Question 1

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 2

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate provides mo...

Question 3

When the Federal Open Market Committee meets it

Accepted Answer

A)  looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law.
B)  looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law.
C)  looks only at the state of the economy to determine the target it will set for the federal funds rate.
D)  looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate.E) All of the above
F) A) and C)

Question 4

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Accepted Answer

A)  sustainable, but the future burden on your children cannot be offset.
B)  sustainable, and the future burden on your children can be offset if you save for them.
C)  not sustainable, and the future burden on your children cannot be offset.
D)  not sustainable, but the future burden on your children can be offset if you save for them.E) B) and C)
F) C) and D)

Question 5

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

Accepted Answer

A)  decrease the money supply, which will move output back towards its long-run level.
B)  decrease the money supply, which will move output farther from its long-run level.
C)  increase the money supply, which will move output back towards its long-run level.
D)  increase the money supply, which will move output farther from its long-run level.E) A) and B)
F) C) and D)

Question 6

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

Over time, continued budget deficits lead to

Accepted Answer

A)  a higher capital stock and higher productivity.
B)  a higher capital stock and lower productivity.
C)  a lower capital stock and higher productivity.
D)  a lower capital stock and lower productivity.E) All of the above
F) A) and C)

Question 9

Which of the following can tax cuts influence?

Accepted Answer

A)  Aggregate demand
B)  Aggregate supply
C)  Investment spending
D)  All of the aboveE) A) and B)
F) C) and D)

Question 10

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Accepted Answer

Policymakers can cut governmen...

Question 11

An individual would suffer lower losses from an unexpectedly higher inflation rate if

Accepted Answer

A)  she held much currency and owned few bonds.
B)  she held much currency and owned many bonds.
C)  she held little currency and owned few bonds.
D)  she held little currency and owned many bonds.E) A) and B)
F) None of the above

Question 12

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 13

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Accepted Answer

A)  the central bank would have to decrease the money supply which would decrease output.
B)  the central bank would have to decrease the money supply which would increase output.
C)  the central bank would have to increase the money supply which would decrease output.
D)  the central bank would have to increase the money supply which would increase output.E) None of the above
F) C) and D)

Question 14

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

Accepted Answer

A)  the price level and real GDP
B)  the price level but not real GDP
C)  real GDP but not the price level
D)  neither real GDP nor the price levelE) B) and D)
F) B) and C)

Question 15

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

Question 16

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 "shovel-ready" 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 C)
F) A) and B)

Question 17

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 moved higher.E) A) and D)
F) C) and D)

Question 18

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

Accepted Answer

A)  inflation will raise their real wage and so increase the number of available workers.
B)  inflation will raise their real wage and so decrease the number of available workers
C)  inflation will reduce their real wage and so increase the number of available workers.
D)  inflation will reduce their real wage and so decrease the number of available workers.E) A) and B)
F) A) and C)

Question 19

List two costs of inflation.

Accepted Answer

shoeleather costs, menu costs,...

Question 20

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

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Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

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Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct AnswerverifiedShow Answer

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Correct AnswerverifiedPolicymakers can cut governmen...View AnswerShow Answer

Demand for workers in some industry declines. These workers are reluctant to have a cut in their nominal wage. However,

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Social Security transfers wealth from younger generations to older generations.

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Over time, continued budget deficits lead to

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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?

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An individual would suffer lower losses from an unexpectedly higher inflation rate if

Correct AnswerverifiedShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5%, then in the short run which of the following variables will the Fed's policy raise?

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

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What is the benefit of a high saving rate?

Correct AnswerverifiedA high saving rate provides mo...View AnswerShow 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

Why do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

List two costs of inflation.

Correct Answerverifiedshoeleather costs, menu costs,...View AnswerShow Answer

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Correct AnswerverifiedShow Answer

In general, the longest lag for

Correct AnswerverifiedShow Answer

When the Federal Open Market Committee meets it

Correct AnswerverifiedShow Answer

Which of the following can tax cuts influence?

Correct AnswerverifiedShow Answer

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Policymakers can cut governmen...
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A high saving rate provides mo...
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Correct Answer
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Correct Answer
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The current income tax means that income...
View Answer

Correct Answer
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shoeleather costs, menu costs,...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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