Question 1

An individual would suffer lower 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. C

Question 2

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. D

Question 3

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  True

Question 4

A year ago a country reduced the tax rate on all interest income from 40% to 10%. During the year private saving was $600 billion as compared to $500 billion the year before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in 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 5

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 6

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  135 billion 
B)  143 billion 
C)  169 billion 
D)  175 billion 
A)  135 billion 
B)  143 billion 
C)  169 billion 
D)  175 billion

Question 7

A program to reduce inflation is likely to have higher 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 8

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year. Then the government can have a deficit of about

Accepted Answer

A)  5 percent of GDP without raising the debt-to-income ratio. 
B)  4.5 percent of GDP without raising the debt-to-income ratio. 
C)  1.25 percent of GDP without raising the debt-to-income ratio. 
D)  .5 percent of GDP without raising the debt-to-income ratio. 
A)  5 percent of GDP without raising the debt-to-income ratio. 
B)  4.5 percent of GDP without raising the debt-to-income ratio. 
C)  1.25 percent of GDP without raising the debt-to-income ratio. 
D)  .5 percent of GDP without raising the debt-to-income ratio.

Question 10

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 11

Why might policymakers attempts to stabilize the economy do more harm than good?

Accepted Answer

Policy works with a lag. By th

Question 12

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 13

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Accepted Answer

"Shovel ready" public works pr

Question 14

Explain what is meant by saying that capital income is taxed twice.

Accepted Answer

Shareholders are part owners o

Question 15

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Accepted Answer

A)  in the stock market. 
B)  in the foreign exchange market. 
C)  in the bond market. 
D)  in the labor market. 
A)  in the stock market. 
B)  in the foreign exchange market. 
C)  in the bond market. 
D)  in the labor market.

Question 16

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Accepted Answer

A)  some forms of capital income are taxed twice 
B)  if they are large enough, bequests are taxed 
C)  both a and b 
D)  neither a nor b 
A)  some forms of capital income are taxed twice 
B)  if they are large enough, bequests are taxed 
C)  both a and b 
D)  neither a nor b

Question 17

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 18

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

Question 19

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 20

Which of the following would transfer wealth from old to young?

Accepted Answer

A)  Increases in the budget deficit. 
B)  Decreased building of highways and bridges. 
C)  More generous education subsidies. 
D)  Indexation of Social Security benefits to inflation. 
A)  Increases in the budget deficit. 
B)  Decreased building of highways and bridges. 
C)  More generous education subsidies. 
D)  Indexation of Social Security benefits to inflation.

Exam 36: Six Debates Over Macroeconomic Policy

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

U.S. public policy discourages saving because

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.

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

At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year. Then the government can have a deficit of about

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

Why might policymakers attempts to stabilize the economy do more harm than good?

A permanent reduction in inflation would

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Explain what is meant by saying that capital income is taxed twice.

Some economists believe that there are positives from a little inflation and that it may "grease the wheels"

Which of the following are currently provisions of the U.S. tax system and discourage saving?

The Federal Open Market Committee

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

A 1977 amendment to the Federal Reserve Act of 1913

Which of the following would transfer wealth from old to young?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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