Question 1

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 2

An increase in the money supply

Accepted Answer

A)  reduces interest rates and shifts aggregate demand to the right. 
B)  reduces interest rates and shifts aggregate supply to the right 
C)  raises interest rates and shifts aggregate demand to the right. 
D)  raises interest rates and shifts aggregate supply to the right. 
A)  reduces interest rates and shifts aggregate demand to the right. 
B)  reduces interest rates and shifts aggregate supply to the right 
C)  raises interest rates and shifts aggregate demand to the right. 
D)  raises interest rates and shifts aggregate supply to the right.

Question 3

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A)  Taxes are raised to provide better education. 
B)  Taxes are raised to improve government infrastructure such as roads and bridges. 
C)  Taxes are raised to provide more generous Social Security benefits. 
D)  None of the above transfer wealth form the young to the old. 
A)  Taxes are raised to provide better education. 
B)  Taxes are raised to improve government infrastructure such as roads and bridges. 
C)  Taxes are raised to provide more generous Social Security benefits. 
D)  None of the above transfer wealth form the young to the old.

Question 4

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A)  arbitrary redistributions of wealth 
B)  shoeleather costs 
C)  menu costs 
D)  none of the above is correct. 
A)  arbitrary redistributions of wealth 
B)  shoeleather costs 
C)  menu costs 
D)  none of the above is correct.

Question 5

An individual would suffer higher losses from an unexpectedly higher inflation rate if

Accepted Answer

A)  she held much currency and owned few bonds. 
B)  she held much currency and owned many bonds. 
C)  she held little currency and owned few bonds. 
D)  she held little currency and owned many bonds. 
A)  she held much currency and owned few bonds. 
B)  she held much currency and owned many bonds. 
C)  she held little currency and owned few bonds. 
D)  she held little currency and owned many bonds.

Question 6

If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

Accepted Answer

A)  decrease the money supply, which will move output back towards its long-run level. 
B)  decrease the money supply, which will move output farther from its long-run level. 
C)  increase the money supply, which will move output back towards its long-run level. 
D)  increase the money supply, which will move output farther from its long-run level. 
A)  decrease the money supply, which will move output back towards its long-run level. 
B)  decrease the money supply, which will move output farther from its long-run level. 
C)  increase the money supply, which will move output back towards its long-run level. 
D)  increase the money supply, which will move output farther from its long-run level.

Question 8

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt­to­GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)  10.0 trillion 
B)  6.7 trillion 
C)  4 trillion 
D)  None of the above are correct. 
A)  10.0 trillion 
B)  6.7 trillion 
C)  4 trillion 
D)  None of the above are correct.

Question 9

nominal federal funds 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. Other things the same, if the economy starts at y* and π* and then y rises and exceeds y* by 1% and π rises 2% points above π*, the rule would require the Fed to raise the federal funds rate by

Accepted Answer

A)  1.5 percentage points 
B)  2.5 percentage points 
C)  3.5 percentage points 
D)  5.5 percentage points 
A)  1.5 percentage points 
B)  2.5 percentage points 
C)  3.5 percentage points 
D)  5.5 percentage points

Question 10

An increase in the tax rate on interest income

Accepted Answer

A)  raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is larger than the substitution effect. 
B)  raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is smaller than the substitution effect. 
C)  reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is larger than the substitution effect. 
D)  reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is smaller than the substitution effect. 
A)  raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is larger than the substitution effect. 
B)  raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is smaller than the substitution effect. 
C)  reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is larger than the substitution effect. 
D)  reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is smaller than the substitution effect.

Question 11

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Accepted Answer

A)  fall. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
B)  fall. The increase in expenditures makes it likely that future taxes will create larger distortions. 
C)  rise. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
D)  rise. The increase in expenditures makes it likely that future taxes will create larger distortions. 
A)  fall. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
B)  fall. The increase in expenditures makes it likely that future taxes will create larger distortions. 
C)  rise. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
D)  rise. The increase in expenditures makes it likely that future taxes will create larger distortions.

