Question 1

Some economists argue that since inflation

Accepted Answer

A)  raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
B)  raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust. 
C)  reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust. 
D)  reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.

Question 2

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Accepted Answer

A)  raise the money supply. It could do this to counter high unemployment. 
B)  raise the money supply. It could do this to counter high inflation. 
C)  reduce the money supply. It could do this to counter high unemployment. 
D)  reduce the money supply. It could do this to counter high inflation.

Question 3

Explain what is meant by saying that capital income is taxed twice.

Accepted Answer

The answer of Explain what is meant by saying that...

Question 4

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Accepted Answer

A)  the price level and real GDP 
B)  the price level but not real GDP 
C)  real GDP but not the price level 
D)  neither real GDP nor the price level

Question 5

Supporters of using government expenditures to respond to recession

Accepted Answer

A)  argue that monetary policy should be used first. To respond to a recession the Fed would increase the money supply. 
B)  argue that monetary policy should be used first. To respond to a recession the Fed would decrease the money supply. 
C)  argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would increase the money supply. 
D)  argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would decrease the money supply.

Question 6

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. Other things the same, this change would be expected 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.

Question 7

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.

Question 8

The Federal Reserve

Accepted Answer

A)  requires little time to change policy and aggregate demand responds quickly. 
B)  requires little time to change policy but aggregate demand responds slowly. 
C)  usually requires a substantial time to change policy but aggregate demand responds quickly. 
D)  usually requires a substantial time to change policy and aggregate demand responds slowly.

Question 9

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.

Question 10

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 supply shifts left, the central bank must

Accepted Answer

A)  decrease the money supply, which will move output back towards its long-run level. 
B)  decrease the money supply, which will move output farther from its long-run level. 
C)  increase the money supply, which will move output back towards its long-run level. 
D)  increase the money supply, which will move output farther from its long-run level.

Question 11

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A)  economists disagree over basic issues such as the importance of saving for economic growth. 
B)  there are tradeoffs and people disagree about the best way to deal with them. 
C)  politicians offer misleading information. 
D)  people fail to clearly see the benefits or the costs of most changes.

Question 12

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Accepted Answer

A)  increased the money supply because it was concerned about unemployment. 
B)  increased the money supply because it was concerned about inflation. 
C)  decreased the money supply because it was concerned about unemployment. 
D)  decreased the money supply because it was concerned about inflation.

Question 13

Double taxation means that both

Accepted Answer

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

Question 14

If the budget deficit were reduced

Accepted Answer

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

Question 15

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

The answer of What's the basis for arguing that deficits...

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Suppose a 25-year-old worker purchases a $5,000 bond that pays 6% interest per year which she plans to withdraw when she retires in 40 years. How much will the $5,000 accumulate to in 40 years? If the worker faces a marginal tax rate of 30% on interest income, how much will the $5,000 accumulate to in 40 years?

Accepted Answer

The answer of Suppose a 25-year-old worker purchases a $5,000...

Question 18

For which of the following policies is there a significant implementation lag?

Accepted Answer

A)  fiscal policy and monetary policy 
B)  fiscal policy but not monetary policy 
C)  monetary policy but not fiscal policy 
D)  neither monetary policy nor fiscal policy

Question 19

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 20

When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.

Accepted Answer

A) True 
 B)False

Exam 18: Six Debates Over Macroeconomic Policy

Some economists argue that since inflation

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Explain what is meant by saying that capital income is taxed twice.

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Supporters of using government expenditures to respond to recession

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. Other things the same, this change would be expected to have

Proponents of zero inflation argue that reducing inflation has

The Federal Reserve

A policymaker against stabilizing the economy would be likely to believe

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 supply shifts left, the central bank must

The six debates over macroeconomic policy exist mostly because

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Double taxation means that both

If the budget deficit were reduced

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

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

For which of the following policies is there a significant implementation lag?

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.