Question 1

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 2

Policies that reduce the incentive for households to save include

Accepted Answer

A)  means-testing.
B)  College and university financial aid administration.
C)  inheritance taxes.
D)  All of the above.E) B) and D)
F) C) and D)

Question 3

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Accepted Answer

A higher rate of return on saving means ...

Question 4

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) B) and D)
F) None of the above

Question 5

Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 percent per year. Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency. Which of the following government spending and taxation figures will not raise the debt-to-income ratio?

Accepted Answer

A)  government spending equal to 50 billion units and tax collections equal to 76 billion units
B)  government spending equal to 50 billion units and tax collections equal to 14 billion units
C)  government spending equal to 50 billion units and tax collections equal to 10 billion units
D)  government spending equal to 50 billion units and tax collections equal to 8 billion unitsE) A) and C)
F) B) and D)

Question 6

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) B) and C)
F) A) and D)

Question 7

As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

Accepted Answer

A)  more quickly and more likely to be spent on projects with little benefit.
B)  more quickly but less likely to be spent on projects with little benefit.
C)  less quickly but more likely to be spent on projects with little benefit.
D)  less quickly and more likely to be spent on projects with little benefit.E) A) and B)
F) A) and C)

Question 8

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

A)  menu costs.
B)  aggregate supply shocks.
C)  negative real interest rates.
D)  recessions.E) A) and B)
F) A) and C)

Question 9

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is correct? In the 1990's

Accepted Answer

A)  the Fed maintained low inflation because it had to follow a policy rule.
B)  the Fed maintained low inflation even without being required to follow a policy rule.
C)  the Fed was not required to follow a policy rule and let inflation move higher.
D)  the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation move higher.E) None of the above
F) A) and B)

Question 11

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 12

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time ...

Question 13

In 2009 Barack Obama responded to recession

Accepted Answer

A)  only by cutting taxes.
B)  by cutting taxes and reducing government expenditures.
C)  only by raising government expenditures.
D)  by cutting taxes and by raising government expenditures.E) A) and C)
F) A) and B)

Question 14

A policymaker in favor of stabilizing the economy would be likely to believe

Accepted Answer

A)  recessions are a waste of resources.
B)  economies must suffer through the booms and busts of the business cycle.
C)  the long policy lags make implementing policy changes in response to recession too risky.
D)  policy exacerbates the magnitude of economic fluctuations.E) None of the above
F) B) and C)

Question 15

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 16

Proponents of tax-law changes to encourage saving would

Accepted Answer

A)  argue that corporate tax rates should be decreased.
B)  increase the number of government benefits which are means-tested.
C)  argue that state sales tax should be replaced with state income tax.
D)  favor none of the above programs.E) C) and D)
F) All of the above

Question 17

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Accepted Answer

A) True 
 B)False

Question 18

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Accumulated over a long span of time, the tax rate on interest income

Accepted Answer

A)  removes all benefits from saving.
B)  reduces the benefits from saving by a small amount.
C)  reduces the benefits from saving by a large amount.
D)  does nor reduce any of the benefits from saving.E) A) and B)
F) B) and D)

Exam 23: Six Debates Over Macroeconomic Policy

In 2009 Barack Obama responded to recession

Correct Answer
verified

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Correct Answer
verified

As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

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

Correct Answer
verified

An added benefit of inflation is that it allows for the possibility of

Correct Answer
verified

Policies that reduce the incentive for households to save include

Correct Answer
verified

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct Answer
verified

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Correct Answer
verified

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Correct Answer
verified

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Correct Answer
verified

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

Correct Answer
verified

A policymaker in favor of stabilizing the economy would be likely to believe

Correct Answer
verified

Explain why policy lags could make stabilization policies counterproductive.

Correct Answer
verified
As the textbook explains, it takes time ...
View Answer

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

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

Correct Answer
verified

Accumulated over a long span of time, the tax rate on interest income

Correct Answer
verified

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct Answer
verified

Which of the following is correct? In the 1990's

Correct Answer
verified

Proponents of tax-law changes to encourage saving would

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy

In 2009 Barack Obama responded to recession

Correct AnswerverifiedShow Answer

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Correct AnswerverifiedShow Answer

As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

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 AnswerverifiedShow Answer

An added benefit of inflation is that it allows for the possibility of

Correct AnswerverifiedShow Answer

Policies that reduce the incentive for households to save include

Correct AnswerverifiedShow Answer

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct AnswerverifiedShow Answer

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Correct AnswerverifiedShow Answer

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Correct AnswerverifiedShow Answer

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A policymaker in favor of stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

Explain why policy lags could make stabilization policies counterproductive.

Correct AnswerverifiedAs the textbook explains, it takes time ...View AnswerShow Answer

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Accumulated over a long span of time, the tax rate on interest income

Correct AnswerverifiedShow Answer

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct AnswerverifiedShow Answer

Which of the following is correct? In the 1990's

Correct AnswerverifiedShow Answer

Proponents of tax-law changes to encourage saving would

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
As the textbook explains, it takes time ...
View Answer

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified