Question 1

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

Accepted Answer

A)   the short-run Phillips curve would shift up.
B)   the short-run Phillips curve would shift down.
C)   the long-run Phillips curve would shift right.
D)   the long-run Phillips curve would shift left.E) A) and D)
F) A) and B)

Question 2

Which of the following is correct? In the 1990's

Accepted Answer

A)   the Fed maintained low inflation because it had to follow a policy rule.
B)   the Fed maintained low inflation even without being required to follow a policy rule.
C)   the Fed was not required to follow a policy rule and let inflation move higher.
D)   the Fed was required to follow a policy rule,but it provided the Fed enough discretion that inflation move higher.E) A) and B)
F) A) and C)

Question 3

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

A)   the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations.
B)   the costs of reducing inflation persist,but they are smaller if the public reduces its inflation expectations.
C)   the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations.
D)   the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.E) All of the above
F) A) and B)

Question 4

Which of the following statements is not true?

Accepted Answer

A)   All U.S.government budget deficits were due to war or recession.
B)   The U.S.federal debt in 2009 was about $7.6 trillion.
C)   Government debt represents about 1 percent of a typical worker's lifetime resources.
D)   Forward looking parents can reverse adverse effects of government debt.E) None of the above
F) B) and D)

Question 5

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

Accepted Answer

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

Question 6

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

A)   credible so that the sacrifice ratio is low.
B)   credible so that the sacrifice ratio is high.
C)   unexpected so that the sacrifice ratio is high.
D)   unexpected so that the sacrifice ratio is low.E) All of the above
F) B) and D)

Question 7

If inflation falls,

Accepted Answer

A)   people choose to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
B)   people choose to put in more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.
C)   people choose to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
D)   people choose to put in less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.E) A) and B)
F) None of the above

Question 8

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 9

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following are currently provisions of the U.S.tax system and discourage saving?

Accepted Answer

A)   some forms of capital income are taxed twice
B)   if they are large enough,bequests are taxed
C)   both a and b
D)   neither a nor bE) C) and D)
F) B) and C)

Question 11

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 12

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 13

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs,such as Social Security,ta...

Question 14

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)   Decrease the money supply.
B)   Decrease taxes.
C)   Decrease government expenditures.
D)   Do nothing and let markets correct themselves.E) A) and B)
F) A) and C)

Question 15

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)   requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment.
B)   requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability.
C)   requires the Federal Reserve to place equal weight on promoting price stability and maximum employment.
D)   says the Federal Reserve should promote price stability and maximum employment,but does not specify how the Federal Reserve should weight these goals.E) B) and D)
F) B) and C)

Question 16

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

Question 17

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Accepted Answer

Reducing inflation leads to a temporary ...

Question 18

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,in...

Question 19

Fluctuations in employment and output result from changes in

Accepted Answer

A)   aggregate demand only.
B)   aggregate supply only.
C)   aggregate demand and aggregate supply.
D)   neither aggregate demand nor aggregate supply.E) B) and C)
F) A) and D)

Question 20

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Accepted Answer

A higher rate of return on saving means ...

Exam 36: Six Debates Over Macroeconomic Policy

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Correct AnswerverifiedShow Answer

Is it possible that deficits do not burden future generations?

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

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Correct AnswerverifiedShow Answer

A 1977 amendment to the Federal Reserve Act of 1913

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Which of the following is correct? In the 1990's

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If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

Correct AnswerverifiedShow Answer

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

If inflation falls,

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Inflation reduction has the lowest cost when the efforts are

Correct AnswerverifiedShow Answer

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

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,in...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

The time inconsistency of monetary policy means that

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

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Correct AnswerverifiedReducing inflation leads to a temporary ...View AnswerShow Answer

Which of the following are currently provisions of the U.S.tax system and discourage saving?

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

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The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Correct AnswerverifiedShow Answer

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Some programs,such as Social Security,ta...
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Correct Answer
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A higher rate of return on saving means ...
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Correct Answer
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Correct Answer
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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 Answer
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reduces,in...
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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Reducing inflation leads to a temporary ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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