Question 1

Studies have shown significant spending changes arise from interest rate changes after

Accepted Answer

A)  a few days. 
B)  a few weeks. 
C)  a few months. 
D)  about a year and a half.. 
A)  a few days. 
B)  a few weeks. 
C)  a few months. 
D)  about a year and a half..

Question 2

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

Accepted Answer

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

Question 3

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 4

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)  changes in the interest rate to change aggregate demand. 
B)  changes in the money supply to change interest rates. 
C)  the Fed to make changes in policy. 
D)  Congress and the President to approve Fed policy. 
A)  changes in the interest rate to change aggregate demand. 
B)  changes in the money supply to change interest rates. 
C)  the Fed to make changes in policy. 
D)  Congress and the President to approve Fed policy.

Question 5

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 6

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Accepted Answer

Increase g

Question 7

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Accepted Answer

During this time the Fed achieved and ma

Question 8

When wages are fixed by contract, inflation reduces

Accepted Answer

A)  nominal wages; this likely makes labor markets more flexible. 
B)  nominal wages; this likely makes labor markets less flexible. 
C)  real wages; this likely makes labor markets more flexible. 
D)  real wages; this likely makes labor markets less flexible. 
A)  nominal wages; this likely makes labor markets more flexible. 
B)  nominal wages; this likely makes labor markets less flexible. 
C)  real wages; this likely makes labor markets more flexible. 
D)  real wages; this likely makes labor markets less flexible.

Question 9

The Fed lowered interest rates in 2007 and 2008. 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 10

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)  lower the discount rate and sell bonds. 
B)  lower the discount rate and buy bonds. 
C)  raise the discount rate and sell bonds. 
D)  raise the discount rate and buy bonds. 
A)  lower the discount rate and sell bonds. 
B)  lower the discount rate and buy bonds. 
C)  raise the discount rate and sell bonds. 
D)  raise the discount rate and buy bonds.

Question 11

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Accepted Answer

reduces, i

Question 12

As it is usually practiced, inflation targeting sets

Accepted Answer

A)  a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number. 
B)  a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number. 
C)  sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range. 
D)  sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range. 
A)  a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number. 
B)  a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number. 
C)  sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range. 
D)  sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range.

Question 13

If the budget deficit were reduced

Accepted Answer

A)  interest rates and investment would increase. 
B)  interest rates would increase and investment would decrease. 
C)  interest rates and investment would decrease. 
D)  interest rates would decrease and investment would increase. 
A)  interest rates and investment would increase. 
B)  interest rates would increase and investment would decrease. 
C)  interest rates and investment would decrease. 
D)  interest rates would decrease and investment would increase.

Question 14

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)  avoiding raising tax rates 
B)  stabilizing an economy during a recession 
C)  both a and b 
D)  neither a nor b 
A)  avoiding raising tax rates 
B)  stabilizing an economy during a recession 
C)  both a and b 
D)  neither a nor b

Question 15

Government deficits mean that

Accepted Answer

A)  national saving is negative so public saving is negative. 
B)  national saving is negative so public saving is lower than otherwise. 
C)  public saving is negative so national saving is negative. 
D)  public saving is negative so national saving is lower than otherwise. 
A)  national saving is negative so public saving is negative. 
B)  national saving is negative so public saving is lower than otherwise. 
C)  public saving is negative so national saving is negative. 
D)  public saving is negative so national saving is lower than otherwise.

Question 16

In general, the longest lag for

Accepted Answer

A)  both fiscal and monetary policy is the time it takes to change policy. 
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C)  monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A)  both fiscal and monetary policy is the time it takes to change policy. 
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. 
C)  monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 17

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Accepted Answer

A)  Both the income effect and the substitution effect would tend to increase the amount of money a household saved. 
B)  The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings. 
C)  The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings. 
D)  Both the income effect and the substitution effect would tend to decrease the amount of money a household saved. 
A)  Both the income effect and the substitution effect would tend to increase the amount of money a household saved. 
B)  The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings. 
C)  The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings. 
D)  Both the income effect and the substitution effect would tend to decrease the amount of money a household saved.

Question 20

Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

Studies have shown significant spending changes arise from interest rate changes after

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

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

The principal reason that monetary policy has lags is that it takes a long time for

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

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

When wages are fixed by contract, inflation reduces

The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

As it is usually practiced, inflation targeting sets

If the budget deficit were reduced

Which of the following are justifications for running a budget deficit?

Government deficits mean that

In general, the longest lag for

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

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.

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

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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