Question 1

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 taxesE) A) and C)
F) None of the above

Question 2

An individual would suffer lower 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.E) A) and B)
F) All of the above

Question 3

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 effectE) B) and C)
F) None of the above

Question 4

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags,but the lags are ...

Question 5

Which of the following is correct?

Accepted Answer

A)   Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle.
B)   Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle.
C)   Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle.
D)   Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycleE) A) and D)
F) C) and D)

Question 6

Part of the argument against deficits is that they

Accepted Answer

A)   increase interest rates and investment.
B)   increase interest rates and decrease investment.
C)   decrease interest rates and investment.
D)   decrease interest rates and increase investment.E) A) and B)
F) All of the above

Question 7

All of the following are arguments against stabilization policy except

Accepted Answer

A)   Economic forecasting is highly imprecise.
B)   Long lags may cause stabilization policies to in fact destabilize the economy.
C)   Monetary policy affects aggregate demand by changing interest rates.
D)   Fiscal policy must go through a long political process.E) All of the above
F) None of the above

Question 8

Which of the following would transfer wealth from old to young?

Accepted Answer

A)   Increases in the budget deficit.
B)   Decreased building of highways and bridges.
C)   More generous education subsidies.
D)   Indexation of Social Security benefits to inflation.E) B) and C)
F) All of the above

Question 9

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)   the government raise taxes or cut expenditures.This would increase the magnitude of economic fluctuations.
B)   the government raise taxes or cut expenditures.This would decrease the magnitude of economic fluctuations.
C)   the government cut taxes or raise expenditures.This would increase the magnitude of economic fluctuations.
D)   the government cut taxes or raise expenditures.This would decrease the magnitude of economic fluctuations.E) All of the above
F) B) and C)

Question 10

Which of the following would likely increase private saving?

Accepted Answer

A)   Both expansion of IRA type accounts and a consumption tax.
B)   Expansion of IRA type accounts,but not a consumption tax.
C)   A consumption tax,but not expansion of IRA type accounts.
D)   Neither expansion of IRA type accounts nor a consumption tax.E) A) and C)
F) All of the above

Question 11

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 of the current spending benefits future taxpayers
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 12

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 13

Economists agree that if a monetary policy rule is to be used,the best one makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Question 14

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 15

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply 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.E) All of the above
F) B) and C)

Question 16

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Accepted Answer

A)   both the tax cut and the increase in government expenditures would tend to increase output.
B)   only the tax cut would tend to increase output.
C)   only the increase in government expenditures would tend to increase output.
D)   neither the tax cut nor the increase in government expenditures would tend to increase output.E) A) and B)
F) A) and C)

Question 17

Paul Volcker's inflation reduction efforts

Accepted Answer

A)   failed to reduce inflation.
B)   failed to reduce expected inflation.
C)   resulted in the highest unemployment rate since the Great Depression.
D)   None of the above are correct.E) All of the above
F) None of the above

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo...

Question 20

In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.Such a change in sentiment is likely to

Accepted Answer

A)   shift aggregate demand to the right.
B)   increase output.
C)   increase unemployment.
D)   increase prices.E) None of the above
F) A) and C)

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following would transfer wealth from old to young?

Correct AnswerverifiedShow Answer

Economists agree that if a monetary policy rule is to be used,the best one makes the growth rate of the money supply constant.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

In the Summer of 2008,consumers indicated that they were less optimistic about the future of the economy.Such a change in sentiment is likely to

Correct AnswerverifiedShow Answer

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Correct AnswerverifiedThose who oppose stabilization policy mo...View AnswerShow Answer

If a central bank were required to target inflation at zero,then when there was an unanticipated increase in aggregate supply the central bank

Correct AnswerverifiedShow Answer

All of the following are arguments against stabilization policy except

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags,but the lags are ...View AnswerShow Answer

Part of the argument against deficits is that they

Correct AnswerverifiedShow Answer

Paul Volcker's inflation reduction efforts

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A balanced budget would require that when real GDP was growing rapidly,

Correct AnswerverifiedShow Answer

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Those who oppose stabilization policy mo...
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Both are prone to lags,but the lags are ...
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