Question 1

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Accepted Answer

A)   the central bank would have to decrease the money supply which would decrease output.
B)   the central bank would have to decrease the money supply which would increase output.
C)   the central bank would have to increase the money supply which would decrease output.
D)   the central bank would have to increase the money supply which would increase output.E) C) and D)
F) B) and C)

Question 2

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A)   the growth rate of output is high
B)   in response to increased debt, parents save more to leave their children larger bequests
C)   some current government spending benefits future taxpayers
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 3

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce the frequency of price changes and permanently lower unemployment.
B)   permanently reduce the frequency of price changes and temporarily raise unemployment.
C)   temporarily reduce the frequency of price changes and temporarily lower unemployment.
D)   temporarily reduce the frequency of price changes and temporarily raise unemployment.E) A) and C)
F) A) and D)

Question 4

Why is there a lag between the Fed's actions and the economy's response?

Accepted Answer

Monetary policy is supposed to...

Question 5

"Leaning against the wind" is exemplified by a

Accepted Answer

A)   tax cut when there is a recession.
B)   decrease in the money supply when there is a recession.
C)   decrease in government expenditures when there is a recession.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 6

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?

Accepted Answer

A)   High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
B)   Inflation reduction works best when it is unexpected, and people in high inflation countries would quickly anticipate any change in monetary policy.
C)   In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs.
D)   In a country where inflation has been high for a long time, there are no costs to the inflation.E) A) and C)
F) A) and D)

Question 7

In response to recession, who primarily cut taxes rather than raised expenditures?

Accepted Answer

A)   President George W. Bush and President Barack Obama
B)   President George W. Bush but not President Barack Obama
C)   President Barack Obama but not President George W. Bush
D)   neither President George W. Bush nor President Barack ObamaE) None of the above
F) A) and B)

Question 8

Consider the following rule for monetary policy: r = 2 percent +   π\piπ  + 1/2y - y*) /y* + 1/2y- y*) , 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. E) All of the above
F) B) and D)

Question 9

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Accepted Answer

A)   the central bank would have to decrease the money supply which would decrease output.
B)   the central bank would have to decrease the money supply which would increase output.
C)   the central bank would have to increase the money supply which would decrease output.
D)   the central bank would have to increase the money supply which would increase output.E) A) and D)
F) A) and C)

Question 10

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 11

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Accepted Answer

A)   inflation will raise their real wage and so increase the number of available workers.
B)   inflation will raise their real wage and so decrease the number of available workers
C)   inflation will reduce their real wage and so increase the number of available workers.
D)   inflation will reduce their real wage and so decrease the number of available workers.E) A) and B)
F) A) and C)

Question 12

When wages are fixed by contract, inflation reduces

Accepted Answer

A)   nominal wages; this likely makes labor markets more flexible.
B)   nominal wages; this likely makes labor markets less flexible.
C)   real wages; this likely makes labor markets more flexible.
D)   real wages; this likely makes labor markets less flexible.E) A) and C)
F) A) and B)

Question 13

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 government cut taxes and raised expe...

Question 14

If inflation falls,

Accepted Answer

A)   people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
B)   people choose to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.
C)   people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
D)   people choose to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.E) B) and C)
F) None of the above

Question 15

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 16

Inflation reduction has the highest cost when the efforts are

Accepted Answer

A)   credible so that the sacrifice ratio is low.
B)   credible so that the sacrifice ratio is high.
C)   unexpected so that the sacrifice ratio is high.
D)   unexpected so that the sacrifice ratio is low.E) All of the above
F) A) and C)

Question 17

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)   Saving is a key determinant of long-run prosperity.
B)   Current tax laws discourage saving for the purpose of leaving a large bequest.
C)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
D)   The tax code currently taxes some forms of capital income twice.E) None of the above
F) A) and B)

Question 18

Fluctuations in employment and output result from changes in

Accepted Answer

A)   aggregate demand only.
B)   aggregate supply only.
C)   aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) B) and D)
F) B) and C)

Question 19

Which of the following is true concerning IRA's, 401k)  and 403b)  plans?

Accepted Answer

A)   Not everyone is eligible to put funds into them.
B)   There are restrictions on the amount of funds that can be put into them.
C)   Except under unusual circumstances, there are penalties for withdrawals before retirement.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 20

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.E) B) and D)
F) A) and D)

Exam 18: Six Debates Over Macroeconomic Policy

In response to recession, who primarily cut taxes rather than raised expenditures?

Correct Answer
verified

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?

Correct Answer
verified

"Leaning against the wind" is exemplified by a

Correct Answer
verified

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct Answer
verified

If inflation falls,

Correct Answer
verified

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

Correct Answer
verified

Fluctuations in employment and output result from changes in

Correct Answer
verified

Over time, continued budget deficits lead to

Correct Answer
verified

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct Answer
verified

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Correct Answer
verified

Correct Answer
verified

When wages are fixed by contract, inflation reduces

Correct Answer
verified

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Correct Answer
verified

Which of the following is true concerning IRA's, 401k) and 403b) plans?

Correct Answer
verified

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Correct Answer
verified

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct Answer
verified

Why is there a lag between the Fed's actions and the economy's response?

Correct Answer
verified
Monetary policy is supposed to...
View Answer

Inflation reduction has the highest cost when the efforts are

Correct Answer
verified

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

Correct Answer
verified
The government cut taxes and raised expe...
View Answer

A permanent reduction in inflation would

Correct Answer
verified

Exam 18: Six Debates Over Macroeconomic Policy

In response to recession, who primarily cut taxes rather than raised expenditures?

Correct AnswerverifiedShow Answer

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?

Correct AnswerverifiedShow Answer

"Leaning against the wind" is exemplified by a

Correct AnswerverifiedShow Answer

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

If inflation falls,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

Over time, continued budget deficits lead to

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct AnswerverifiedShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When wages are fixed by contract, inflation reduces

Correct AnswerverifiedShow Answer

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Correct AnswerverifiedShow Answer

Which of the following is true concerning IRA's, 401k) and 403b) plans?

Correct AnswerverifiedShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Why is there a lag between the Fed's actions and the economy's response?

Correct AnswerverifiedMonetary policy is supposed to...View AnswerShow Answer

Inflation reduction has the highest cost when the efforts are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe government cut taxes and raised expe...View AnswerShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Monetary policy is supposed to...
View Answer

Correct Answer
verified

Correct Answer
verified
The government cut taxes and raised expe...
View Answer

Correct Answer
verified