Question 1

Paul Volcker, former chair of the Fed, implemented

Accepted Answer

A)   contractionary policy which increased the popularity of the U.S. president who had appointed him.
B)   contractionary policy which decreased the popularity of the U.S. president who had appointed him.
C)   expansionary policy which increased the popularity of the U.S. president who had appointed him.
D)   expansionary policy which decreased the popularity of the U.S. president who had appointed him.E) All of the above
F) C) and D)

Question 2

The Federal Open Market Committee meets about

Accepted Answer

A)   every six days.
B)   every six weeks.
C)   every six months.
D)   every sixteen months.E) B) and D)
F) A) and C)

Question 3

Which of the following statements is not true?

Accepted Answer

A)   The U.S. has sometimes run budget deficits during times when it was not fighting war and the economy was expanding.
B)   The U.S. federal debt in 2012 was about $11.3 trillion.
C)   Government debt per person represents more than 5 percent of a typical worker's lifetime resources.
D)   Forward-looking parents can reverse adverse effects of government debt on their children.E) A) and C)
F) C) and D)

Question 4

Which of the following is not correct?

Accepted Answer

A)   Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.
B)   Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)   The only times deficits have increased have been during times of war or economic downturns.
D)   Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.E) All of the above
F) B) and C)

Question 5

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Accepted Answer

A)   The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict.
B)   The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict.
C)   The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict.
D)   The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.E) All of the above
F) None of the above

Question 6

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 7

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 D)
F) C) and D)

Question 8

Provide an example of how current expenditures might benefit future generations.

Accepted Answer

Expenditures on education rais...

Question 9

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 10

Explain why fiscal policy actions typically work with a lag.

Accepted Answer

Fiscal policy works with a lag primarily...

Question 11

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Accepted Answer

Tax policies designed to encourage savin...

Question 12

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $226.0 billion
B)   about $248.6 billion
C)   about $474.6 billion
D)   about $561.8 billionE) B) and D)
F) A) and B)

Question 13

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A)   neither fiscal nor monetary policy have much impact on aggregate demand.
B)   attempts to stabilize the economy decrease the magnitude of economic fluctuations.
C)   unemployment and inflation are not cause for much concern.
D)   economic conditions can easily change between the start of policy action and when it takes effect.E) B) and C)
F) None of the above

Question 14

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Accepted Answer

A)   inflation targeting.
B)   the monetary policy reaction lag.
C)   the time inconsistency of policy.
D)   the sacrifice ratio dilemma.E) C) and D)
F) B) and D)

Question 15

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 16

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Accepted Answer

Households will spend disposable income ...

Question 17

Which of the following is correct?

Accepted Answer

A)   Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.
B)   Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.
C)   Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.
D)   Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.E) C) and D)
F) B) and C)

Question 18

According to a 1977 amendment to the Federal Reserve Act of 1913, what weights should the Fed put on the goals of maximum employment, stable prices, and moderate long-term interest rates?

Accepted Answer

While the amendment indicates ...

Question 19

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Accepted Answer

A)   Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes for increasing aggregate demand.
B)   Increased government spending on "shovel­ready" projects can be helpful to boost aggregate demand.
C)   Increases in government spending offer a greater "bang for the buck" than decreases in taxes.
D)   When the government gives a dollar in tax cuts to a household, that dollar immediately and fully adds to aggregate demand.E) A) and D)
F) None of the above

Question 20

If a central bank were required to target inflation at zero, then when there was a positive aggregate supply shock the central bank

Accepted Answer

A)   would have to increase the interest rate. This would move unemployment closer to the natural rate.
B)   would have to increase the interest rate. This would move unemployment further from the natural rate.
C)   would have to decrease the interest rate. This would move unemployment closer to the natural rate.
D)   would have to decrease the interest rate. This would move unemployment further from the natural rate.E) All of the above
F) A) and D)

Exam 36: Six Debates Over Macroeconomic Policy

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

Correct AnswerverifiedShow Answer

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Correct AnswerverifiedShow Answer

Advocates of cutting taxes rather than increasing government expenditures in response to a recession argue that the increase in spending by consumers and business may be more effective than that of the government. Explain this argument.

Correct AnswerverifiedHouseholds will spend disposable income ...View AnswerShow Answer

Which of the following statements is not true?

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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

Higher saving is associated with

Correct AnswerverifiedShow Answer

At the end of 2012, the government had a debt of about $11.3 trillion. If during 2013 real GDP rose 2% and inflation was 2.2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Correct AnswerverifiedShow Answer

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Correct AnswerverifiedShow Answer

Explain why fiscal policy actions typically work with a lag.

Correct AnswerverifiedFiscal policy works with a lag primarily...View AnswerShow Answer

Opponents of using policy to stabilize the economy generally believe that

Correct AnswerverifiedShow Answer

Which of the following is correct?

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Provide an example of how current expenditures might benefit future generations.

Correct AnswerverifiedExpenditures on education rais...View AnswerShow Answer

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Correct AnswerverifiedTax policies designed to encourage savin...View AnswerShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Paul Volcker, former chair of the Fed, implemented

Correct AnswerverifiedShow Answer

If a central bank were required to target inflation at zero, then when there was a positive aggregate supply shock the central bank

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

According to a 1977 amendment to the Federal Reserve Act of 1913, what weights should the Fed put on the goals of maximum employment, stable prices, and moderate long-term interest rates?

Correct AnswerverifiedWhile the amendment indicates ...View AnswerShow Answer

The Federal Open Market Committee meets about

Correct AnswerverifiedShow Answer

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Households will spend disposable income ...
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Fiscal policy works with a lag primarily...
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Expenditures on education rais...
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Tax policies designed to encourage savin...
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While the amendment indicates ...
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