Question 1

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand 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 2

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Question 3

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

A)  credible so that the sacrifice ratio is low. 
B)  credible so that the sacrifice ratio is high. 
C)  unexpected so that the sacrifice ratio is high. 
D)  unexpected so that the sacrifice ratio is low. 
A)  credible so that the sacrifice ratio is low. 
B)  credible so that the sacrifice ratio is high. 
C)  unexpected so that the sacrifice ratio is high. 
D)  unexpected so that the sacrifice ratio is low.

Question 4

Of means tested programs and IRA's, which lower the rate of return on saving?

Accepted Answer

A)  Both means-tested programs and IRA's. 
B)  Means-tested programs, but not IRA's. 
C)  IRA's but not means-tested programs. 
D)  Neither means-tested program, or IRA's. 
A)  Both means-tested programs and IRA's. 
B)  Means-tested programs, but not IRA's. 
C)  IRA's but not means-tested programs. 
D)  Neither means-tested program, or IRA's.

Question 5

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

Accepted Answer

A)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
B)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. 
C)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
D)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. 
A)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
B)  increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. 
C)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. 
D)  decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.

Question 6

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax cut when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  decrease in government expenditures when there is a recession. 
D)  All of the above are correct. 
A)  tax cut when there is a recession. 
B)  decrease in the money supply when there is a recession. 
C)  decrease in government expenditures when there is a recession. 
D)  All of the above are correct.

Question 7

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Accepted Answer

A)  fall. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
B)  fall. The increase in expenditures makes it likely that future taxes will create larger distortions. 
C)  rise. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
D)  rise. The increase in expenditures makes it likely that future taxes will create larger distortions. 
A)  fall. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
B)  fall. The increase in expenditures makes it likely that future taxes will create larger distortions. 
C)  rise. The increase in expenditures makes it likely that future taxes will create smaller distortions. 
D)  rise. The increase in expenditures makes it likely that future taxes will create larger distortions.

Question 8

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Accepted Answer

A) True 
 B)False

Question 9

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 10

In the early 1980's the Fed tightened monetary policy. Over the next few years

Accepted Answer

A)  inflation remained high and unemployment rose. 
B)  inflation fell but unemployment rose temporarily. 
C)  inflation and unemployment fell. 
D)  inflation and unemployment rose. 
A)  inflation remained high and unemployment rose. 
B)  inflation fell but unemployment rose temporarily. 
C)  inflation and unemployment fell. 
D)  inflation and unemployment rose.

Question 11

A reduction in inflation would lead to

Accepted Answer

A)  more frequent price changes and increased variability of relative prices. 
B)  more frequent price changes and decreased variability of relative prices. 
C)  less frequent price changes and increased variability of relative prices. 
D)  less frequent price changes and decreased variability of relative prices. 
A)  more frequent price changes and increased variability of relative prices. 
B)  more frequent price changes and decreased variability of relative prices. 
C)  less frequent price changes and increased variability of relative prices. 
D)  less frequent price changes and decreased variability of relative prices.

Question 12

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is true concerning IRA's, 401(k) and 403(b) plans?

Accepted Answer

A)  There are no limits on the amount of funds people can hold in them. 
B)  Some people are not eligible to hold them. 
C)  There are never penalties for withdrawals. 
D)  All of the above are correct. 
A)  There are no limits on the amount of funds people can hold in them. 
B)  Some people are not eligible to hold them. 
C)  There are never penalties for withdrawals. 
D)  All of the above are correct.

Question 14

Part of the lag in monetary policy effects is due to

Accepted Answer

A)  the long political process of monetary policy decisions. 
B)  precise economic forecasts. 
C)  the time required for firms and households to alter their spending plans. 
D)  changes in the unemployment rate. 
A)  the long political process of monetary policy decisions. 
B)  precise economic forecasts. 
C)  the time required for firms and households to alter their spending plans. 
D)  changes in the unemployment rate.

Question 15

Which of the following can tax cuts influence?

Accepted Answer

A)  Aggregate demand 
B)  Aggregate supply 
C)  Investment spending 
D)  All of the above 
A)  Aggregate demand 
B)  Aggregate supply 
C)  Investment spending 
D)  All of the above

Question 16

The Federal Open Market Committee

Accepted Answer

A)  by law must focus on maintaining low inflation rather than stabilizing output. 
B)  by law must focus on stabilizing output rather than maintaining low inflation. 
C)  by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target. 
D)  operates with almost complete discretion over monetary policy. 
A)  by law must focus on maintaining low inflation rather than stabilizing output. 
B)  by law must focus on stabilizing output rather than maintaining low inflation. 
C)  by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target. 
D)  operates with almost complete discretion over monetary policy.

Question 17

Which of the following things can a government do to lower the costs of inflation?

Accepted Answer

A)  sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed 
B)  sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed 
C)  rewrite tax laws so that real rather than nominal gains are taxed, but not sell inflation-indexed bonds 
D)  neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxed 
A)  sell inflation-indexed bonds and rewrite tax laws so that real rather than nominal gains are taxed 
B)  sell inflation-indexed bonds but not rewrite tax laws so that real rather than nominal gains are taxed 
C)  rewrite tax laws so that real rather than nominal gains are taxed, but not sell inflation-indexed bonds 
D)  neither sell inflation-indexed bonds nor rewrite tax laws so that real rather than nominal gains are taxed

Question 18

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

Accepted Answer

A)  buy bonds. These purchases also move the price level closer to its original level. 
B)  buy bonds. However these purchases move the price level farther from its original level. 
C)  sell bonds. These purchases also move the price level closer to its original level. 
D)  sell bonds. However these purchase move the price level farther from its original level. 
A)  buy bonds. These purchases also move the price level closer to its original level. 
B)  buy bonds. However these purchases move the price level farther from its original level. 
C)  sell bonds. These purchases also move the price level closer to its original level. 
D)  sell bonds. However these purchase move the price level farther from its original level.

Question 19

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 20

In which cases were tax cuts followed by robust growth?

Accepted Answer

A)  the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981 
B)  the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981 
C)  the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964 
D)  neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981 
A)  the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981 
B)  the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981 
C)  the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964 
D)  neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981

Exam 36: Six Debates Over Macroeconomic Policy

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand the central bank

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Inflation reduction has the lowest cost when the efforts are

Of means tested programs and IRA's, which lower the rate of return on saving?

If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could

"Leaning against the wind" is exemplified by a

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

In the early 1980's the Fed tightened monetary policy. Over the next few years

A reduction in inflation would lead to

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Which of the following is true concerning IRA's, 401(k) and 403(b) plans?

Part of the lag in monetary policy effects is due to

Which of the following can tax cuts influence?

The Federal Open Market Committee

Which of the following things can a government do to lower the costs of inflation?

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should

A policymaker against stabilizing the economy would be likely to believe

In which cases were tax cuts followed by robust growth?

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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