Question 1

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Accepted Answer

A)   Saving is not very responsive to changes in the tax rate.
B)   Saving is not an important determinant of a nation's ability to produce output.
C)   Reducing the budget deficit instead of changing the tax laws could raise saving.
D)   Changes in the tax laws to induce saving would distribute the tax burden less fairly.E) B) and D)
F) None of the above

Question 2

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 left.
B)   increase output.
C)   decrease unemployment.
D)   increase prices.E) B) and C)
F) A) and D)

Question 3

Which of the programs below would not transfer wealth from young to old generations?

Accepted Answer

A)   Taxes are reduced as a result of cutting expenditures on education.
B)   Taxes are raised to improve government infrastructure such as roads and bridges.
C)   Taxes are raised to provide more generous Social Security benefits.
D)   Taxes are raised to provide more generous Medicare benefits.E) C) and D)
F) None of the above

Question 4

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)   The income effect, but not the substitution effect, would tend to reduce private saving.
B)   The substitution effect, but not the income effect, would tend to reduce private saving.
C)   Both the income and substitution effect would tend to reduce private saving.
D)   Neither the income nor the substitution effect would tend to reduce private saving.E) B) and C)
F) All of the above

Question 7

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

Question 8

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)   changes in the interest rate to change aggregate demand.
B)   changes in the money supply to change interest rates.
C)   the Fed to make changes in policy.
D)   Congress and the President to approve Fed policy.E) All of the above
F) None of the above

Question 9

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Accepted Answer

A) True 
 B)False

Question 10

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 D)
F) A) and C)

Question 11

The time inconsistency of policy implies that

Accepted Answer

A)   what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)   when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply.
C)   people will believe Fed policy will be more inflationary than the Fed claims.
D)   what policymakers say they will do is usually not what they do, but people believe them anyway.E) C) and D)
F) A) and B)

Question 12

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

A government deficit means that the gove...

Question 13

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Accepted Answer

A)   the time inconsistency problem, but not political business cycles.
B)   the political business cycle, but not the time inconsistency problem.
C)   both the time inconsistency problem and political business cycles.
D)   neither the time inconsistency problem nor political business cycles.E) None of the above
F) A) and B)

Question 14

Why might policymakers attempts to stabilize the economy do more harm than good?

Accepted Answer

Policy works with a lag. By th...

Question 15

Which of the following is correct? Investment tax credits

Accepted Answer

A)   can increase investment, but stimulating investment is not a key to ending a recession.
B)   can increase investment, which is a key to ending a recession.
C)   can not increase spending on investment goods, but stimulating investment is not a key to ending a recession.
D)   can not increase spending on investment goods, but stimulating investment is a key to ending a recession.E) A) and D)
F) All of the above

Question 16

Higher saving is associated with

Accepted Answer

A)   a larger capital stock and a higher standard of living.
B)   a larger capital stock but not a higher standard of living.
C)   a higher standard of living but not a larger capital stock.
D)   neither a higher standard of living nor a higher capital stock.E) A) and C)
F) A) and D)

Question 17

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

Question 18

If net exports fall, what actions could a central bank take to stabilize the economy?

Accepted Answer

Increase t...

Question 19

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand, model which of these policies would tend to reduce unemployment?

Accepted Answer

A)   both the tax cut and the increase in government expenditures
B)   the tax cut but not the increase in government expenditures
C)   the increase in government expenditures but not the tax cut
D)   neither the increase in government expenditures nor the tax cutE) B) and D)
F) B) and C)

Question 20

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Exam 23: Six Debates Over Macroeconomic Policy

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

Correct AnswerverifiedShow Answer

Why might policymakers attempts to stabilize the economy do more harm than good?

Correct AnswerverifiedPolicy works with a lag. By th...View AnswerShow Answer

Higher saving is associated with

Correct AnswerverifiedShow Answer

The time inconsistency of policy implies that

Correct AnswerverifiedShow Answer

Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Means-tested government benefits base benefits on

Correct AnswerverifiedShow Answer

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand, model which of these policies would tend to reduce unemployment?

Correct AnswerverifiedShow Answer

If net exports fall, what actions could a central bank take to stabilize the economy?

Correct AnswerverifiedIncrease t...View AnswerShow Answer

Which of the following is correct? Investment tax credits

Correct AnswerverifiedShow Answer

Suppose the tax rate on interest income from saving were reduced.

Correct AnswerverifiedShow Answer

Part of the argument against deficits is that they

Correct AnswerverifiedShow Answer

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Correct AnswerverifiedA government deficit means that the gove...View AnswerShow Answer

A law that requires the money supply to grow by a fixed percentage each year would eliminate

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

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Correct AnswerverifiedShow Answer

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

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

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Correct AnswerverifiedShow Answer

Which of the programs below would not transfer wealth from young to old generations?

Correct AnswerverifiedShow Answer

The principal reason that monetary policy has lags is that it takes a long time for

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Policy works with a lag. By th...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Time inconsistency refers to the idea th...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Increase t...
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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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A government deficit means that the gove...
View Answer

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
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Correct Answer
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Correct Answer
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