Question 1

From the end of 2003 to the end of 2004,the United States ran a deficit of about $121 billion.The debt at the start of this period was about $3,924 billion.Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit and kept the ratio of real GDP to the deficit about the same?

Accepted Answer

A)   about 1% inflation and about 1% real GDP growth
B)   about 1% inflation and about 3% real GDP growth
C)   about 2% inflation and about 1% real GDP growth
D)   about 2% inflation and about 2% real GDP growthE) A) and B)
F) A) and C)

Question 2

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Accepted Answer

A)   6 percent of GDP without raising the debt-to-income ratio.
B)   5 percent of GDP without raising the debt-to-income ratio.
C)   1.5 percent of GDP without raising the debt-to-income ratio.
D)   1 percent of GDP without raising the debt-to-income ratio.E) B) and D)
F) B) and C)

Question 3

The Federal Reserve

Accepted Answer

A)   requires little time to change policy and aggregate demand responds quickly.
B)   requires little time to change policy but aggregate demand responds slowly.
C)   usually requires a substantial time to change policy but aggregate demand responds quickly.
D)   usually requires a substantial time to change policy and aggregate demand responds slowly.E) None of the above
F) C) and D)

Question 4

Which of the following is not correct?

Accepted Answer

A)   A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth.
B)   Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so.
C)   The U.S.debt per-person is large compared with average lifetime income.
D)   Current spending may benefit future generations.E) All of the above
F) A) and B)

Question 5

In general,the longest lag for

Accepted Answer

A)   both fiscal and monetary policy is the time it takes to change policy.
B)   both fiscal and monetary policy is the time it takes for policy to affect aggregate demand.
C)   monetary policy is the time it takes to change policy,while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand.
D)   fiscal policy is the time it takes to change policy,while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.E) A) and B)
F) All of the above

Question 6

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.E) All of the above
F) A) and B)

Question 7

An increase in government spending financed by borrowing changes people's expecations about future taxation such that current consumption expenditures

Accepted Answer

A)   fall.The increase in expenditures makes it likely that future taxes will create smaller distortions.
B)   fall.The increase in expenditures makes it likely that future taxes will create larger distortions.
C)   rise.The increase in expenditures makes it likely that future taxes will create smaller distortions.
D)   rise.The increase in expenditures makes it likely that future taxes will create larger distortions.E) A) and D)
F) None of the above

Question 8

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.E) B) and C)
F) A) and B)

Question 9

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t...

Question 10

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   About $63 billion.
B)   About $165 billion.
C)   About $267 billion.
D)   About $429 billion.E) None of the above
F) A) and B)

Question 11

Tax cuts

Accepted Answer

A)   can easily target investment spending,but investment spending falls by only a small percentage during recessions.
B)   can easily target investment spending,which falls by a large percentage during recessions.
C)   cannot easily target investment spending,but investment spending falls by only a small percentage during recessions.
D)   cannot easily target investment spending,which falls by a large percentage during recessions.E) A) and B)
F) None of the above

Question 12

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 13

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 14

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 15

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

A)   only price stability
B)   only maximum employment
C)   only price stability and maximum employment
D)   price stability,maximum employment,and moderate long-term interest ratesE) A) and D)
F) B) and C)

Question 16

Policymakers following a "lean against the wind" policy would

Accepted Answer

A)   increase government expenditures when output is low and decrease them when output is high.
B)   increase government expenditures when output is low and do nothing when output is high.
C)   decrease government expenditures when output is low and increase them when output is high.
D)   decrease government expenditures when output is high and do nothing when output is low.E) None of the above
F) A) and B)

Question 17

Means-tested government benefits base benefits on

Accepted Answer

A)   a household's wealth and are an incentive to save.
B)   a household's wealth and are a disincentive to save.
C)   the current interest rate and are an incentive to save.
D)   the current interest rate and are a disincentive to save.E) A) and C)
F) A) and B)

Question 18

Provide an example of how current expenditures might benefit future generations.

Accepted Answer

Expenditures on education rais...

Question 19

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

Accepted Answer

A temporar...

Question 20

If aggregate demand shifts because of a wave of optimism about stock prices,those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

A)   Federal Reserve increase the money supply or the government increase taxes.
B)   Federal Reserve increase the money supply or the government decrease taxes.
C)   Federal Reserve decrease the money supply or the government increase taxes.
D)   Federal Reserve decrease the money supply or the government decrease taxes.E) None of the above
F) A) and B)

Exam 36: Six Debates Over Macroeconomic Policy

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

Correct Answer
verified
A temporar...
View Answer

The Federal Reserve

Correct Answer
verified

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct Answer
verified

Correct Answer
verified

Part of the lag in monetary policy effects is due to

Correct Answer
verified

Means-tested government benefits base benefits on

Correct Answer
verified

An increase in government spending financed by borrowing changes people's expecations about future taxation such that current consumption expenditures

Correct Answer
verified

Explain the main arguments in favor of economic stabilization.

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Tax cuts

Correct Answer
verified

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct Answer
verified
The political business cycle describes t...
View Answer

Policymakers following a "lean against the wind" policy would

Correct Answer
verified

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
verified

In general,the longest lag for

Correct Answer
verified

Provide an example of how current expenditures might benefit future generations.

Correct Answer
verified
Expenditures on education rais...
View Answer

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

If aggregate demand shifts because of a wave of optimism about stock prices,those who favor a policy that "leans against the wind" would advocate the

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

Correct AnswerverifiedA temporar...View AnswerShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Part of the lag in monetary policy effects is due to

Correct AnswerverifiedShow Answer

Means-tested government benefits base benefits on

Correct AnswerverifiedShow Answer

An increase in government spending financed by borrowing changes people's expecations about future taxation such that current consumption expenditures

Correct AnswerverifiedShow Answer

Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions a...View AnswerShow Answer

Tax cuts

Correct AnswerverifiedShow Answer

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct AnswerverifiedThe political business cycle describes t...View AnswerShow Answer

Policymakers following a "lean against the wind" policy would

Correct AnswerverifiedShow Answer

At the end of 2003,the government had a debt of about $3,924 billion.During 2004,real GDP grew by about 4.2 percent and inflation was about 2.6 percent.About what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

In general,the longest lag for

Correct AnswerverifiedShow Answer

Provide an example of how current expenditures might benefit future generations.

Correct AnswerverifiedExpenditures on education rais...View AnswerShow Answer

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If aggregate demand shifts because of a wave of optimism about stock prices,those who favor a policy that "leans against the wind" would advocate the

Correct AnswerverifiedShow Answer

Correct Answer
verified
A temporar...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Correct Answer
verified

Correct Answer
verified
The political business cycle describes t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Expenditures on education rais...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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