Question 1

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

A)  .99 and 1.59. 
B)  1.59 and .99 
C)  1.3 and 1.7 
D)  1.7 and 1.3

Question 2

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.

Question 3

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

Accepted Answer

A)  shoeleather and menu costs 
B)  menu costs and relative price variability 
C)  unintended changes in tax liabilities and arbitrary redistributions of wealth 
D)  none of the above is correct.

Question 4

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account IRA).

Accepted Answer

A) True 
 B)False

Question 5

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 6

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 7

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Accepted Answer

The answer of A higher return on saving the amount...

Question 8

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

Studies have shown significant spending changes arise from interest rate changes after

Accepted Answer

A)  a few days. 
B)  a few weeks. 
C)  a few months. 
D)  about a year and a half..

Question 11

Policies that reduce the incentive for households to save include

Accepted Answer

A)  means-testing. 
B)  College and university financial aid administration. 
C)  inheritance taxes. 
D)  All of the above.

Question 12

Proponents of zero inflation argue that a successful program to reduce inflation

Accepted Answer

A)  eventually reduces inflation expectations. 
B)  eventually raises real interest rates. 
C)  permanently decreases output. 
D)  permanently raises unemployment.

Question 13

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

A)  menu costs. 
B)  aggregate supply shocks. 
C)  negative real interest rates. 
D)  recessions.

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.

Question 15

When the Federal Open Market Committee meets it

Accepted Answer

A)  looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
B)  looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
C)  looks only at the state of the economy to determine the target it will set for the federal funds rate. 
D)  looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate.

Question 16

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 17

Government deficits mean that

Accepted Answer

A)  national saving is negative so public saving is negative. 
B)  national saving is negative so public saving is lower than otherwise. 
C)  public saving is negative so national saving is negative. 
D)  public saving is negative so national saving is lower than otherwise.

Question 18

Over time, continued budget deficits lead to

Accepted Answer

A)  a higher capital stock and higher productivity. 
B)  a higher capital stock and lower productivity. 
C)  a lower capital stock and higher productivity. 
D)  a lower capital stock and lower productivity.

Question 19

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce menu costs and permanently lower unemployment. 
B)  permanently reduce menu costs and temporarily raise unemployment. 
C)  temporarily reduce menu costs and temporarily lower unemployment. 
D)  temporarily reduce menu costs and temporarily raise unemployment.

Question 20

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Accepted Answer

The answer of Those who believe the central bank should...

Exam 23: Six Debates Over Macroeconomic Policy

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

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?

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

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account IRA).

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

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

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

Studies have shown significant spending changes arise from interest rate changes after

Policies that reduce the incentive for households to save include

Proponents of zero inflation argue that a successful program to reduce inflation

An added benefit of inflation is that it allows for the possibility of

Part of the lag in monetary policy effects is due to

When the Federal Open Market Committee meets it

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

Government deficits mean that

Over time, continued budget deficits lead to

A permanent reduction in inflation would

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?