Question 1

Some economists argue that since inflation

Accepted Answer

A)  raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
B)  raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
C)  reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
D)  reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
A)  raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
B)  raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
C)  reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
D)  reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.

Question 2

The time inconsistency of monetary policy means that

Accepted Answer

A)  once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. 
B)  at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low. 
C)  monetary policy is not consistent across time because it is influenced by politics. 
D)  monetary policy is not consistent across time because policymakers are incompetent. 
A)  once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. 
B)  at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low. 
C)  monetary policy is not consistent across time because it is influenced by politics. 
D)  monetary policy is not consistent across time because policymakers are incompetent.

Question 3

Policies that reduce the incentive for households to save include

Accepted Answer

A)  means-testing. 
B)  College and university financial aid administration. 
C)  inheritance taxes. 
D)  All of the above. 
A)  means-testing. 
B)  College and university financial aid administration. 
C)  inheritance taxes. 
D)  All of the above.

Question 4

If the government cut expenditures during an expansion

Accepted Answer

A)  it would have to raise the tax rate 
B)  it would tend to stabilize the economy 
C)  both a and b 
D)  neither a nor b 
A)  it would have to raise the tax rate 
B)  it would tend to stabilize the economy 
C)  both a and b 
D)  neither a nor b

Question 5

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Accepted Answer

A)  the growth rate of output is high 
B)  in response to increased debt, parents save more to leave their children larger bequests 
C)  budget deficits raise interest rates 
D)  All of the above are correct. 
A)  the growth rate of output is high 
B)  in response to increased debt, parents save more to leave their children larger bequests 
C)  budget deficits raise interest rates 
D)  All of the above are correct.

Question 6

Which of the following would likely increase private saving?

Accepted Answer

A)  Both expansion of IRA type accounts and a consumption tax. 
B)  Expansion of IRA type accounts, but not a consumption tax. 
C)  A consumption tax, but not expansion of IRA type accounts. 
D)  Neither expansion of IRA type accounts nor a consumption tax. 
A)  Both expansion of IRA type accounts and a consumption tax. 
B)  Expansion of IRA type accounts, but not a consumption tax. 
C)  A consumption tax, but not expansion of IRA type accounts. 
D)  Neither expansion of IRA type accounts nor a consumption tax.

Question 7

A program to reduce inflation is likely to have lower 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

All of the following are arguments against stabilization policy except

Accepted Answer

A)  Economic forecasting is highly imprecise. 
B)  Long lags may cause stabilization policies to in fact destabilize the economy. 
C)  Monetary policy affects aggregate demand by changing interest rates. 
D)  Fiscal policy must go through a long political process. 
A)  Economic forecasting is highly imprecise. 
B)  Long lags may cause stabilization policies to in fact destabilize the economy. 
C)  Monetary policy affects aggregate demand by changing interest rates. 
D)  Fiscal policy must go through a long political process.

Question 9

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce menu costs and permanently lower unemployment. 
B)  permanently reduce menu costs and temporarily raise unemployment. 
C)  temporarily reduce menu costs and temporarily lower unemployment. 
D)  temporarily reduce menu costs and temporarily raise unemployment. 
A)  permanently reduce menu costs and permanently lower unemployment. 
B)  permanently reduce menu costs and temporarily raise unemployment. 
C)  temporarily reduce menu costs and temporarily lower unemployment. 
D)  temporarily reduce menu costs and temporarily raise unemployment.

Question 10

Economists agree that at least in the short run disinflation

Accepted Answer

A)  leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high. 
B)  leads to a period of higher unemployment. They disagree about the cost of moderate inflation. 
C)  leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high. 
D)  leads to a period of lower unemployment. They disagree about the cost of moderate inflation. 
A)  leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high. 
B)  leads to a period of higher unemployment. They disagree about the cost of moderate inflation. 
C)  leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high. 
D)  leads to a period of lower unemployment. They disagree about the cost of moderate inflation.

Question 11

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation. Sh

Question 12

If inflation were reduced, then it is

Accepted Answer

A)  likely that real incomes would rise more rapidly and labor markets would be more flexible. 
B)  likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible. 
C)  likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly. 
D)  unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible. 
A)  likely that real incomes would rise more rapidly and labor markets would be more flexible. 
B)  likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible. 
C)  likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly. 
D)  unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible.

