Question 1

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Accepted Answer

A) True 
 B)False

Question 2

Means-tested programs tend to favor those with

Accepted Answer

A)  high income as would a consumption tax.
B)  high income while a consumption tax would favor those with low income.
C)  low income as would a consumption tax.
D)  low income while a consumption tax would favor those with high income.E) A) and B)
F) C) and D)

Question 3

If inflation falls, people choose to put in

Accepted Answer

A)  more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
B)  more effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.
C)  less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from lenders to borrowers.
D)  less effort to keep money balances low.When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.E) A) and D)
F) A) and B)

Question 4

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged. If the Fed is required to follow a rule that stabilizes the price level, what will the Fed do to the money supply and what impact will this have on total output in the economy?

Accepted Answer

To keep the price level stable...

Question 5

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time ...

Question 6

Investment tax credits

Accepted Answer

A)  can increase investment, but stimulating investment is not a key to ending a recession.
B)  can increase investment, which is a key to ending a recession.
C)  cannot increase spending on investment goods, but stimulating investment is not a key to ending a recession.
D)  cannot increase spending on investment goods, but stimulating investment is a key to ending a recession.E) C) and D)
F) A) and B)

Question 7

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 8

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Accepted Answer

The government cut taxes and raised expe...

Question 9

A year ago a country reduced the tax rate on all interest income from 40% to 10%. During the year private saving was $600 billion as compared to $500 billion the year before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in government revenues or spending which of the following is correct?

Accepted Answer

A)  The substitution effect was larger than the income effect; national saving rose
B)  The substitution effect was larger than the income effect; national saving fell
C)  The income effect was larger than the substitution effect; national saving rose
D)  The income effect was larger than the substitution effect; national saving fellE) B) and C)
F) B) and D)

Question 10

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Accepted Answer

The Federal Open Mar...

Question 11

Why might reforms to encourage saving lead to a less egalitarian society?

Accepted Answer

Taxing saving at a lower rate ...

Question 12

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Accepted Answer

Reducing inflation is likely to result i...

Question 13

Explain why fiscal policy actions typically work with a lag.

Accepted Answer

Fiscal policy works with a lag primarily...

Question 14

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)  changes in the money supply to change interest rates.
B)  the Fed to make changes in policy.
C)  changes in the interest rate to change aggregate demand.
D)  Congress and the President to approve Fed policy.E) A) and D)
F) B) and C)

Question 15

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Accepted Answer

A)  left, and the sacrifice ratio will be low.
B)  left, and the sacrifice ratio will be high.
C)  right, and the sacrifice ratio will be low.
D)  right, and the sacrifice ratio will be high.E) A) and B)
F) B) and C)

Question 16

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m...

Question 17

If the public correctly perceives that the central bank will reduce inflation, then the short-run Phillips curve shifts

Accepted Answer

A)  right, and unemployment will rise by more than otherwise.
B)  right, and unemployment will rise by less than otherwise.
C)  left, and unemployment will rise by more than otherwise.
D)  left, and unemployment will rise by less than otherwise.E) None of the above
F) B) and C)

Question 18

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t...

Question 19

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr...

Question 20

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are...

Exam 36: Six Debates Over Macroeconomic Policy

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct Answer
verified
The political business cycle describes t...
View Answer

Correct Answer
verified
To keep the price level stable...
View Answer

Means-tested programs tend to favor those with

Correct Answer
verified

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Correct Answer
verified
The Federal Open Mar...
View Answer

Explain how it is possible for the government debt to grow forever.

Correct Answer
verified
The debt can grow because the economy gr...
View Answer

If the public correctly perceives that the central bank will reduce inflation, then the short-run Phillips curve shifts

Correct Answer
verified

Explain why fiscal policy actions typically work with a lag.

Correct Answer
verified
Fiscal policy works with a lag primarily...
View Answer

Explain why policy lags could make stabilization policies counterproductive.

Correct Answer
verified
As the textbook explains, it takes time ...
View Answer

Investment tax credits

Correct Answer
verified

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Correct Answer
verified
The government cut taxes and raised expe...
View Answer

Why might reforms to encourage saving lead to a less egalitarian society?

Correct Answer
verified
Taxing saving at a lower rate ...
View Answer

Correct Answer
verified

Approximately how often does the Federal Open Market Committee meet?

Correct Answer
verified
The FOMC m...
View Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct Answer
verified
Both are prone to lags, but the lags are...
View Answer

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct Answer
verified

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Correct Answer
verified
Reducing inflation is likely to result i...
View Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct Answer
verified

If inflation falls, people choose to put in

Correct Answer
verified

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Correct Answer
verified

The principal reason that monetary policy has lags is that it takes a long time for

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct AnswerverifiedThe political business cycle describes t...View AnswerShow Answer

Correct AnswerverifiedTo keep the price level stable...View AnswerShow Answer

Means-tested programs tend to favor those with

Correct AnswerverifiedShow Answer

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Correct AnswerverifiedThe Federal Open Mar...View AnswerShow Answer

Explain how it is possible for the government debt to grow forever.

Correct AnswerverifiedThe debt can grow because the economy gr...View AnswerShow Answer

If the public correctly perceives that the central bank will reduce inflation, then the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

Explain why fiscal policy actions typically work with a lag.

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

Explain why policy lags could make stabilization policies counterproductive.

Correct AnswerverifiedAs the textbook explains, it takes time ...View AnswerShow Answer

Investment tax credits

Correct AnswerverifiedShow Answer

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Correct AnswerverifiedThe government cut taxes and raised expe...View AnswerShow Answer

Why might reforms to encourage saving lead to a less egalitarian society?

Correct AnswerverifiedTaxing saving at a lower rate ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Approximately how often does the Federal Open Market Committee meet?

Correct AnswerverifiedThe FOMC m...View AnswerShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags, but the lags are...View AnswerShow Answer

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Correct AnswerverifiedReducing inflation is likely to result i...View AnswerShow Answer

The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

Correct AnswerverifiedShow Answer

If inflation falls, people choose to put in

Correct AnswerverifiedShow Answer

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Correct AnswerverifiedShow Answer

The principal reason that monetary policy has lags is that it takes a long time for

Correct AnswerverifiedShow Answer

Correct Answer
verified
The political business cycle describes t...
View Answer

Correct Answer
verified
To keep the price level stable...
View Answer

Correct Answer
verified

Correct Answer
verified
The Federal Open Mar...
View Answer

Correct Answer
verified
The debt can grow because the economy gr...
View Answer

Correct Answer
verified

Correct Answer
verified
Fiscal policy works with a lag primarily...
View Answer

Correct Answer
verified
As the textbook explains, it takes time ...
View Answer

Correct Answer
verified

Correct Answer
verified
The government cut taxes and raised expe...
View Answer

Correct Answer
verified
Taxing saving at a lower rate ...
View Answer

Correct Answer
verified

Correct Answer
verified
The FOMC m...
View Answer

Correct Answer
verified
Both are prone to lags, but the lags are...
View Answer

Correct Answer
verified

Correct Answer
verified
Reducing inflation is likely to result i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified