Question 1

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 2

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t

Question 3

Which of the following raise the incentive for households to save?

Accepted Answer

A)  means-testing of government benefits and inheritance taxes 
B)  means-testing of government benefits but not inheritance taxes 
C)  inheritance taxes, but not means-testing of government benefits 
D)  neither means-testing of government benefits nor inheritance taxes 
A)  means-testing of government benefits and inheritance taxes 
B)  means-testing of government benefits but not inheritance taxes 
C)  inheritance taxes, but not means-testing of government benefits 
D)  neither means-testing of government benefits nor inheritance taxes

Question 4

Which of the following is a cost of inflation?

Accepted Answer

A)  shoeleather costs 
B)  menu costs 
C)  relative price variability 
D)  All of the above are correct. 
A)  shoeleather costs 
B)  menu costs 
C)  relative price variability 
D)  All of the above are correct.

Question 5

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A)  Taxes are raised to provide better education. 
B)  Taxes are raised to improve government infrastructure such as roads and bridges. 
C)  Taxes are raised to provide more generous Social Security benefits. 
D)  None of the above transfer wealth form the young to the old. 
A)  Taxes are raised to provide better education. 
B)  Taxes are raised to improve government infrastructure such as roads and bridges. 
C)  Taxes are raised to provide more generous Social Security benefits. 
D)  None of the above transfer wealth form the young to the old.

Question 6

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

Accepted Answer

A)  less than 2 percent. 
B)  about 5 percent. 
C)  about 10 percent. 
D)  over 12 percent. 
A)  less than 2 percent. 
B)  about 5 percent. 
C)  about 10 percent. 
D)  over 12 percent.

Question 7

Tax cuts

Accepted Answer

A)  can easily target investment spending, but investment spending falls by only a small percentage during recessions. 
B)  can easily target investment spending, which falls by a large percentage during recessions. 
C)  cannot easily target investment spending, but investment spending falls by only a small percentage during recessions. 
D)  cannot easily target investment spending, which falls by a large percentage during recessions. 
A)  can easily target investment spending, but investment spending falls by only a small percentage during recessions. 
B)  can easily target investment spending, which falls by a large percentage during recessions. 
C)  cannot easily target investment spending, but investment spending falls by only a small percentage during recessions. 
D)  cannot easily target investment spending, which falls by a large percentage during recessions.

Question 8

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

Accepted Answer

The typical estimate of the sacrifice ra

Question 9

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo

Question 11

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Accepted Answer

A)  would have to increase the money supply. This would move unemployment closer to the natural rate. 
B)  would have to increase the money supply. This would move unemployment further from the natural rate. 
C)  would have to decrease the money supply. This would move unemployment closer to the natural rate. 
D)  would have to decrease the money supply. This would move unemployment further from the natural rate. 
A)  would have to increase the money supply. This would move unemployment closer to the natural rate. 
B)  would have to increase the money supply. This would move unemployment further from the natural rate. 
C)  would have to decrease the money supply. This would move unemployment closer to the natural rate. 
D)  would have to decrease the money supply. This would move unemployment further from the natural rate.

Question 12

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand, model which of these policies would tend to reduce unemployment?

Accepted Answer

A)  both the tax cut and the increase in government expenditures 
B)  the tax cut but not the increase in government expenditures 
C)  the increase in government expenditures but not the tax cut 
D)  neither the increase in government expenditures nor the tax cut 
A)  both the tax cut and the increase in government expenditures 
B)  the tax cut but not the increase in government expenditures 
C)  the increase in government expenditures but not the tax cut 
D)  neither the increase in government expenditures nor the tax cut

Question 13

Which of the following is correct? In the 1990's

Accepted Answer

A)  the Fed maintained low inflation because it had to follow a policy rule. 
B)  the Fed maintained low inflation even without being required to follow a policy rule. 
C)  the Fed was not required to follow a policy rule and let inflation move higher. 
D)  the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher. 
A)  the Fed maintained low inflation because it had to follow a policy rule. 
B)  the Fed maintained low inflation even without being required to follow a policy rule. 
C)  the Fed was not required to follow a policy rule and let inflation move higher. 
D)  the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher.

Question 14

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

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 15

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A)  economists disagree over basic issues such as the importance of saving for economic growth. 
B)  there are tradeoffs and people disagree about the best way to deal with them. 
C)  politicians offer misleading information. 
D)  people fail to clearly see the benefits or the costs of most changes. 
A)  economists disagree over basic issues such as the importance of saving for economic growth. 
B)  there are tradeoffs and people disagree about the best way to deal with them. 
C)  politicians offer misleading information. 
D)  people fail to clearly see the benefits or the costs of most changes.

Question 16

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 17

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Accepted Answer

A)  decreasing the money supply and cutting taxes. 
B)  decreasing the money supply and raising taxes. 
C)  increasing the money supply and cutting taxes. 
D)  increasing the money supply and raising taxes. 
A)  decreasing the money supply and cutting taxes. 
B)  decreasing the money supply and raising taxes. 
C)  increasing the money supply and cutting taxes. 
D)  increasing the money supply and raising taxes.

Question 18

Accumulated over a long span of time, the tax rate on interest income

Accepted Answer

A)  removes all benefits from saving. 
B)  reduces the benefits from saving by a small amount. 
C)  reduces the benefits from saving by a large amount. 
D)  does nor reduce any of the benefits from saving. 
A)  removes all benefits from saving. 
B)  reduces the benefits from saving by a small amount. 
C)  reduces the benefits from saving by a large amount. 
D)  does nor reduce any of the benefits from saving.

Question 19

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Accepted Answer

A)  interest rates and output would rise. 
B)  interest rates would rise and output would fall. 
C)  interest rates would fall and output would rise. 
D)  interest rates and output would fall. 
A)  interest rates and output would rise. 
B)  interest rates would rise and output would fall. 
C)  interest rates would fall and output would rise. 
D)  interest rates and output would fall.

Question 20

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance, o

Exam 36: Six Debates Over Macroeconomic Policy

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Which of the following raise the incentive for households to save?

Which of the following is a cost of inflation?

Which of the programs below would transfer wealth from the young to the old?

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

Tax cuts

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand, model which of these policies would tend to reduce unemployment?

Which of the following is correct? In the 1990's

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

The six debates over macroeconomic policy exist mostly because

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Accumulated over a long span of time, the tax rate on interest income

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce 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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