Question 1

Explain what is meant by the time inconsistency of monetary policy.

Accepted Answer

The time inconsistency of monetary polic

Question 2

A policymaker in favor of stabilizing the economy would be likely to believe

Accepted Answer

A)  recessions are a waste of resources. 
B)  economies must suffer through the booms and busts of the business cycle. 
C)  the long policy lags make implementing policy changes in response to recession too risky. 
D)  policy increases the magnitude of economic fluctuations. 
A)  recessions are a waste of resources. 
B)  economies must suffer through the booms and busts of the business cycle. 
C)  the long policy lags make implementing policy changes in response to recession too risky. 
D)  policy increases the magnitude of economic fluctuations.

Question 3

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)  decreasing the money supply. 
B)  increasing taxes. 
C)  increasing government expenditures. 
D)  All of the above 
A)  decreasing the money supply. 
B)  increasing taxes. 
C)  increasing government expenditures. 
D)  All of the above

Question 4

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 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 5

Which of the following is not correct?

Accepted Answer

A)  A potential cost of deficits is that they reduce national saving, thereby reducing growth of the capital stock and output growth. 
B)  Deficits give people the opportunity to consume at the expense of their children, but they do not require them to do so. 
C)  The U.S. debt per-person is large compared with average lifetime income. 
D)  Current spending may benefit future generations. 
A)  A potential cost of deficits is that they reduce national saving, thereby reducing growth of the capital stock and output growth. 
B)  Deficits give people the opportunity to consume at the expense of their children, but they do not require them to do so. 
C)  The U.S. debt per-person is large compared with average lifetime income. 
D)  Current spending may benefit future generations.

Question 6

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Accepted Answer

Reducing inflation is likely to result i

Question 7

Proponents of tax-law changes to encourage saving would

Accepted Answer

A)  argue that corporate tax rates should be decreased. 
B)  increase the number of government benefits which are means-tested. 
C)  argue that state sales tax should be replaced with state income tax. 
D)  favor none of the above programs. 
A)  argue that corporate tax rates should be decreased. 
B)  increase the number of government benefits which are means-tested. 
C)  argue that state sales tax should be replaced with state income tax. 
D)  favor none of the above programs.

Question 8

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

Accepted Answer

A)  Ben Bernanke 
B)  Alan Greenspan 
C)  Paul Volcker 
D)  Arthur Burns 
A)  Ben Bernanke 
B)  Alan Greenspan 
C)  Paul Volcker 
D)  Arthur Burns

Question 9

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment

Question 10

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

Accepted Answer

High debt means that future taxpayers wi

Question 11

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

A)  the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations. 
B)  the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations. 
C)  the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations. 
D)  the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations. 
A)  the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations. 
B)  the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations. 
C)  the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations. 
D)  the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.

Question 12

Why might reforms to encourage saving lead to a less egalitarian society?

Accepted Answer

Taxing saving at a lower rate

Question 13

When wages are set by contract, inflation

Accepted Answer

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

Question 14

Zero inflation

Accepted Answer

A)  might be dangerous because it could lead to rapidly increasing prices. 
B)  would limit the flexibility of the labor market and so could at times raise unemployment. 
C)  would make it easy for the Central bank to create negative real interest rates. 
D)  is impossible to achieve in the real world. 
A)  might be dangerous because it could lead to rapidly increasing prices. 
B)  would limit the flexibility of the labor market and so could at times raise unemployment. 
C)  would make it easy for the Central bank to create negative real interest rates. 
D)  is impossible to achieve in the real world.

Question 15

Changes in tax laws that reduce taxes more for those who save a lot will

Accepted Answer

A)  favor low-income households. 
B)  favor people with high income. 
C)  create a more egalitarian society. 
D)  unambiguously increase national saving. 
A)  favor low-income households. 
B)  favor people with high income. 
C)  create a more egalitarian society. 
D)  unambiguously increase national saving.

Question 16

The average person's share of the U.S. government debt as a percentage of lifetime income is

Accepted Answer

A)  less than 1 percent. 
B)  more than 1 percent but less than 2 percent 
C)  about 4 percent 
D)  over 6 percent 
A)  less than 1 percent. 
B)  more than 1 percent but less than 2 percent 
C)  about 4 percent 
D)  over 6 percent

Question 17

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

Accepted Answer

A)  both the shift of aggregate demand and the shift of aggregate supply 
B)  the shift of aggregate demand, but not the shift of aggregate supply 
C)  the shift of aggregate supply, but not the shift of aggregate demand 
D)  neither the shift of aggregate demand nor the shift of aggregate supply 
A)  both the shift of aggregate demand and the shift of aggregate supply 
B)  the shift of aggregate demand, but not the shift of aggregate supply 
C)  the shift of aggregate supply, but not the shift of aggregate demand 
D)  neither the shift of aggregate demand nor the shift of aggregate supply

Question 18

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

A government deficit means that the gove

Question 19

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Accepted Answer

According to the traditional Keynesian m

Question 20

Are there any situations in which running a budget deficit is justified? Explain.

Accepted Answer

The two primary justifications for runni

Exam 36: Six Debates Over Macroeconomic Policy

Explain what is meant by the time inconsistency of monetary policy.

A policymaker in favor of stabilizing the economy would be likely to believe

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

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

Which of the following is not correct?

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Proponents of tax-law changes to encourage saving would

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Why might reforms to encourage saving lead to a less egalitarian society?

When wages are set by contract, inflation

Zero inflation

Changes in tax laws that reduce taxes more for those who save a lot will

The average person's share of the U.S. government debt as a percentage of lifetime income is

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Why might government expenditures be more appropriate than tax cuts to counter recessions? Is there any evidence for this thinking?

Are there any situations in which running a budget deficit is justified? Explain.

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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