Question 1

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

Accepted Answer

A)  increase taxes, increase government spending 
B)  increase taxes, decrease government spending 
C)  decrease taxes, increase government spending 
D)  decrease taxes, decrease government spending 
A)  increase taxes, increase government spending 
B)  increase taxes, decrease government spending 
C)  decrease taxes, increase government spending 
D)  decrease taxes, decrease government spending

Question 2

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

Accepted Answer

A)  both 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)  both 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 3

Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 500 billion units of currency and current nominal national debt of 100 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 50 billion units and tax collections equal to 48 billion units 
B)  government spending equal to 50 billion units and tax collections equal to 41 billion units 
C)  government spending equal to 50 billion units and tax collections equal to 40 billion units 
D)  government spending equal to 50 billion units and tax collections equal to 32 billion units 
A)  government spending equal to 50 billion units and tax collections equal to 48 billion units 
B)  government spending equal to 50 billion units and tax collections equal to 41 billion units 
C)  government spending equal to 50 billion units and tax collections equal to 40 billion units 
D)  government spending equal to 50 billion units and tax collections equal to 32 billion units

Question 4

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security,

Question 5

Why is there a lag between the Fed's actions and the economy's response?

Accepted Answer

Monetary policy is supposed to

Question 6

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 7

If net exports fall, what actions could a central bank take to stabilize the economy?

Accepted Answer

Increase the money s

Question 8

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this 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 9

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

A)  Federal Reserve increase the money supply or the government increase taxes. 
B)  Federal Reserve increase the money supply or the government decrease taxes. 
C)  Federal Reserve decrease the money supply or the government increase taxes. 
D)  Federal Reserve decrease the money supply or the government decrease taxes. 
A)  Federal Reserve increase the money supply or the government increase taxes. 
B)  Federal Reserve increase the money supply or the government decrease taxes. 
C)  Federal Reserve decrease the money supply or the government increase taxes. 
D)  Federal Reserve decrease the money supply or the government decrease taxes.

Question 10

The cost of inflation reduction is a large, permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 11

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Accepted Answer

A)  more quickly but is more likely to be spent on projects with little benefit. 
B)  more quickly and is less likely to be spent on projects with little benefit. 
C)  less quickly but is less likely to be spent on projects with little benefit. 
D)  less quickly and is more likely to be spent on projects with little benefit. 
A)  more quickly but is more likely to be spent on projects with little benefit. 
B)  more quickly and is less likely to be spent on projects with little benefit. 
C)  less quickly but is less likely to be spent on projects with little benefit. 
D)  less quickly and is more likely to be spent on projects with little benefit.

Question 12

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

Accepted Answer

A)  raise interest rates to shift aggregate demand left. 
B)  raise interest rates to shift aggregate demand right. 
C)  reduce interest rates to shift aggregate demand left. 
D)  reduce interest rates to shift aggregate demand right. 
A)  raise interest rates to shift aggregate demand left. 
B)  raise interest rates to shift aggregate demand right. 
C)  reduce interest rates to shift aggregate demand left. 
D)  reduce interest rates to shift aggregate demand right.

Question 13

Which of the following is true of stimulus policy enacted in 2009?

Accepted Answer

A)  We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression. 
B)  We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression. 
C)  We can not be sure that it reduced the severity of the recession, but the recession was less severe than the Great Depression. 
D)  We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression. 
A)  We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression. 
B)  We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression. 
C)  We can not be sure that it reduced the severity of the recession, but the recession was less severe than the Great Depression. 
D)  We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression.

Question 14

Part of the argument against deficits is that they

Accepted Answer

A)  increase interest rates and investment. 
B)  increase interest rates and decrease investment. 
C)  decrease interest rates and investment. 
D)  decrease interest rates and increase investment. 
A)  increase interest rates and investment. 
B)  increase interest rates and decrease investment. 
C)  decrease interest rates and investment. 
D)  decrease interest rates and increase investment.

Question 15

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m

Question 16

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Accepted Answer

A) True 
 B)False

Question 17

Consider the following rule for monetary policy: r = 2 percent + π + 1/2(y - y*)/y* + 1/2(π - π*), where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)  1/2 percentage point 
B)  1 percentage point 
C)  1 and 1/2 percentage points 
D)  3 and 1/2 percentage points 
A)  1/2 percentage point 
B)  1 percentage point 
C)  1 and 1/2 percentage points 
D)  3 and 1/2 percentage points

Question 18

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Accepted Answer

Both monetary and fiscal policy work wit

Question 19

The time inconsistency of policy implies that

Accepted Answer

A)  what policymakers say they will do is generally what they will do, but people don't believe them because of current policy. 
B)  when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply. 
C)  people will believe Fed policy will be more inflationary than the Fed claims. 
D)  what policymakers say they will do is usually not what they do, but people believe them anyway. 
A)  what policymakers say they will do is generally what they will do, but people don't believe them because of current policy. 
B)  when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply. 
C)  people will believe Fed policy will be more inflationary than the Fed claims. 
D)  what policymakers say they will do is usually not what they do, but people believe them anyway.

Question 20

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

A)  increased spending 
B)  increased aggregate demand 
C)  increased real GDP 
D)  an increase in the unemployment rate 
A)  increased spending 
B)  increased aggregate demand 
C)  increased real GDP 
D)  an increase in the unemployment rate

Exam 36: Six Debates Over Macroeconomic Policy

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

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

Is it possible that deficits do not burden future generations?

Why is there a lag between the Fed's actions and the economy's response?

A recession has no benefit to society-it represents a sheer waste of resources.

If net exports fall, what actions could a central bank take to stabilize the economy?

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

The cost of inflation reduction is a large, permanent increase in unemployment.

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

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

Which of the following is true of stimulus policy enacted in 2009?

Part of the argument against deficits is that they

Approximately how often does the Federal Open Market Committee meet?

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

The time inconsistency of policy implies that

Which of the following likely occurs when households and firms become more pessimistic?

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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