and disagree about the cost of reducing inflation. 
A)  agree that the costs of moderate inflation are low and that the cost of reducing inflation is small. 
B)  agree that the costs of moderate inflation are low, but disagree about the cost of reducing inflation. 
C)  disagree about the costs of moderate inflation, but agree that the cost of reducing inflation is small. 
D)  disagree about the costs of moderate inflation and disagree about the cost of reducing inflation.

Question 13

Which of the following things can a government do to lower the costs of inflation?

Accepted Answer

A)  sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed 
B)  sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed 
C)  rewrite tax laws so that real rather than nominal gains are taxed, but not sell inflation-indexed bonds 
D)  neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxed 
A)  sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed 
B)  sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed 
C)  rewrite tax laws so that real rather than nominal gains are taxed, but not sell inflation-indexed bonds 
D)  neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxed

Question 14

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

A)  increase taxes, increase government spending 
B)  increase taxes, decrease government spending 
C)  decrease taxes, increase government spending 
D)  decrease taxes, decrease government spending 
A)  increase taxes, increase government spending 
B)  increase taxes, decrease government spending 
C)  decrease taxes, increase government spending 
D)  decrease taxes, decrease government spending

Question 15

If the unemployment rate falls below its long-run level, which policies would be appropriate to stabilize output?

Accepted Answer

A)  increase the money supply, increase taxes 
B)  increase the money supply, cut taxes 
C)  decrease the money supply, increase taxes 
D)  decrease the money supply, cut taxes 
A)  increase the money supply, increase taxes 
B)  increase the money supply, cut taxes 
C)  decrease the money supply, increase taxes 
D)  decrease the money supply, cut taxes

Question 16

The effect of budget deficits on interest rates

Accepted Answer

A)  increases private investment, so eventually the capital stock rises. 
B)  increases private investment, so eventually the capital stock falls. 
C)  decreases private investment, so eventually the capital stock rises. 
D)  decreases private investment, so eventually the capital stock falls. 
A)  increases private investment, so eventually the capital stock rises. 
B)  increases private investment, so eventually the capital stock falls. 
C)  decreases private investment, so eventually the capital stock rises. 
D)  decreases private investment, so eventually the capital stock falls.

Question 17

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Accepted Answer

A)  increased the money supply because it was concerned about unemployment. 
B)  increased the money supply because it was concerned about inflation. 
C)  decreased the money supply because it was concerned about unemployment. 
D)  decreased the money supply because it was concerned about inflation. 
A)  increased the money supply because it was concerned about unemployment. 
B)  increased the money supply because it was concerned about inflation. 
C)  decreased the money supply because it was concerned about unemployment. 
D)  decreased the money supply because it was concerned about inflation.

Question 18

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 19

Critics of active monetary and fiscal policy emphasize

Accepted Answer

A)  that policy affects the economy with a lag and our ability to forecast future economic conditions is poor. 
B)  "leaning against the wind" of economic change to stabilize the economy. 
C)  cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive. 
D)  boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low. 
A)  that policy affects the economy with a lag and our ability to forecast future economic conditions is poor. 
B)  "leaning against the wind" of economic change to stabilize the economy. 
C)  cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive. 
D)  boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low.

Question 20

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Exam 23: 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.

Approximately how often does the Federal Open Market Committee meet?

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

"Leaning against the wind" is exemplified by an)

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Stimulus spending in 2009 was used for

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

In which cases were tax cuts followed by robust growth?

Which of the following are justifications for running a budget deficit?

A permanent reduction in inflation would

Economists

Which of the following things can a government do to lower the costs of inflation?

If the unemployment rate rises, which policies would both be appropriate to reduce it?

If the unemployment rate falls below its long-run level, which policies would be appropriate to stabilize output?

The effect of budget deficits on interest rates

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

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

Critics of active monetary and fiscal policy emphasize

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

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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