Question 1

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.

Question 2

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short- run Phillips curve will remain far to the

Accepted Answer

A)  left, and the sacrifice ratio will be low. 
B)  left, and the sacrifice ratio will be high. 
C)  right, and the sacrifice ratio will be low. 
D)  right, and the sacrifice ratio will be high.

Question 3

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.

Question 4

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Accepted Answer

The answer of Explain how a higher rate of return...

Question 5

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 6

During recessions, even with no changes in policy, the deficit tends to ______ because _____________.

Accepted Answer

The answer of During recessions, even with no changes in...

Question 7

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

Accepted Answer

A)  Ben Bernanke 
B)  Alan Greenspan 
C)  Paul Volcker 
D)  Arthur Burns

Question 8

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A)  arbitrary redistributions of wealth 
B)  shoeleather costs 
C)  menu costs 
D)  none of the above is correct.

Question 9

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

Question 10

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A)  cutting government spending. 
B)  raising taxes. 
C)  having the Fed purchase government bonds. 
D)  reducing the money supply.

Question 11

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do to boost the economy when aggregate demand is inadequate to ensure full employment?

Accepted Answer

The answer of Some economists argue that policymakers can use...

Question 12

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 13

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.

Question 14

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 easier for the Fed to increase output by increasing the money supply. 
C)  people will believe Fed policy will be less inflationary than the Fed claims. 
D)  what policymakers say they will do is usually not what they do, but people believe them anyway.

Question 15

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 16

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.

Question 17

A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct?

Accepted Answer

A)  the substitution effect was larger than the income effect; national saving rose 
B)  the substitution effect was larger than the income effect; national saving fell 
C)  the income effect was larger than the substitution effect; national saving rose 
D)  the income effect was larger than the substitution effect; national saving fell

Question 18

The effect of budget deficits on interest rates

Accepted Answer

A)  increases private investment, so eventually the capital stock rises. 
B)  increases private investment, so eventually the capital stock falls. 
C)  decreases private investment, so eventually the capital stock rises. 
D)  decreases private investment, so eventually the capital stock falls.

Question 19

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

Question 20

In 2012 the federal debt was about

Accepted Answer

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

Exam 18: Six Debates Over Macroeconomic Policy

Critics of active monetary and fiscal policy emphasize

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short- run Phillips curve will remain far to the

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

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

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

During recessions, even with no changes in policy, the deficit tends to because _______.

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

Which costs of inflation could the government reduce without reducing inflation?

In which cases were tax cuts followed by robust growth?

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do to boost the economy when aggregate demand is inadequate to ensure full employment?

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

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

The time inconsistency of policy implies that

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

The Federal Open Market Committee meets about

The effect of budget deficits on interest rates

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

In 2012 the federal debt was about