Question 1

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Accepted Answer

A) True 
 B)False

Question 2

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)  requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B)  requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C)  requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.

Question 3

Which of the following is correct?

Accepted Answer

A)  No forms of capital income are taxed twice. 
B)  The tax code cannot be rewritten to provide greater incentive to save. 
C)  Means-tested benefits increase the incentive to save. 
D)  There is a correlation between national savings rates and measures of economic well-being.

Question 4

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Accepted Answer

A)  the income effect and the substitution effect 
B)  the income effect but not the substitution effect 
C)  the substitution effect but not the income effect 
D)  neither the substitution effect nor the income effect

Question 5

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The answer of Why do many economists advocate a consumption...

Question 6

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to reduce interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to reduce interest rates.

Question 7

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Accepted Answer

A)  cutting taxes and increasing expenditures. The effect of the tax cut is larger. 
B)  cutting taxes and increasing expenditures. The effect of the tax cut is smaller. 
C)  raising taxes and decreasing expenditures. The effect of the tax increase is larger. 
D)  raising taxes and decreasing expenditures. The effect of the tax increase is smaller.

Question 8

Which costs of inflation could the government take action to reduce without reducing inflation?

Accepted Answer

A)  shoeleather costs 
B)  unintended changes in tax liabilities 
C)  menu costs 
D)  none of the above is correct.

Question 9

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 10

An individual would suffer higher losses from an unexpectedly higher inflation rate if

Accepted Answer

A)  she held much currency and owned few bonds. 
B)  she held much currency and owned many bonds. 
C)  she held little currency and owned few bonds. 
D)  she held little currency and owned many bonds.

Question 11

In fiscal year 2011, the U.S. government ran a deficit of about $1,300 billion. In fiscal year 2012, the government ran a deficit of about $1,087 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 12

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 13

The Federal Reserve

Accepted Answer

A)  does not have an inflation target; if it did it would likely be 1% or less. 
B)  does not have an inflation target; if it did it would likely be in the range of 2%. 
C)  does have an inflation target; it is 1%. 
D)  does have an inflation target; it is a range from 1-3%.

Question 14

Eliminating double-taxation would likely

Accepted Answer

A)  raise saving and primarily benefit people with lower incomes. 
B)  raise saving but primarily benefit people with higher incomes. 
C)  reduce saving but primarily benefit people with lower incomes. 
D)  reduce saving and primarily benefit people with higher income.

Question 15

Which of the following is an argument in favor of a balanced budget rule?

Accepted Answer

A)  Some economists believe that rules are better than discretion. 
B)  Per-capita debt is small relative to lifetime income. 
C)  The effect of deficit spending on future generations depends in part on what the government buys. 
D)  Other government policies also redistribute income across generations.

Question 16

In theory the severity of recessions can be diminished with

Accepted Answer

A)  an increase in government spending, which the political process cannot delay. 
B)  an increase in government spending, which the length of the political process can delay. 
C)  a decrease in government expenditures, which the political process cannot delay. 
D)  a decrease in government spending, which the length of the political process can delay.

Question 17

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 18

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

Accepted Answer

A)  the short-run Phillips curve shifts right, and the sacrifice ratio will be higher. 
B)  the short-run Phillips curve shifts right, and the sacrifice ratio will be lower. 
C)  the short-run Phillips curve shifts left, and the sacrifice ratio will be higher. 
D)  the short-run Phillips curve shifts left, and the sacrifice ratio will be lower.

Question 19

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Accepted Answer

The answer of What fiscal policies did the government implement...

Question 20

Higher inflation results in

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.

Exam 36: Six Debates Over Macroeconomic Policy