Question 1

Policymakers following a "lean against the wind" policy would

Accepted Answer

A)  increase government expenditures when output is low and decrease them when output is high. 
B)  increase government expenditures when output is low and do nothing when output is high. 
C)  decrease government expenditures when output is low and increase them when output is high. 
D)  decrease government expenditures when output is high and do nothing when output is low. 
A)  increase government expenditures when output is low and decrease them when output is high. 
B)  increase government expenditures when output is low and do nothing when output is high. 
C)  decrease government expenditures when output is low and increase them when output is high. 
D)  decrease government expenditures when output is high and do nothing when output is low.

Question 2

As compared to government spending, a tax cut 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 3

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Accepted Answer

Policymakers can cut governmen

Question 4

List two costs of inflation.

Accepted Answer

shoeleather costs, menu costs,

Question 5

Which of the following is correct?

Accepted Answer

A)  Deficits always require people to consume at the expense of their children. 
B)  If the government uses funds to pay for investment programs, on net the debt need not burden future generations. 
C)  If the government is in debt it must be running a deficit currently. 
D)  The current government debt is a large share of lifetime income. 
A)  Deficits always require people to consume at the expense of their children. 
B)  If the government uses funds to pay for investment programs, on net the debt need not burden future generations. 
C)  If the government is in debt it must be running a deficit currently. 
D)  The current government debt is a large share of lifetime income.

Question 6

Paul Volcker's inflation reduction efforts

Accepted Answer

A)  failed to reduce inflation. 
B)  failed to reduce expected inflation. 
C)  resulted in the highest unemployment rate since the Great Depression. 
D)  none of the above are correct. 
A)  failed to reduce inflation. 
B)  failed to reduce expected inflation. 
C)  resulted in the highest unemployment rate since the Great Depression. 
D)  none of the above are correct.

Question 7

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 8

Between 1980 and 1995 government debt as a percentage of GDP

Accepted Answer

A)  increased from about 25% to 50%. 
B)  decreased from about 50% to 25%. 
C)  decreased from about 25% to almost zero. 
D)  increased from about 10% to 20%. 
A)  increased from about 25% to 50%. 
B)  decreased from about 50% to 25%. 
C)  decreased from about 25% to almost zero. 
D)  increased from about 10% to 20%.

Question 9

Which of the following is not a cost of inflation identified by economists?

Accepted Answer

A)  menu costs associated with more frequent adjustment of prices 
B)  confusion and inconvenience resulting from a changing value of the unit of account 
C)  reduced price flexibility 
D)  arbitrary redistributions of wealth associated with dollar-denominated debts 
A)  menu costs associated with more frequent adjustment of prices 
B)  confusion and inconvenience resulting from a changing value of the unit of account 
C)  reduced price flexibility 
D)  arbitrary redistributions of wealth associated with dollar-denominated debts

Question 10

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)  The cost of something is what you give up to get it (Principle 2). 
B)  Trade can make everyone better off (Principle 5). 
C)  Markets are usually a good way to organize economic activity (Principle 6). 
D)  A country's standard of living depends on its ability to produce goods and services (Principle 8). 
A)  The cost of something is what you give up to get it (Principle 2). 
B)  Trade can make everyone better off (Principle 5). 
C)  Markets are usually a good way to organize economic activity (Principle 6). 
D)  A country's standard of living depends on its ability to produce goods and services (Principle 8).

Question 11

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

Accepted Answer

A)  decreased interest rates and investment. 
B)  decreased interest rates and increased investment. 
C)  increased interest rates and investment. 
D)  increased interest rates and decreased investment. 
A)  decreased interest rates and investment. 
B)  decreased interest rates and increased investment. 
C)  increased interest rates and investment. 
D)  increased interest rates and decreased investment.

Question 12

If a reduction in taxes on savings reduced the amount of private saving, then the

Accepted Answer

A)  income effect equaled the substitution effect. 
B)  income effect outweighed the substitution effect. 
C)  the substitution effect outweighed the income effect. 
D)  None of the above. 
A)  income effect equaled the substitution effect. 
B)  income effect outweighed the substitution effect. 
C)  the substitution effect outweighed the income effect. 
D)  None of the above.

Question 13

Which of the following are taxed?

Accepted Answer

A)  both corporate profits and dividends paid to stockholders 
B)  corporate profits but not dividends paid to stockholders 
C)  dividends paid to stockholders but not corporate profits 
D)  neither corporate profits nor dividends paid to stock holders 
A)  both corporate profits and dividends paid to stockholders 
B)  corporate profits but not dividends paid to stockholders 
C)  dividends paid to stockholders but not corporate profits 
D)  neither corporate profits nor dividends paid to stock holders

Question 14

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Accepted Answer

Because a decrease i

Question 15

Eliminating means requirements for government benefits would

Accepted Answer

A)  raise saving and primarily benefit people with lower incomes. 
B)  raise saving but primarily benefit people with higher incomes. 
C)  reduce saving but primarily benefit people with lower incomes. 
D)  reduce saving and primarily benefit people with higher income. 
A)  raise saving and primarily benefit people with lower incomes. 
B)  raise saving but primarily benefit people with higher incomes. 
C)  reduce saving but primarily benefit people with lower incomes. 
D)  reduce saving and primarily benefit people with higher income.

Question 16

"Leaning against the wind" is exemplified by a(n)

Accepted Answer

A)  tax increase when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  increase in government expenditures when there is a recession. 
D)  All of the above are correct. 
A)  tax increase when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  increase in government expenditures when there is a recession. 
D)  All of the above are correct.

Question 17

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate provides mo

Question 18

Economists

Accepted Answer

A)  agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
B)  agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
C)  disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
D)  disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
A)  agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
B)  agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
C)  disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
D)  disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.

Question 19

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are

Question 20

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 supply shifts left, the central bank must

Accepted Answer

A)  decrease the money supply so interest rates rise. 
B)  decrease the money supply so interest rates fall. 
C)  increase the money supply so interest rates rise. 
D)  increase the money supply so interest rates fall. 
A)  decrease the money supply so interest rates rise. 
B)  decrease the money supply so interest rates fall. 
C)  increase the money supply so interest rates rise. 
D)  increase the money supply so interest rates fall.

Exam 36: Six Debates Over Macroeconomic Policy

Policymakers following a "lean against the wind" policy would

As compared to government spending, a tax cut is likely to affect aggregate demand

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

List two costs of inflation.

Which of the following is correct?

Paul Volcker's inflation reduction efforts

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

Between 1980 and 1995 government debt as a percentage of GDP

Which of the following is not a cost of inflation identified by economists?

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

If a reduction in taxes on savings reduced the amount of private saving, then the

Which of the following are taxed?

Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand?

Eliminating means requirements for government benefits would

"Leaning against the wind" is exemplified by a(n)

What is the benefit of a high saving rate?

Economists

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

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 supply shifts left, the central bank must

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

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