Question 1

The Fed lowered interest rates in 2001 and 2002. 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 2

From the end of 2005 to the end of 2006, the United States ran a deficit of about $309 billion. The debt at the start of this period was about $4,592 billion. Which of the following combinations of inflation and real GDP growth would have allowed the government to run this deficit while keeping the ratio of real GDP to the debt about the same?

Accepted Answer

A)  about 3% inflation and about 2.2% real GDP growth 
B)  about 3% inflation and about 3.2% real GDP growth 
C)  about 3.4% inflation and about 3.3% real GDP growth 
D)  about 3.4% inflation and about 4% real GDP growth 
A)  about 3% inflation and about 2.2% real GDP growth 
B)  about 3% inflation and about 3.2% real GDP growth 
C)  about 3.4% inflation and about 3.3% real GDP growth 
D)  about 3.4% inflation and about 4% real GDP growth

Question 3

The Federal Open Market Committee

Accepted Answer

A)  must submit its policies to the President and Senate for approval. 
B)  operates with almost complete discretion over monetary policy. 
C)  is required to target short-term interest rates in a mechanical way based on an equation that takes into account both price stability and output fluctuations. 
D)  is required to set and publicize targets for money supply growth. 
A)  must submit its policies to the President and Senate for approval. 
B)  operates with almost complete discretion over monetary policy. 
C)  is required to target short-term interest rates in a mechanical way based on an equation that takes into account both price stability and output fluctuations. 
D)  is required to set and publicize targets for money supply growth.

Question 4

Which of the following is correct?

Accepted Answer

A)  Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes. 
B)  Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. 
C)  Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. 
D)  Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag. 
A)  Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes. 
B)  Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. 
C)  Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. 
D)  Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.

Question 5

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 6

Explain how tax provisions to encourage private saving may reduce national saving.

Accepted Answer

Without careful planning it is possible

Question 7

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Accepted Answer

Households will spend disposable income

Question 8

As opposed to an increase in government expenditures, a tax cut

Accepted Answer

A)  is likely to impact spending faster and according to traditional theory has a larger multiplier. 
B)  is likely to impact spending faster, but according to traditional theory has a smaller multiplier. 
C)  is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier. 
D)  is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplier 
A)  is likely to impact spending faster and according to traditional theory has a larger multiplier. 
B)  is likely to impact spending faster, but according to traditional theory has a smaller multiplier. 
C)  is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier. 
D)  is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplier

Question 9

U.S. public policy discourages saving because

Accepted Answer

A)  other things the same, taxes increase the return from savings. 
B)  means tested programs such as Medicaid provide lower benefits to those who did not save. 
C)  none of parents' bequest to their children is taxed. 
D)  some forms of capital income are taxed twice. 
A)  other things the same, taxes increase the return from savings. 
B)  means tested programs such as Medicaid provide lower benefits to those who did not save. 
C)  none of parents' bequest to their children is taxed. 
D)  some forms of capital income are taxed twice.

Question 10

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 11

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t

Question 12

A reduction in the tax rate on interest income

Accepted Answer

A)  would necessarily raise national saving. 
B)  would primarily benefit the wealthy. 
C)  both a and b are correct. 
D)  None of the above are correct. 
A)  would necessarily raise national saving. 
B)  would primarily benefit the wealthy. 
C)  both a and b are correct. 
D)  None of the above are correct.

Question 13

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 14

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 15

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a typical justification for running a budget deficit?

Accepted Answer

A)  financing a war 
B)  dealing with a recession 
C)  fighting inflation 
D)  dealing with unemployment 
A)  financing a war 
B)  dealing with a recession 
C)  fighting inflation 
D)  dealing with unemployment

Question 17

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Accepted Answer

A)  raise the money supply. It could do this to counter high unemployment. 
B)  raise the money supply. It could do this to counter high inflation. 
C)  reduce the money supply. It could do this to counter high unemployment. 
D)  reduce the money supply. It could do this to counter high inflation. 
A)  raise the money supply. It could do this to counter high unemployment. 
B)  raise the money supply. It could do this to counter high inflation. 
C)  reduce the money supply. It could do this to counter high unemployment. 
D)  reduce the money supply. It could do this to counter high inflation.

Question 18

Which of the following is correct? In the 1990's

Accepted Answer

A)  the Fed maintained low inflation because it had to follow a policy rule. 
B)  the Fed maintained low inflation even without being required to follow a policy rule. 
C)  the Fed was not required to follow a policy rule and let inflation move higher. 
D)  the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher. 
A)  the Fed maintained low inflation because it had to follow a policy rule. 
B)  the Fed maintained low inflation even without being required to follow a policy rule. 
C)  the Fed was not required to follow a policy rule and let inflation move higher. 
D)  the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher.

Question 19

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

Accepted Answer

A)  There are no limits on the amount of funds people can hold in them. 
B)  Some people are not eligible to hold them. 
C)  There are never penalties for withdrawals. 
D)  All of the above are correct. 
A)  There are no limits on the amount of funds people can hold in them. 
B)  Some people are not eligible to hold them. 
C)  There are never penalties for withdrawals. 
D)  All of the above are correct.

Question 20

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Accepted Answer

A) True 
 B)False

Exam 23: Six Debates Over Macroeconomic Policy

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

The Federal Open Market Committee

Which of the following is correct?

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

Explain how tax provisions to encourage private saving may reduce national saving.

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

As opposed to an increase in government expenditures, a tax cut

U.S. public policy discourages saving because

Fluctuations in employment and output result from changes in

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

A reduction in the tax rate on interest income

Explain the main arguments in favor of economic stabilization.

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Which of the following is not a typical justification for running a budget deficit?

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Which of the following is correct? In the 1990's

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

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

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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