Question 1

Economists

Accepted Answer

A)  agree that the costs of moderate inflation are low and that the cost of reducing inflation is small.
B)  agree that the costs of moderate inflation are low, but disagree about the cost of reducing inflation.
C)  disagree about the costs of moderate inflation, but agree that the cost of reducing inflation is small.
D)  disagree about the costs of moderate inflation and disagree about the cost of reducing inflation.E) None of the above
F) A) and D)

Question 2

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Question 3

Over time continued budget deficits lead to

Accepted Answer

A)  a higher capital stock and higher real wages.
B)  a higher capital stock and lower real wages.
C)  a lower capital stock and higher real wages.
D)  a lower capital stock and lower real wages.E) None of the above
F) B) and D)

Question 4

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) All of the above
F) None of the above

Question 5

Means-tested programs tend to favor

Accepted Answer

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

Question 6

Which of the following is an argument against trying to use policy to stabilize the economy?

Accepted Answer

A)  Recessions represent a waste of resources.
B)  Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C)  "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D)  Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.E) B) and C)
F) A) and D)

Question 7

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 8

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 9

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Accepted Answer

Tax cuts affect aggregate demand quickly...

Question 10

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Accepted Answer

A) True 
 B)False

Question 11

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl...

Question 12

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 13

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) B) and C)
F) None of the above

Question 14

Which of the following are both correct?

Accepted Answer

A)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
B)  Data show no correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.
C)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the income effect.
D)  Data show a positive correlation between saving and measures of economic well-being. A reduction in tax rates may reduce saving because of the substitution effect.E) None of the above
F) C) 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

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

Question 17

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

A government deficit means that the gove...

Question 18

An individual would suffer higher 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 D)
F) C) and D)

Question 19

Real interest rates

Accepted Answer

A)  cannot be negative.
B)  can be negative only if inflation is negative.
C)  can be negative only if inflation is zero.
D)  can be negative only if inflation is greater than zero.E) All of the above
F) A) and D)

Question 20

President Barrack Obama and Congress cut taxes and raised government expenditures during the recent financial crisis. According to the aggregate supply and aggregate demand model which of these policies would tend to reduce unemployment?

Accepted Answer

A)  both the tax cut and the increase in government expenditures
B)  the tax cut but not the increase in government expenditures
C)  the increase in government expenditures but not the tax cut
D)  neither the increase in government expenditures nor the tax cutE) B) and D)
F) A) and D)

Exam 23: Six Debates Over Macroeconomic Policy

Economists

Correct AnswerverifiedShow Answer

President Barrack Obama and Congress cut taxes and raised government expenditures during the recent financial crisis. According to the aggregate supply and aggregate demand model which of these policies would tend to reduce unemployment?

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

Correct AnswerverifiedShow Answer

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

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

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Correct AnswerverifiedA government deficit means that the gove...View AnswerShow Answer

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct AnswerverifiedShow Answer

Real interest rates

Correct AnswerverifiedShow Answer

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Correct AnswerverifiedTax cuts affect aggregate demand quickly...View AnswerShow Answer

Which of the following is an argument against trying to use policy to stabilize the economy?

Correct AnswerverifiedShow Answer

Means-tested programs tend to favor

Correct AnswerverifiedShow Answer

Which of the following are both correct?

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

Over time continued budget deficits lead to

Correct AnswerverifiedShow Answer

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Correct AnswerverifiedShow Answer

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

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A government deficit means that the gove...
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Tax cuts affect aggregate demand quickly...
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If inflation is usually about what peopl...
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