Question 1

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce menu costs and permanently lower unemployment.
B)   permanently reduce menu costs and temporarily raise unemployment.
C)   temporarily reduce menu costs and temporarily lower unemployment.
D)   temporarily reduce menu costs and temporarily raise unemployment.E) A) and B)
F) None of the above

Question 2

If there is an increase in the money supply, in the short run

Accepted Answer

A)   the interest rises. It takes several weeks for spending to fully respond to this change.
B)   the interest rises. It takes several months for spending to fully respond to this change.
C)   the interest falls. It takes several weeks for spending to fully respond to this change.
D)   the interest falls. It takes several months for spending to fully respond to this change.E) B) and C)
F) B) and D)

Question 3

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) B) and C)

Question 4

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Accepted Answer

A)   setting a policy rule will limit the abuse of power of policymakers.
B)   policymakers can better influence the political business cycle in their favor when following a policy rule.
C)   a policy rule provides policymakers with the greatest flexibility to manage inflation.
D)   if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment.E) None of the above
F) C) and D)

Question 5

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Accepted Answer

A)   high and the reduction is unexpected.
B)   high and the reduction is expected.
C)   low and the reduction is unexpected.
D)   low and the reduction is expected.E) None of the above
F) All of the above

Question 6

The Federal Open Market Committee

Accepted Answer

A)   operates with almost complete discretion over monetary policy.
B)   is required to increase the money supply by a given growth rate each year.
C)   is required to keep short-term interest rates within a range set by Congress.
D)   is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.E) C) and D)
F) B) and D)

Question 7

The time inconsistency of monetary policy means that

Accepted Answer

A)   once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment.
B)   at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low.
C)   monetary policy is not consistent across time because it is influenced by politics.
D)   monetary policy is not consistent across time because policymakers are incompetent.E) A) and C)
F) All of the above

Question 8

Which of the following does not reduce 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)   budget deficits raise interest rates
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 9

If inflation were reduced, then it is

Accepted Answer

A)   likely that real incomes would rise more rapidly and labor markets would be more flexible.
B)   likely that real incomes would rise more rapidly but unlikely that labor markets would be more flexible.
C)   likely that labor markets would be more flexible but unlikely that real incomes would rise more rapidly.
D)   unlikely that real incomes would rise more rapidly and unlikely that labor markets would be more flexible.E) B) and C)
F) C) and D)

Question 10

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation. Sh...

Question 11

If the government cut expenditures during an expansion

Accepted Answer

A)   it would have to raise the tax rate
B)   it would tend to stabilize the economy
C)   both a and b
D)   neither a nor bE) A) and B)
F) C) and D)

Question 12

Some economists argue that since inflation

Accepted Answer

A)   raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
B)   raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.
C)   reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
D)   reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.E) B) and C)
F) None of the above

Question 13

Economists agree that at least in the short run disinflation

Accepted Answer

A)   leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high.
B)   leads to a period of higher unemployment. They disagree about the cost of moderate inflation.
C)   leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high.
D)   leads to a period of lower unemployment. They disagree about the cost of moderate inflation.E) None of the above
F) A) and B)

Question 14

For which of the following policies is there a significant implementation lag?

Accepted Answer

A)   fiscal policy and monetary policy
B)   fiscal policy but not monetary policy
C)   monetary policy but not fiscal policy
D)   neither monetary policy nor fiscal policyE) All of the above
F) B) and C)

Question 15

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

Question 16

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) None of the above
F) All of the above

Question 17

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) A) and D)
F) A) and C)

Question 18

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

Accepted Answer

A)   A public budget surplus can raise national saving.
B)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
C)   Low-income households save a larger fraction of their income than high-income households.
D)   Tax cuts might cause a budget deficit.E) None of the above
F) A) and C)

Question 20

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

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following would likely increase private saving?

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If inflation were reduced, then it is

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Which of the following does not reduce the potential burden of an increase in debt on future generations?

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If the government cut expenditures during an expansion

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The Federal Open Market Committee

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Describe three costs of inflation.

Correct AnswerverifiedThere are several costs of inflation. Sh...View AnswerShow Answer

Economists agree that at least in the short run disinflation

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For which of the following policies is there a significant implementation lag?

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Some economists argue that since inflation

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Which of the following is correct?

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If there is an increase in the money supply, in the short run

Correct AnswerverifiedShow Answer

An economist would be more likely to argue against reducing inflation if she thought that

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All of the following are arguments against stabilization policy except

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Which of the following is not an argument made by those who oppose reforming the tax laws to encourage saving?

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The time inconsistency of monetary policy means that

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Policies that reduce the incentive for households to save include

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A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Correct AnswerverifiedShow Answer

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Correct AnswerverifiedShow Answer

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Correct AnswerverifiedShow Answer

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There are several costs of inflation. Sh...
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