Question 1

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections the Fed would

Accepted Answer

A)   raise interest rates to shift aggregate demand left.
B)   raise interest rates to shift aggregate demand right.
C)   reduce interest rates to shift aggregate demand left.
D)   reduce interest rates to shift aggregate demand right.E) C) and D)
F) A) and D)

Question 2

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

A)   increased spending
B)   increased aggregate demand
C)   increased real GDP
D)   an increase in the unemployment rateE) A) and C)
F) B) and C)

Question 3

Consider the following rule for monetary policy: r = 2 percent + π + 1/2(y - y*) /y* + 1/2(π - π*) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)   1/2 percentage point
B)   1 percentage point
C)   1 and 1/2 percentage points
D)   3 and 1/2 percentage pointsE) B) and C)
F) None of the above

Question 4

Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 500 billion units of currency and current nominal national debt of 100 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to income ratio constant?

Accepted Answer

A)   government spending equal to 50 billion units and tax collections equal to 48 billion units
B)   government spending equal to 50 billion units and tax collections equal to 41 billion units
C)   government spending equal to 50 billion units and tax collections equal to 40 billion units
D)   government spending equal to 50 billion units and tax collections equal to 32 billion unitsE) C) and D)
F) A) and D)

Question 5

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

Question 6

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m...

Question 7

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

Accepted Answer

A)   decreased interest rates and investment.
B)   decreased interest rates and increased investment.
C)   increased interest rates and investment.
D)   increased interest rates and decreased investment.E) B) and D)
F) B) and C)

Question 8

The cost of inflation reduction is a large, permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

Increase the money s...

Question 11

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security, ...

Question 12

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

Question 13

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Accepted Answer

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

Question 14

Which of the following is true of stimulus policy enacted in 2009?

Accepted Answer

A)   We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression.
B)   We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression.
C)   We can not be sure that it reduced the severity of the recession, but the recession was less severe than the Great Depression.
D)   We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression.E) A) and B)
F) C) and D)

Question 15

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 16

Why is there a lag between the Fed's actions and the economy's response?

Accepted Answer

Monetary policy is supposed to...

Question 17

If aggregate demand shifts because of a wave of pessimism 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) B) and C)

Question 18

Which of the following reduce the incentive for households to save?

Accepted Answer

A)   both means-testing of government benefits and inheritance taxes
B)   means-testing of government benefits but not inheritance taxes
C)   inheritance taxes, but not means-testing of government benefits
D)   neither means-testing of government benefits nor inheritance taxesE) B) and C)
F) All of the above

Question 19

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Accepted Answer

Both monetary and fiscal policy work wit...

Question 20

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

A)   increase taxes, increase government spending
B)   increase taxes, decrease government spending
C)   decrease taxes, increase government spending
D)   decrease taxes, decrease government spendingE) B) and D)
F) A) and C)

Exam 36: Six Debates Over Macroeconomic Policy

Why is there a lag between the Fed's actions and the economy's response?

Correct Answer
verified
Monetary policy is supposed to...
View Answer

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct Answer
verified

Which of the following likely occurs when households and firms become more pessimistic?

Correct Answer
verified

Correct Answer
verified

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections the Fed would

Correct Answer
verified

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

Correct Answer
verified
Increase the money s...
View Answer

Which of the following is true of stimulus policy enacted in 2009?

Correct Answer
verified

A recession has no benefit to society-it represents a sheer waste of resources.

Correct Answer
verified

Which of the following reduce the incentive for households to save?

Correct Answer
verified

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

Correct Answer
verified

The time inconsistency of policy implies that

Correct Answer
verified

Is it possible that deficits do not burden future generations?

Correct Answer
verified
Some programs, such as Social Security, ...
View Answer

The cost of inflation reduction is a large, permanent increase in unemployment.

Correct Answer
verified

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Correct Answer
verified

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

Correct Answer
verified

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Correct Answer
verified
Both monetary and fiscal policy work wit...
View Answer

Correct Answer
verified

Part of the argument against deficits is that they

Correct Answer
verified

Approximately how often does the Federal Open Market Committee meet?

Correct Answer
verified
The FOMC m...
View Answer

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

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

Why is there a lag between the Fed's actions and the economy's response?

Correct AnswerverifiedMonetary policy is supposed to...View AnswerShow Answer

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct AnswerverifiedShow Answer

Which of the following likely occurs when households and firms become more pessimistic?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections the Fed would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedIncrease the money s...View AnswerShow Answer

Which of the following is true of stimulus policy enacted in 2009?

Correct AnswerverifiedShow Answer

A recession has no benefit to society-it represents a sheer waste of resources.

Correct AnswerverifiedShow Answer

Which of the following reduce the incentive for households to save?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The time inconsistency of policy implies that

Correct AnswerverifiedShow Answer

Is it possible that deficits do not burden future generations?

Correct AnswerverifiedSome programs, such as Social Security, ...View AnswerShow Answer

The cost of inflation reduction is a large, permanent increase in unemployment.

Correct AnswerverifiedShow Answer

As compared to a tax cut, an increase in government expenditures is likely to affect aggregate demand

Correct AnswerverifiedShow Answer

From fiscal year 2012 to fiscal year 2013 China's budget deficit rose 50%. Other things the same, we would expect this to have

Correct AnswerverifiedShow Answer

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Correct AnswerverifiedBoth monetary and fiscal policy work wit...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Part of the argument against deficits is that they

Correct AnswerverifiedShow Answer

Approximately how often does the Federal Open Market Committee meet?

Correct AnswerverifiedThe FOMC m...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified
Monetary policy is supposed to...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Increase the money s...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Some programs, such as Social Security, ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both monetary and fiscal policy work wit...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The FOMC m...
View Answer

Correct Answer
verified