Question 1

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time

Question 2

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Accepted Answer

The amendment indicates the Fe

Question 3

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

Accepted Answer

A)  farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises. 
B)  farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises. 
C)  farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises 
D)  farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises.. 
A)  farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises. 
B)  farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises. 
C)  farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises 
D)  farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises..

Question 4

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 5

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Accepted Answer

A)  the time inconsistency problem, but not political business cycles. 
B)  the political business cycle, but not the time inconsistency problem. 
C)  both the time inconsistency problem and political business cycles. 
D)  neither the time inconsistency problem nor political business cycles. 
A)  the time inconsistency problem, but not political business cycles. 
B)  the political business cycle, but not the time inconsistency problem. 
C)  both the time inconsistency problem and political business cycles. 
D)  neither the time inconsistency problem nor political business cycles.

Question 6

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

A)  increase the money supply, increase taxes, increase government spending 
B)  increase the money supply, increase taxes, decrease government spending 
C)  increase the money supply, decrease taxes, increase government spending 
D)  decrease the money supply, increase taxes, decrease government spending 
A)  increase the money supply, increase taxes, increase government spending 
B)  increase the money supply, increase taxes, decrease government spending 
C)  increase the money supply, decrease taxes, increase government spending 
D)  decrease the money supply, increase taxes, decrease government spending

Question 7

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 8

If the unemployment rate rises, which policies would be appropriate to reduce it?

Accepted Answer

A)  increase the money supply, increase taxes 
B)  increase the money supply, cut taxes 
C)  decrease the money supply, increase taxes 
D)  decrease the money supply, cut taxes 
A)  increase the money supply, increase taxes 
B)  increase the money supply, cut taxes 
C)  decrease the money supply, increase taxes 
D)  decrease the money supply, cut taxes

Question 9

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt­to­GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)  10.0 trillion 
B)  6.7 trillion 
C)  4 trillion 
D)  None of the above are correct. 
A)  10.0 trillion 
B)  6.7 trillion 
C)  4 trillion 
D)  None of the above are correct.

Question 10

Which of the following reduces 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)  some current government spending benefits future taxpayers 
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)  some current government spending benefits future taxpayers 
D)  All of the above are correct.

Question 11

Which of the following are both correct?

Accepted Answer

A)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
B)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
C)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
D)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
A)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
B)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect. 
C)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect. 
D)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.

Question 12

Which of the following is correct? Investment tax credits

Accepted Answer

A)  can increase investment, but stimulating investment is not a key to ending a recession. 
B)  can increase investment, which is a key to ending a recession. 
C)  can not increase spending on investment goods, but stimulating investment is not a key to ending a recession. 
D)  can not increase spending on investment goods, but stimulating investment is a key to ending a recession. 
A)  can increase investment, but stimulating investment is not a key to ending a recession. 
B)  can increase investment, which is a key to ending a recession. 
C)  can not increase spending on investment goods, but stimulating investment is not a key to ending a recession. 
D)  can not increase spending on investment goods, but stimulating investment is a key to ending a recession.

Question 13

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

A)  only price stability 
B)  only maximum employment 
C)  only price stability and maximum employment 
D)  price stability, maximum employment, and moderate long-term interest rates 
A)  only price stability 
B)  only maximum employment 
C)  only price stability and maximum employment 
D)  price stability, maximum employment, and moderate long-term interest rates

Question 14

Opponents of tax reforms intended to raise saving argue that such reforms

Accepted Answer

A)  favor those with high income, and that saving may not rise because of the substitution effect. 
B)  favor those with high income, and that saving may not rise because of the income effect. 
C)  favor those with low income, and that saving may not rise because of the substitution effect. 
D)  favor those with low income, and that saving may not rise because of the income effect. 
A)  favor those with high income, and that saving may not rise because of the substitution effect. 
B)  favor those with high income, and that saving may not rise because of the income effect. 
C)  favor those with low income, and that saving may not rise because of the substitution effect. 
D)  favor those with low income, and that saving may not rise because of the income effect.

Question 15

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Accepted Answer

A)  increase the money supply, which causes output to move closer to its long-run equilibrium. 
B)  increase the money supply, which causes output to move farther from long-run equilibrium. 
C)  decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D)  decrease the money supply, which causes output to move farther from long-run equilibrium. 
A)  increase the money supply, which causes output to move closer to its long-run equilibrium. 
B)  increase the money supply, which causes output to move farther from long-run equilibrium. 
C)  decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D)  decrease the money supply, which causes output to move farther from long-run equilibrium.

Question 16

Critics of active monetary and fiscal policy emphasize

Accepted Answer

A)  that policy affects the economy with a lag and our ability to forecast future economic conditions is poor. 
B)  "leaning against the wind" of economic change to stabilize the economy. 
C)  cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive. 
D)  boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low. 
A)  that policy affects the economy with a lag and our ability to forecast future economic conditions is poor. 
B)  "leaning against the wind" of economic change to stabilize the economy. 
C)  cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive. 
D)  boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low.

Question 17

Real interest rates

Accepted Answer

A)  cannot be negative. 
B)  can be negative only if inflation is negative. 
C)  can be negative only if inflation is zero. 
D)  can be negative only if inflation is greater than zero. 
A)  cannot be negative. 
B)  can be negative only if inflation is negative. 
C)  can be negative only if inflation is zero. 
D)  can be negative only if inflation is greater than zero.

Question 18

Means-tested government benefits base benefits on

Accepted Answer

A)  a household's wealth and are an incentive to save. 
B)  a household's wealth and are a disincentive to save. 
C)  the current interest rate and are an incentive to save. 
D)  the current interest rate and are a disincentive to save. 
A)  a household's wealth and are an incentive to save. 
B)  a household's wealth and are a disincentive to save. 
C)  the current interest rate and are an incentive to save. 
D)  the current interest rate and are a disincentive to save.

Question 19

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)  16.7 trillion 
B)  10.0 trillion 
C)  6.25 trillion 
D)  3.85 trillion 
A)  16.7 trillion 
B)  10.0 trillion 
C)  6.25 trillion 
D)  3.85 trillion

Question 20

Fluctuations in employment and output result from changes in

Accepted Answer

A)  aggregate demand only. 
B)  aggregate supply only. 
C)  aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply. 
A)  aggregate demand only. 
B)  aggregate supply only. 
C)  aggregate demand and aggregate supply. 
D)  neither aggregate demand nor aggregate supply.

Exam 36: Six Debates Over Macroeconomic Policy

Explain why policy lags could make stabilization policies counterproductive.

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

A law that requires the money supply to grow by a fixed percentage each year would eliminate

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

If the unemployment rate rises, which policies would be appropriate to reduce it?

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt­to­GDP ratio was unchanged. About what was it's debt at the start of last year?

Which of the following reduces the potential burden of an increase in debt on future generations?

Which of the following are both correct?

Which of the following is correct? Investment tax credits

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Opponents of tax reforms intended to raise saving argue that such reforms

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Critics of active monetary and fiscal policy emphasize

Real interest rates

Means-tested government benefits base benefits on

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Fluctuations in employment and output result from changes in

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

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debttoGDP ratio was unchanged. About what was it's debt at the start of last year?