Question 1

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

Accepted Answer

A)  she held much currency and on net was a lender. 
B)  she held much currency and on net was a borrower. 
C)  she held little currency and on net was a lender. 
D)  she held little currency and on net was a borrower. 
A)  she held much currency and on net was a lender. 
B)  she held much currency and on net was a borrower. 
C)  she held little currency and on net was a lender. 
D)  she held little currency and on net was a borrower.

Question 2

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Accepted Answer

A)  small and an increase in private saving tends to have a small impact on the capital stock. 
B)  small and an increase in private saving tends to have a large impact on the capital stock. 
C)  large and an increase in private saving tends to have a small impact on the capital stock. 
D)  large and an increase in private saving tends to have a large impact on the capital stock. 
A)  small and an increase in private saving tends to have a small impact on the capital stock. 
B)  small and an increase in private saving tends to have a large impact on the capital stock. 
C)  large and an increase in private saving tends to have a small impact on the capital stock. 
D)  large and an increase in private saving tends to have a large impact on the capital stock.

Question 3

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A)  time inconsistency of policy 
B)  flexibility to confront unforeseen circumstances 
C)  political business cycle 
D)  the ability to craft rules that account for all possible contingencies in advance 
A)  time inconsistency of policy 
B)  flexibility to confront unforeseen circumstances 
C)  political business cycle 
D)  the ability to craft rules that account for all possible contingencies in advance

Question 4

Explain how tax cuts can increase aggregate supply.

Accepted Answer

When the government reduces marginal tax

Question 5

Supporters of using government expenditures to respond to recession

Accepted Answer

A)  argue that monetary policy should be used first. To respond to a recession the Fed would increase the money supply. 
B)  argue that monetary policy should be used first. To respond to a recession the Fed would decrease the money supply. 
C)  argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would increase the money supply. 
D)  argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would decrease the money supply. 
A)  argue that monetary policy should be used first. To respond to a recession the Fed would increase the money supply. 
B)  argue that monetary policy should be used first. To respond to a recession the Fed would decrease the money supply. 
C)  argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would increase the money supply. 
D)  argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would decrease the money supply.

Question 6

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 7

Which of the following can tax cuts influence?

Accepted Answer

A)  aggregate demand and aggregate supply 
B)  aggregate demand but not aggregate supply 
C)  aggregate supply but not aggregate demand 
D)  neither aggregate demand nor aggregate supply 
A)  aggregate demand and aggregate supply 
B)  aggregate demand but not aggregate supply 
C)  aggregate supply but not aggregate demand 
D)  neither aggregate demand nor aggregate supply

Question 8

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th

Question 9

Identify three government policies that discourage saving.

Accepted Answer

First, the returns to saving are heavily

Question 10

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt- to-income ratio?

Accepted Answer

The government could run a def

Question 11

Which of the following is an argument against trying to use policy to stabilize the economy?

Accepted Answer

A)  Recessions represent a waste of resources. 
B)  Pessimism on the part of households and firms may become a self-fulfilling prophecy. 
C)  "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. 
D)  Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time. 
A)  Recessions represent a waste of resources. 
B)  Pessimism on the part of households and firms may become a self-fulfilling prophecy. 
C)  "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. 
D)  Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.

Question 12

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Accepted Answer

A)  the central bank would have to raise interest rates which would decrease output. 
B)  the central bank would have to raise interest rates which would increase output. 
C)  the central bank would have to reduce interest rates which would decrease output. 
D)  the central bank would have to reduce interest rates which would increase output. 
A)  the central bank would have to raise interest rates which would decrease output. 
B)  the central bank would have to raise interest rates which would increase output. 
C)  the central bank would have to reduce interest rates which would decrease output. 
D)  the central bank would have to reduce interest rates which would increase output.

Question 13

A reduction in the tax rate on income from saving would

Accepted Answer

A)  most directly benefit the poor in the short run. 
B)  increase real wages over time. 
C)  decrease the capital stock over time. 
D)  decrease productivity over time. 
A)  most directly benefit the poor in the short run. 
B)  increase real wages over time. 
C)  decrease the capital stock over time. 
D)  decrease productivity over time.

Question 14

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Accepted Answer

A)  the central bank would have to decrease the money supply which would decrease output. 
B)  the central bank would have to decrease the money supply which would increase output. 
C)  the central bank would have to increase the money supply which would decrease output. 
D)  the central bank would have to increase the money supply which would increase output. 
A)  the central bank would have to decrease the money supply which would decrease output. 
B)  the central bank would have to decrease the money supply which would increase output. 
C)  the central bank would have to increase the money supply which would decrease output. 
D)  the central bank would have to increase the money supply which would increase output.

Question 15

Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?

Accepted Answer

Consumers may recognize that b

Question 16

Which of the following does the U.S. currently have?

Accepted Answer

A)  means-tested government benefits and tax laws that tax capital income only once 
B)  means-tested government benefits and tax laws that tax some capital income twice 
C)  tax laws that tax capital income only once, but not means-tested government benefits 
D)  tax laws that tax some capital income twice, but not means-tested government benefits 
A)  means-tested government benefits and tax laws that tax capital income only once 
B)  means-tested government benefits and tax laws that tax some capital income twice 
C)  tax laws that tax capital income only once, but not means-tested government benefits 
D)  tax laws that tax some capital income twice, but not means-tested government benefits

Question 17

The Federal Reserve will tend to tighten monetary policy when

Accepted Answer

A)  interest rates are rising too rapidly. 
B)  it thinks the unemployment rate is too high. 
C)  the growth rate of real GDP is quite sluggish. 
D)  it thinks inflation is too high today, or will become too high in the future. 
A)  interest rates are rising too rapidly. 
B)  it thinks the unemployment rate is too high. 
C)  the growth rate of real GDP is quite sluggish. 
D)  it thinks inflation is too high today, or will become too high in the future.

Question 18

IRAs, and 401(k) and 403(b) plans

Accepted Answer

A)  impose added taxes on those who save. 
B)  place no limits on the amount people can deposit into these programs. 
C)  impose penalties for withdrawals except under certain circumstances. 
D)  None of the above is correct. 
A)  impose added taxes on those who save. 
B)  place no limits on the amount people can deposit into these programs. 
C)  impose penalties for withdrawals except under certain circumstances. 
D)  None of the above is correct.

Question 19

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Accepted Answer

If the Fed wanted to see the President r

Question 20

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

Exam 36: Six Debates Over Macroeconomic Policy

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Explain how tax cuts can increase aggregate supply.

Supporters of using government expenditures to respond to recession

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

Which of the following can tax cuts influence?

Explain the time inconsistency of monetary policy.

Identify three government policies that discourage saving.

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt- to-income ratio?

Which of the following is an argument against trying to use policy to stabilize the economy?

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

A reduction in the tax rate on income from saving would

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?

Which of the following does the U.S. currently have?

The Federal Reserve will tend to tighten monetary policy when

IRAs, and 401(k) and 403(b) plans

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

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

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

According to political business cycle theory, if the Fed wanted to increase the chances of a President's reelection, what specific actions might it take?