Question 1

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

Accepted Answer

A)   raise both consumption and investment.
B)   raise consumption but reduce investment.
C)   raise investment but reduce consumption.
D)   reduce both consumption and investment.E) A) and D)
F) A) and C)

Question 2

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation. Sh...

Question 3

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 4

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

Accepted Answer

Expenditures on education rais...

Question 5

The cost of inflation reduction is a large, permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 6

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand the central bank

Accepted Answer

A)   would have to increase the money supply. This would move unemployment closer to the natural rate.
B)   would have to increase the money supply. This would move unemployment further from the natural rate.
C)   would have to decrease the money supply. This would move unemployment closer to the natural rate.
D)   would have to decrease the money supply. This would move unemployment further from the natural rate.E) B) and C)
F) A) and D)

Question 7

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

Question 8

Proponents of zero inflation argue that a successful program to reduce inflation

Accepted Answer

A)   eventually reduces inflation expectations.
B)   eventually raises real interest rates.
C)   permanently decreases output.
D)   permanently raises unemployment.E) C) and D)
F) B) and D)

Question 9

A country has a growth rate of 3%. Government spending is 60 billion units of currency and its tax revenues are 32 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt- to-income ratio unchanged?

Accepted Answer

A)   2%
B)   3%
C)   4%
D)   5%E) A) and D)
F) A) and C)

Question 10

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 11

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Accepted Answer

A)   setting a policy rule will limit the abuse of power of policymakers.
B)   policymakers can better influence the political business cycle in their favor when following a policy rule.
C)   a policy rule provides policymakers with the greatest flexibility to manage inflation.
D)   if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment.E) A) and D)
F) A) and B)

Question 12

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Accepted Answer

A)   the growth rate of output is high
B)   in response to increased debt, parents save more to leave their children larger bequests
C)   budget deficits raise interest rates
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 13

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

Question 14

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

Accepted Answer

First, tax cuts can influence both aggre...

Question 15

According to the political business cycle, after an election, unless the central bank acts inflation is likely to

Accepted Answer

A)   have risen. To counter this the central bank would raise interest rates.
B)   have risen. To counter this the central bank would lower interest rates.
C)   have fallen. To counter this the central bank would raise interest rates.
D)   have fallen. To counter this the central bank would lower interest rates.E) A) and C)
F) A) and B)

Question 16

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

A)   increased spending
B)   increased aggregate demand
C)   increased real GDP
D)   an increase in the unemployment rateE) A) and D)
F) C) and D)

Question 17

Which of the following raise the incentive for households to save?

Accepted Answer

A)   means-testing of government benefits and inheritance taxes
B)   means-testing of government benefits but not inheritance taxes
C)   inheritance taxes, but not means-testing of government benefits
D)   neither means-testing of government benefits nor inheritance taxesE) A) and B)
F) B) and D)

Question 18

The Federal Open Market Committee

Accepted Answer

A)   by law must focus on maintaining low inflation rather than stabilizing output.
B)   by law must focus on stabilizing output rather than maintaining low inflation.
C)   by law must follow a mechanical rule that takes into account deviations of unemployment from its natural rate and deviations of inflation from a target.
D)   operates with almost complete discretion over monetary policy.E) B) and D)
F) All of the above

Question 19

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Accepted Answer

A)   0 percent
B)   3 percent
C)   5 percent
D)   6 percentE) A) and B)
F) A) and C)

Question 20

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Accepted Answer

"Shovel ready" public works pr...

Exam 18: Six Debates Over Macroeconomic Policy

Which of the following does not reduce the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

According to the political business cycle, after an election, unless the central bank acts inflation is likely to

Correct AnswerverifiedShow Answer

Describe three costs of inflation.

Correct AnswerverifiedThere are several costs of inflation. Sh...View AnswerShow Answer

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

Correct AnswerverifiedFirst, tax cuts can influence both aggre...View AnswerShow Answer

The cost of inflation reduction is a large, permanent increase in unemployment.

Correct AnswerverifiedShow Answer

A country has a growth rate of 3%. Government spending is 60 billion units of currency and its tax revenues are 32 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt- to-income ratio unchanged?

Correct AnswerverifiedShow Answer

For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?

Correct AnswerverifiedShow Answer

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes in expectations lead people to

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that a successful program to reduce inflation

Correct AnswerverifiedShow Answer

Which of the following likely occurs when households and firms become more pessimistic?

Correct AnswerverifiedShow Answer

Which of the following raise the incentive for households to save?

Correct AnswerverifiedShow Answer

If a central bank were required to target inflation at zero, then when there was an unanticipated decrease in aggregate demand the central bank

Correct AnswerverifiedShow Answer

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

Correct Answerverified"Shovel ready" public works pr...View AnswerShow Answer

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

Correct AnswerverifiedExpenditures on education rais...View AnswerShow Answer

The Federal Open Market Committee

Correct AnswerverifiedShow Answer

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

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

In general, the longest lag for

Correct AnswerverifiedShow Answer

Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions a...View AnswerShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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There are several costs of inflation. Sh...
View Answer

Correct Answer
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First, tax cuts can influence both aggre...
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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Correct Answer
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Correct Answer
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Correct Answer
verified
"Shovel ready" public works pr...
View Answer

Correct Answer
verified
Expenditures on education rais...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Tax cuts affect aggregate demand quickly...
View Answer

Correct Answer
verified

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Correct Answer
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