Question 1

A consumption tax that replaces an income tax

Accepted Answer

A)  only taxes a household on the money it spends. 
B)  discourages saving. 
C)  would likely result in a lower level of saving than an income tax. 
D)  ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase.

Question 2

Which of the following is not an argument in favor of requiring the government to balance its budget?

Accepted Answer

A)  Government debt imposes higher taxes or more borrowing on future generations. 
B)  A balanced budget will smooth the business cycle. 
C)  Deficits lower national saving. 
D)  Recent history shows that Congress will run deficits even when deficits are not justified by war or recession.

Question 3

What is meant by the political business cycle?

Accepted Answer

The answer of What is meant by the political business...

Question 4

Identify three government policies that discourage saving.

Accepted Answer

The answer of Identify three government policies that discourage saving....

Question 5

If the public correctly perceives that the central bank will reduce inflation, then

Accepted Answer

A)  the short-run Phillips curve shifts right, and unemployment will rise by more than otherwise. 
B)  the short-run Phillips curve shifts right, and unemployment will rise by less than otherwise. 
C)  the short-run Phillips curve shifts left, and unemployment will rise by more than otherwise. 
D)  the short-run Phillips curve shifts left, and unemployment will rise by less than otherwise.

Question 6

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Accepted Answer

The answer of Monetary policy affects aggregate demand with a...

Question 7

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 8

Consider the following rule for monetary policy: r = 2 percent +  $\pi$ + 1/2y - y*)/y* + 1/2 $\pi$-  $\pi$*), where r is the nominal interest rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* is the inflation target. Which of the following statements is not correct?

Accepted Answer

A)  If aggregate demand shifts right from long-run equilibrium, this rule unambiguously implies that the Fed increases the nominal interest rate. 
B)  If aggregate supply shifts right from long-run equilibrium at the inflation target, we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate. 
C)  If output is at its natural level, but inflation is above its target, the Fed must increase the nominal interest rate. 
D)  If inflation is at its targeted level, but output is above its natural rate, the Fed must decrease the federal funds rate.

Question 9

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 10

Inflation

Accepted Answer

A)  leads people to use more resources to reduce money holdings. There is no way it can make labor markets work more efficiently. 
B)  leads people to use more resources to reduce money holdings. However, it can make labor markets work more efficiently. 
C)  leads people to use fewer resources to reduce money holdings. There is no way it can make labor markets work more efficiently 
D)  leads people to use fewer resources to reduce money holdings. However, it can make labor markets work more efficiently.

Question 11

Is it possible that deficits do not burden future generations?

Accepted Answer

The answer of Is it possible that deficits do not...

Question 12

Which of the following can tax cuts influence?

Accepted Answer

A)  aggregate demand and aggregate supply 
B)  aggregate demand but not aggregate supply 
C)  aggregate supply but not aggregate demand 
D)  neither aggregate demand nor aggregate supply

Exam 23: Six Debates Over Macroeconomic Policy