Question 12

A higher rate of return on saving has

Accepted Answer

A)  an income effect that discourages saving and a substitution effect that encourages saving. 
B)  an income effect that encourages saving and a substitution effect that discourages saving. 
C)  income and substitution effects that both decrease saving. 
D)  income and substitution effects that both increase saving. 
A)  an income effect that discourages saving and a substitution effect that encourages saving. 
B)  an income effect that encourages saving and a substitution effect that discourages saving. 
C)  income and substitution effects that both decrease saving. 
D)  income and substitution effects that both increase saving.

Question 13

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short- run Phillips curve will remain far to the

Accepted Answer

A)  left, and the sacrifice ratio will be low. 
B)  left, and the sacrifice ratio will be high. 
C)  right, and the sacrifice ratio will be low. 
D)  right, and the sacrifice ratio will be high. 
A)  left, and the sacrifice ratio will be low. 
B)  left, and the sacrifice ratio will be high. 
C)  right, and the sacrifice ratio will be low. 
D)  right, and the sacrifice ratio will be high.

Question 14

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

Accepted Answer

The typical estimate of the sacrifice ra

Question 15

Economists agree that at least in the short run disinflation

Accepted Answer

A)  leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high. 
B)  leads to a period of higher unemployment. They disagree about the cost of moderate inflation. 
C)  leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high. 
D)  leads to a period of lower unemployment. They disagree about the cost of moderate inflation. 
A)  leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high. 
B)  leads to a period of higher unemployment. They disagree about the cost of moderate inflation. 
C)  leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high. 
D)  leads to a period of lower unemployment. They disagree about the cost of moderate inflation.

Question 16

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Accepted Answer

A)  the income effect and the substitution effect 
B)  the income effect but not the substitution effect 
C)  the substitution effect but not the income effect 
D)  neither the substitution effect nor the income effect 
A)  the income effect and the substitution effect 
B)  the income effect but not the substitution effect 
C)  the substitution effect but not the income effect 
D)  neither the substitution effect nor the income effect

Question 17

Opponents of tax reforms intended to raise saving argue that such reforms

Accepted Answer

A)  favor those with high income, and that saving may not rise because of the substitution effect. 
B)  favor those with high income, and that saving may not rise because of the income effect. 
C)  favor those with low income, and that saving may not rise because of the substitution effect. 
D)  favor those with low income, and that saving may not rise because of the income effect. 
A)  favor those with high income, and that saving may not rise because of the substitution effect. 
B)  favor those with high income, and that saving may not rise because of the income effect. 
C)  favor those with low income, and that saving may not rise because of the substitution effect. 
D)  favor those with low income, and that saving may not rise because of the income effect.

Question 18

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)  decreasing the money supply. 
B)  increasing taxes. 
C)  increasing government expenditures. 
D)  All of the above 
A)  decreasing the money supply. 
B)  increasing taxes. 
C)  increasing government expenditures. 
D)  All of the above

Question 19

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Accepted Answer

A)  the long-run Phillips curve would shift right. 
B)  the long-run Phillips curve would shift left. 
C)  the short-run Phillips curve would shift up. 
D)  the short-run Phillips curve would shift down. 
A)  the long-run Phillips curve would shift right. 
B)  the long-run Phillips curve would shift left. 
C)  the short-run Phillips curve would shift up. 
D)  the short-run Phillips curve would shift down.

Question 20

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

Accepted Answer

A)  both 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)  both 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

Exam 23: Six Debates Over Macroeconomic Policy

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

An increase in the money supply

Which of the programs below would transfer wealth from the young to the old?

Which costs of inflation could the government reduce without reducing inflation?

An individual would suffer higher losses from an unexpectedly higher inflation rate if

If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt­to­GDP ratio was unchanged. About what was it's debt at the start of last year?

An increase in the tax rate on interest income

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

A higher rate of return on saving has

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short- run Phillips curve will remain far to the

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

Economists agree that at least in the short run disinflation

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Opponents of tax reforms intended to raise saving argue that such reforms

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Which of the following reduce 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

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

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debttoGDP ratio was unchanged. About what was it's debt at the start of last year?