Question 1

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Accepted Answer

maximum employment, stable pri

Question 2

Higher saving is associated with

Accepted Answer

A)  a larger capital stock and higher productivity. 
B)  a larger capital stock but not higher productivity. 
C)  higher productivity but not a higher capital stock. 
D)  neither a higher capital stock nor higher productivity. 
A)  a larger capital stock and higher productivity. 
B)  a larger capital stock but not higher productivity. 
C)  higher productivity but not a higher capital stock. 
D)  neither a higher capital stock nor higher productivity.

Question 3

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 4

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

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

Question 5

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Accepted Answer

A)  high and the reduction is unexpected. 
B)  high and the reduction is expected. 
C)  low and the reduction is unexpected. 
D)  low and the reduction is expected. 
A)  high and the reduction is unexpected. 
B)  high and the reduction is expected. 
C)  low and the reduction is unexpected. 
D)  low and the reduction is expected.

Question 6

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)  says the Federal Reserve should only promote maximum employment 
B)  says the Federal Reserve should only promote price stability 
C)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals. 
D)  says the Federal Reserve should promote price stability and maximum employment, but specifies that it place more weight on promoting price stability. 
A)  says the Federal Reserve should only promote maximum employment 
B)  says the Federal Reserve should only promote price stability 
C)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals. 
D)  says the Federal Reserve should promote price stability and maximum employment, but specifies that it place more weight on promoting price stability.

Question 7

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Accepted Answer

A)  more quickly but is more likely to be spent on projects with little benefit. 
B)  more quickly and is less likely to be spent on projects with little benefit. 
C)  less quickly but is less likely to be spent on projects with little benefit. 
D)  less quickly and is more likely to be spent on projects with little benefit. 
A)  more quickly but is more likely to be spent on projects with little benefit. 
B)  more quickly and is less likely to be spent on projects with little benefit. 
C)  less quickly but is less likely to be spent on projects with little benefit. 
D)  less quickly and is more likely to be spent on projects with little benefit.

Question 8

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 9

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 10

If the government cut expenditures during an expansion

Accepted Answer

A)  it would have to raise the tax rate 
B)  it would tend to stabilize the economy 
C)  both a and b 
D)  neither a nor b 
A)  it would have to raise the tax rate 
B)  it would tend to stabilize the economy 
C)  both a and b 
D)  neither a nor b

Question 11

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Accepted Answer

A)  both the shift of aggregate demand and the shift of aggregate supply 
B)  the shift of aggregate demand, but not the shift of aggregate supply 
C)  the shift of aggregate supply, but not the shift of aggregate demand 
D)  neither the shift of aggregate demand nor the shift of aggregate supply 
A)  both the shift of aggregate demand and the shift of aggregate supply 
B)  the shift of aggregate demand, but not the shift of aggregate supply 
C)  the shift of aggregate supply, but not the shift of aggregate demand 
D)  neither the shift of aggregate demand nor the shift of aggregate supply

Question 12

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 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

Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 500 billion units of currency and current nominal national debt of 100 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to income ratio constant?

Accepted Answer

A)  government spending equal to 50 billion units and tax collections equal to 48 billion units 
B)  government spending equal to 50 billion units and tax collections equal to 41 billion units 
C)  government spending equal to 50 billion units and tax collections equal to 40 billion units 
D)  government spending equal to 50 billion units and tax collections equal to 32 billion units 
A)  government spending equal to 50 billion units and tax collections equal to 48 billion units 
B)  government spending equal to 50 billion units and tax collections equal to 41 billion units 
C)  government spending equal to 50 billion units and tax collections equal to 40 billion units 
D)  government spending equal to 50 billion units and tax collections equal to 32 billion units

Question 15

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)  its substitution effect on saving and its effect on the government budget 
B)  its substitution effect on saving but not its effect on the government budget 
C)  its effect on the government budget but not its substitution effect on saving 
D)  neither its substitution effect on saving nor its effect on the government budget 
A)  its substitution effect on saving and its effect on the government budget 
B)  its substitution effect on saving but not its effect on the government budget 
C)  its effect on the government budget but not its substitution effect on saving 
D)  neither its substitution effect on saving nor its effect on the government budget

Question 17

Tax laws do not give preferential treatment to some kinds of retirement saving.

Accepted Answer

A) True 
 B)False

Question 18

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Accepted Answer

A)  both the tax cut and the increase in government expenditures would tend to increase output. 
B)  only the tax cut would tend to increase output. 
C)  only the increase in government expenditures would tend to increase output. 
D)  neither the tax cut nor the increase in government expenditures would tend to increase output. 
A)  both the tax cut and the increase in government expenditures would tend to increase output. 
B)  only the tax cut would tend to increase output. 
C)  only the increase in government expenditures would tend to increase output. 
D)  neither the tax cut nor the increase in government expenditures would tend to increase output.

Question 19

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Accepted Answer

A)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
B)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. 
C)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
D)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. 
A)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
B)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. 
C)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
D)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.

Question 20

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Accepted Answer

To counter a recession, a central bank r

Exam 23: Six Debates Over Macroeconomic Policy

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Higher saving is associated with

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

A 1977 amendment to the Federal Reserve Act of 1913

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Economists

If the government cut expenditures during an expansion

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

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

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?

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Tax laws do not give preferential treatment to some kinds of retirement saving.

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

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

Filters