Question 1

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)  policymakers should "do no harm". 
B)  there are no obstacles to the practical application of policy in real life. 
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky. 
D)  policy mitigates the magnitude of economic fluctuations. 
A)  policymakers should "do no harm". 
B)  there are no obstacles to the practical application of policy in real life. 
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky. 
D)  policy mitigates the magnitude of economic fluctuations.

Question 2

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to-income ratio constant?

Accepted Answer

A)  government spending equal to 30 billion units and tax collections equal to 25 billion units 
B)  government spending equal to 30 billion units and tax collections equal to 20 billion units 
C)  government spending equal to 30 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 30 billion units and tax collections equal to 5 billion units 
A)  government spending equal to 30 billion units and tax collections equal to 25 billion units 
B)  government spending equal to 30 billion units and tax collections equal to 20 billion units 
C)  government spending equal to 30 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 30 billion units and tax collections equal to 5 billion units

Question 3

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Accepted Answer

A)  about 414.9 billion 
B)  about 404.8 billion 
C)  about 253.0 billion 
D)  about 161.9 billion 
A)  about 414.9 billion 
B)  about 404.8 billion 
C)  about 253.0 billion 
D)  about 161.9 billion

Question 4

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Question 5

In 2012 the federal debt was about

Accepted Answer

A)  11.3 trillion 
B)  9.3 trillion 
C)  1.13 trillion 
D)  930 billion 
A)  11.3 trillion 
B)  9.3 trillion 
C)  1.13 trillion 
D)  930 billion

Question 6

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl

Question 7

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)  The income effect, but not the substitution effect, would tend to reduce private saving. 
B)  The substitution effect, but not the income effect, would tend to reduce private saving. 
C)  Both the income and substitution effect would tend to reduce private saving. 
D)  Neither the income nor the substitution effect would tend to reduce private saving. 
A)  The income effect, but not the substitution effect, would tend to reduce private saving. 
B)  The substitution effect, but not the income effect, would tend to reduce private saving. 
C)  Both the income and substitution effect would tend to reduce private saving. 
D)  Neither the income nor the substitution effect would tend to reduce private saving.

Question 8

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Accepted Answer

A)  price level and real GDP change by more than otherwise. 
B)  price level change by more than otherwise and real GDP change by less than otherwise. 
C)  price level change by less than otherwise and real GDP change by more than otherwise. 
D)  price level and real GDP change by more than otherwise. 
A)  price level and real GDP change by more than otherwise. 
B)  price level change by more than otherwise and real GDP change by less than otherwise. 
C)  price level change by less than otherwise and real GDP change by more than otherwise. 
D)  price level and real GDP change by more than otherwise.

Question 9

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A)  increasing government spending. 
B)  expanding the money supply. 
C)  lowering taxes. 
D)  the Fed sell government bonds. 
A)  increasing government spending. 
B)  expanding the money supply. 
C)  lowering taxes. 
D)  the Fed sell government bonds.

Question 10

Double taxation means that both

Accepted Answer

A)  the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States. 
B)  the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the U.S. 
C)  wage income and employee benefits are taxed, which is not currently the case in the United States. 
D)  wage income and employee benefits are taxed, which is currently the case in the United States. 
A)  the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States. 
B)  the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the U.S. 
C)  wage income and employee benefits are taxed, which is not currently the case in the United States. 
D)  wage income and employee benefits are taxed, which is currently the case in the United States.

Question 11

An economist would be more likely to argue for 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 12

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

Accepted Answer

A)  decrease the money supply, which shifts aggregate demand further right. 
B)  decrease the money supply, which shifts aggregate demand left. 
C)  increase the money supply, which shifts aggregate demand further right. 
D)  increase the money supply, which shifts aggregate demand left. 
A)  decrease the money supply, which shifts aggregate demand further right. 
B)  decrease the money supply, which shifts aggregate demand left. 
C)  increase the money supply, which shifts aggregate demand further right. 
D)  increase the money supply, which shifts aggregate demand left.

Question 13

Which of the following support the idea that monetary policy should be made by a rule?

Accepted Answer

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

Question 14

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 15

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Accepted Answer

A)  0 percent 
B)  3 percent 
C)  5 percent 
D)  6 percent 
A)  0 percent 
B)  3 percent 
C)  5 percent 
D)  6 percent

Question 16

Which of the programs below would not transfer wealth from young to old generations?

Accepted Answer

A)  Taxes are reduced as a result of cutting expenditures on 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)  Taxes are raised to provide more generous Medicare benefits. 
A)  Taxes are reduced as a result of cutting expenditures on 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)  Taxes are raised to provide more generous Medicare benefits.

Question 17

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation, it is likely that

Accepted Answer

A)  the short-run Phillips curve would shift right and the cost of disinflation would rise. 
B)  the short-run Phillips curve would shift right and the cost of disinflation would fall. 
C)  the short-run Phillips curve would shift left and the cost of disinflation would rise. 
D)  the short-run Phillips curve would shift left and the cost of disinflation would fall. 
A)  the short-run Phillips curve would shift right and the cost of disinflation would rise. 
B)  the short-run Phillips curve would shift right and the cost of disinflation would fall. 
C)  the short-run Phillips curve would shift left and the cost of disinflation would rise. 
D)  the short-run Phillips curve would shift left and the cost of disinflation would fall.

Question 18

Proponents of zero inflation argue that reducing inflation has

Accepted Answer

A)  permanent costs and temporary benefits. 
B)  temporary costs and permanent benefits. 
C)  permanent costs and benefits. 
D)  temporary costs and benefits. 
A)  permanent costs and temporary benefits. 
B)  temporary costs and permanent benefits. 
C)  permanent costs and benefits. 
D)  temporary costs and benefits.

Question 19

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $68.8 billion 
B)  about $137.6 billion 
C)  about $275.2 billion 
D)  about $309.6 billion 
A)  about $68.8 billion 
B)  about $137.6 billion 
C)  about $275.2 billion 
D)  about $309.6 billion

Question 20

Economists

Accepted Answer

A)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
B)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
C)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
D)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
A)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
B)  agree that the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high. 
C)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high. 
D)  disagree about whether the costs of reducing inflation to zero are worth the benefits. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.

Exam 36: Six Debates Over Macroeconomic Policy

A policymaker against stabilizing the economy would be likely to believe

At the end of 2011 the U.S. government had a debt of about $10.12 trillion. During 2012 inflation was about 2.5% and real GDP grew about 1.6%. What is the largest deficit the government could have had in 2012 without raising the ratio of debt to GDP?

Some studies have found that saving is not very sensitive to the rate of return on saving.

In 2012 the federal debt was about

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Suppose the tax rate on interest income from saving were reduced.

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Double taxation means that both

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

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

Which of the following support the idea that monetary policy should be made by a rule?

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Which of the programs below would not transfer wealth from young to old generations?

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation, it is likely that

Proponents of zero inflation argue that reducing inflation has

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Economists

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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