Question 1

"Leaning against the wind" is exemplified by a(n)

Accepted Answer

A)   tax increase when there is a recession.
B)   increase 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) B) and D)
F) None of the above

Question 2

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) None of the above
F) All of the above

Question 3

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Accepted Answer

A)   the long-run Phillips curve would shift right.
B)   the long-run Phillips curve would shift left.
C)   the short-run Phillips curve would shift up.
D)   the short-run Phillips curve would shift down.E) B) and C)
F) None of the above

Question 4

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

Question 5

Studies have shown significant spending changes arise from interest rate changes after

Accepted Answer

A)   a few days.
B)   a few weeks.
C)   a few months.
D)   about a year and a half..E) All of the above
F) None of the above

Question 6

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 7

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Accepted Answer

During this time the Fed achieved and ma...

Question 8

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 B)
F) A) and C)

Question 9

Government deficits mean that

Accepted Answer

A)   national saving is negative so public saving is negative.
B)   national saving is negative so public saving is lower than otherwise.
C)   public saving is negative so national saving is negative.
D)   public saving is negative so national saving is lower than otherwise.E) A) and B)
F) A) and C)

Question 10

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Accepted Answer

reduces, i...

Question 11

If the budget deficit were reduced

Accepted Answer

A)   interest rates and investment would increase.
B)   interest rates would increase and investment would decrease.
C)   interest rates and investment would decrease.
D)   interest rates would decrease and investment would increase.E) A) and D)
F) B) and C)

Question 12

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)   avoiding raising tax rates
B)   stabilizing an economy during a recession
C)   both a and b
D)   neither a nor bE) All of the above
F) A) and B)

Question 13

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Accepted Answer

maximum employment, stable pri...

Question 14

Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Accepted Answer

A)   Both the income effect and the substitution effect would tend to increase the amount of money a household saved.
B)   The income effect would tend to increase household savings while the substitution effect would tend to decrease household savings.
C)   The income effect would tend to decrease household savings while the substitution effect would tend to increase household savings.
D)   Both the income effect and the substitution effect would tend to decrease the amount of money a household saved.E) All of the above
F) A) and B)

Question 15

As it is usually practiced, inflation targeting sets

Accepted Answer

A)   a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number.
B)   a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number.
C)   sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range.
D)   sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range.E) A) and D)
F) None of the above

Question 16

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 17

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Accepted Answer

Increase g...

Question 18

The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

Accepted Answer

A)   increased the money supply because it was concerned about unemployment.
B)   increased the money supply because it was concerned about inflation.
C)   decreased the money supply because it was concerned about unemployment.
D)   decreased the money supply because it was concerned about inflation.E) All of the above
F) A) and D)

Question 19

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Accepted Answer

A)   lower the discount rate and sell bonds.
B)   lower the discount rate and buy bonds.
C)   raise the discount rate and sell bonds.
D)   raise the discount rate and buy bonds.E) All of the above
F) A) and B)

Question 20

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

Correct AnswerverifiedShow Answer

Studies have shown significant spending changes arise from interest rate changes after

Correct AnswerverifiedShow Answer

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Correct AnswerverifiedIncrease g...View AnswerShow Answer

When wages are fixed by contract, inflation reduces

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According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

Correct AnswerverifiedShow Answer

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

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Suppose tax laws were reformed to encourage saving by increasing the rate of return on savings. Which of the following would be true?

Correct AnswerverifiedShow Answer

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Correct Answerverifiedreduces, i...View AnswerShow Answer

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Correct AnswerverifiedShow Answer

As it is usually practiced, inflation targeting sets

Correct AnswerverifiedShow Answer

The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

In general, the longest lag for

Correct AnswerverifiedShow Answer

Which of the following are justifications for running a budget deficit?

Correct AnswerverifiedShow Answer

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Correct AnswerverifiedDuring this time the Fed achieved and ma...View AnswerShow 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

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Correct Answerverifiedmaximum employment, stable pri...View AnswerShow Answer

If the budget deficit were reduced

Correct AnswerverifiedShow Answer

Government deficits mean that

Correct AnswerverifiedShow Answer

"Leaning against the wind" is exemplified by a(n)

Correct AnswerverifiedShow Answer

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Correct AnswerverifiedShow Answer

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Increase g...
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reduces, i...
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During this time the Fed achieved and ma...
View Answer

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maximum employment, stable pri...
View Answer

Correct Answer
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Correct Answer
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