Question 13

If there is an increase in the money supply, in the short run

Accepted Answer

A)  the interest rises. It takes several weeks for spending to fully respond to this change. 
B)  the interest rises. It takes several months for spending to fully respond to this change. 
C)  the interest falls. It takes several weeks for spending to fully respond to this change. 
D)  the interest falls. It takes several months for spending to fully respond to this change. 
A)  the interest rises. It takes several weeks for spending to fully respond to this change. 
B)  the interest rises. It takes several months for spending to fully respond to this change. 
C)  the interest falls. It takes several weeks for spending to fully respond to this change. 
D)  the interest falls. It takes several months for spending to fully respond to this change.

Question 14

The Federal Open Market Committee

Accepted Answer

A)  operates with almost complete discretion over monetary policy. 
B)  is required to increase the money supply by a given growth rate each year. 
C)  is required to keep short-term interest rates within a range set by Congress. 
D)  is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment. 
A)  operates with almost complete discretion over monetary policy. 
B)  is required to increase the money supply by a given growth rate each year. 
C)  is required to keep short-term interest rates within a range set by Congress. 
D)  is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.

Question 15

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 16

For which of the following policies is there a significant implementation lag?

Accepted Answer

A)  fiscal policy and monetary policy 
B)  fiscal policy but not monetary policy 
C)  monetary policy but not fiscal policy 
D)  neither monetary policy nor fiscal policy 
A)  fiscal policy and monetary policy 
B)  fiscal policy but not monetary policy 
C)  monetary policy but not fiscal policy 
D)  neither monetary policy nor fiscal policy

Question 17

Which of the following is correct?

Accepted Answer

A)  Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle. 
B)  Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle. 
C)  Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle. 
D)  Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycle 
A)  Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle. 
B)  Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle. 
C)  Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle. 
D)  Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycle

Question 18

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Accepted Answer

A)  setting a policy rule will limit the abuse of power of policymakers. 
B)  policymakers can better influence the political business cycle in their favor when following a policy rule. 
C)  a policy rule provides policymakers with the greatest flexibility to manage inflation. 
D)  if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment. 
A)  setting a policy rule will limit the abuse of power of policymakers. 
B)  policymakers can better influence the political business cycle in their favor when following a policy rule. 
C)  a policy rule provides policymakers with the greatest flexibility to manage inflation. 
D)  if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment.

Question 19

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A)  the central bank lacked credibility and if bonds were usually not indexed for inflation. 
B)  the central bank lacked credibility and if bonds were usually indexed for inflation. 
C)  the central bank had credibility and if bonds were usually not indexed for inflation. 
D)  the central bank had credibility and if bonds were usually indexed for inflation. 
A)  the central bank lacked credibility and if bonds were usually not indexed for inflation. 
B)  the central bank lacked credibility and if bonds were usually indexed for inflation. 
C)  the central bank had credibility and if bonds were usually not indexed for inflation. 
D)  the central bank had credibility and if bonds were usually indexed for inflation.

Question 20

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Accepted Answer

A)  A public budget surplus can raise national saving. 
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C)  Low-income households save a larger fraction of their income than high-income households. 
D)  Tax cuts might cause a budget deficit. 
A)  A public budget surplus can raise national saving. 
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. 
C)  Low-income households save a larger fraction of their income than high-income households. 
D)  Tax cuts might cause a budget deficit.

Exam 36: Six Debates Over Macroeconomic Policy

Some economists argue that since inflation

The time inconsistency of monetary policy means that

Policies that reduce the incentive for households to save include

If the government cut expenditures during an expansion

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Which of the following would likely increase private saving?

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

All of the following are arguments against stabilization policy except

A permanent reduction in inflation would

Economists agree that at least in the short run disinflation

Describe three costs of inflation.

If inflation were reduced, then it is

If there is an increase in the money supply, in the short run

The Federal Open Market Committee

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

For which of the following policies is there a significant implementation lag?

Which of the following is correct?

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

An economist would be more likely to argue against reducing inflation if she thought that

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

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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