Question 1

Which of the following is not correct?

Accepted Answer

A)  Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so. 
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate. 
C)  The only times deficits have increased have been during times of war or economic downturns. 
D)  Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off. 
A)  Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so. 
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate. 
C)  The only times deficits have increased have been during times of war or economic downturns. 
D)  Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.

Question 2

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

Accepted Answer

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

Question 3

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $226.0 billion 
B)  about $248.6 billion 
C)  about $474.6 billion 
D)  about $561.8 billion 
A)  about $226.0 billion 
B)  about $248.6 billion 
C)  about $474.6 billion 
D)  about $561.8 billion

Question 4

Higher saving is associated with

Accepted Answer

A)  a larger capital stock and a higher standard of living. 
B)  a larger capital stock but not a higher standard of living. 
C)  a higher standard of living but not a larger capital stock. 
D)  neither a higher standard of living nor a higher capital stock. 
A)  a larger capital stock and a higher standard of living. 
B)  a larger capital stock but not a higher standard of living. 
C)  a higher standard of living but not a larger capital stock. 
D)  neither a higher standard of living nor a higher capital stock.

Question 5

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Accepted Answer

Tax policies designed to encourage savin

Question 6

Provide an example of how current expenditures might benefit future generations.

Accepted Answer

Expenditures on education rais

Question 7

Which of the following statements is not true?

Accepted Answer

A)  The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding. 
B)  The U.S. federal debt in 2012 was about $11.3 trillion. 
C)  Government debt per person represents more than 5 percent of a typical worker's lifetime resources. 
D)  Forward-looking parents can reverse adverse effects of government debt on their children. 
A)  The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding. 
B)  The U.S. federal debt in 2012 was about $11.3 trillion. 
C)  Government debt per person represents more than 5 percent of a typical worker's lifetime resources. 
D)  Forward-looking parents can reverse adverse effects of government debt on their children.

Question 8

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Accepted Answer

A) True 
 B)False

Question 9

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Accepted Answer

A)  inflation targeting. 
B)  the monetary policy reaction lag. 
C)  the time inconsistency of policy. 
D)  the sacrifice ratio dilemma. 
A)  inflation targeting. 
B)  the monetary policy reaction lag. 
C)  the time inconsistency of policy. 
D)  the sacrifice ratio dilemma.

Question 10

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Accepted Answer

A)  Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes for increasing aggregate demand. 
B)  Increased government spending on "shovel­ready" projects can be helpful to boost aggregate demand. 
C)  Increases in government spending offer a greater "bang for the buck" than decreases in taxes. 
D)  When the government gives a dollar in tax cuts to a household, that dollar immediately and fully adds to aggregate demand. 
A)  Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes for increasing aggregate demand. 
B)  Increased government spending on "shovel­ready" projects can be helpful to boost aggregate demand. 
C)  Increases in government spending offer a greater "bang for the buck" than decreases in taxes. 
D)  When the government gives a dollar in tax cuts to a household, that dollar immediately and fully adds to aggregate demand.

Question 11

Paul Volcker, former chair of the Fed, implemented

Accepted Answer

A)  contractionary policy which increased the popularity of the U.S. president who had appointed him. 
B)  contractionary policy which decreased the popularity of the U.S. president who had appointed him. 
C)  expansionary policy which increased the popularity of the U.S. president who had appointed him. 
D)  expansionary policy which decreased the popularity of the U.S. president who had appointed him. 
A)  contractionary policy which increased the popularity of the U.S. president who had appointed him. 
B)  contractionary policy which decreased the popularity of the U.S. president who had appointed him. 
C)  expansionary policy which increased the popularity of the U.S. president who had appointed him. 
D)  expansionary policy which decreased the popularity of the U.S. president who had appointed him.

Question 12

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A)  neither fiscal nor monetary policy have much impact on aggregate demand. 
B)  attempts to stabilize the economy decrease the magnitude of economic fluctuations. 
C)  unemployment and inflation are not cause for much concern. 
D)  economic conditions can easily change between the start of policy action and when it takes effect. 
A)  neither fiscal nor monetary policy have much impact on aggregate demand. 
B)  attempts to stabilize the economy decrease the magnitude of economic fluctuations. 
C)  unemployment and inflation are not cause for much concern. 
D)  economic conditions can easily change between the start of policy action and when it takes effect.

Question 13

According to a 1977 amendment to the Federal Reserve Act of 1913, what weights should the Fed put on the goals of maximum employment, stable prices, and moderate long-term interest rates?

Accepted Answer

While the amendment indicates

Question 14

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 15

Explain why fiscal policy actions typically work with a lag.

Accepted Answer

Fiscal policy works with a lag primarily

Question 16

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Accepted Answer

Households will spend disposable income

Question 17

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Accepted Answer

A)  The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict. 
B)  The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict. 
C)  The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict. 
D)  The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict. 
A)  The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict. 
B)  The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict. 
C)  The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict. 
D)  The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.

Question 19

Which of the following is correct?

Accepted Answer

A)  Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes. 
B)  Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. 
C)  Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. 
D)  Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag. 
A)  Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes. 
B)  Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. 
C)  Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. 
D)  Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.

Question 20

The Federal Open Market Committee meets about

Accepted Answer

A)  every six days. 
B)  every six weeks. 
C)  every six months. 
D)  every sixteen months. 
A)  every six days. 
B)  every six weeks. 
C)  every six months. 
D)  every sixteen months.

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following is not correct?

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

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Higher saving is associated with

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Provide an example of how current expenditures might benefit future generations.

Which of the following statements is not true?

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Paul Volcker, former chair of the Fed, implemented

Opponents of using policy to stabilize the economy generally believe that

According to a 1977 amendment to the Federal Reserve Act of 1913, what weights should the Fed put on the goals of maximum employment, stable prices, and moderate long-term interest rates?

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Explain why fiscal policy actions typically work with a lag.

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Which of the following is correct?

The Federal Open Market Committee meets about

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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