Question 1

The political business cycle refers to

Accepted Answer

A)   the fact that about every four years some politician advocates greater government control of the Fed.
B)   the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)   the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)   changes in output created by the monetary rule the Fed must follow.E) A) and B)
F) B) and C)

Question 2

When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.

Accepted Answer

A) True 
 B)False

Question 3

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

Accepted Answer

The typical estimate of the sacrifice ra...

Question 4

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

A)   .99 and 1.59.
B)   1.59 and .99
C)   1.3 and 1.7
D)   1.7 and 1.3E) B) and D)
F) C) and D)

Question 5

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce the frequency of price changes and permanently lower unemployment.
B)   permanently reduce the frequency of price changes and temporarily raise unemployment.
C)   temporarily reduce the frequency of price changes and temporarily lower unemployment.
D)   temporarily reduce the frequency of price changes and temporarily raise unemployment.E) None of the above
F) B) and D)

Question 6

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)   increase taxes
C)   increase government expenditures
D)   Do nothing and let markets correct themselves.E) All of the above
F) A) and B)

Question 7

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Accepted Answer

To counter a recession, a central bank r...

Question 8

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

Accepted Answer

Reducing inflation leads to a temporary ...

Question 9

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 10

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Accepted Answer

A)   A cut in the marginal tax rate increases the incentives to find a job and work longer hours.
B)   Consumers will save a portion of a tax cut.
C)   The government may use the increase in expenditures on projects with little value, particularly if it wishes to respond quickly.
D)   There is no evidence that tax cuts have been followed by increases in economic growth.E) All of the above
F) A) and B)

Question 11

In the summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Accepted Answer

A)   shift aggregate demand to the left.
B)   increase output.
C)   decrease unemployment.
D)   increase prices.E) A) and D)
F) A) and C)

Question 12

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) A) and D)
F) B) and D)

Question 13

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)   Saving is a key determinant of long-run prosperity.
B)   Current tax laws discourage saving for the purpose of leaving a large bequest.
C)   The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
D)   The tax code currently taxes some forms of capital income twice.E) A) and C)
F) None of the above

Question 14

Means-tested college aid, base college aid primarily on

Accepted Answer

A)   a student's abilities, and create an incentive to save.
B)   a student's abilities but create a disincentive to save.
C)   the current interest rate and are an incentive to save.
D)   the current interest rate and are a disincentive to save.E) A) and B)
F) A) and C)

Question 15

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 16

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)   the government raise taxes or cut expenditures. This would increase the magnitude of economic fluctuations.
B)   the government raise taxes or cut expenditures. This would decrease the magnitude of economic fluctuations.
C)   the government cut taxes or raise expenditures. This would increase the magnitude of economic fluctuations.
D)   the government cut taxes or raise expenditures. This would decrease the magnitude of economic fluctuations.E) A) and B)
F) C) and D)

Question 17

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Accepted Answer

An increase in government expe...

Question 18

In addition to the tax code, other policies reduce the incentives for people to save Provide an example.

Accepted Answer

Some government benefits are m...

Question 19

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Accepted Answer

A)   decrease the money supply.
B)   decrease government expenditures.
C)   decrease taxes.
D)   do nothing.E) A) and C)
F) B) and C)

Question 20

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A)   arbitrary redistributions of wealth
B)   shoeleather costs
C)   menu costs
D)   none of the above is correct.E) A) and B)
F) A) and C)

Exam 36: Six Debates Over Macroeconomic Policy

A permanent reduction in inflation would

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?

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Which costs of inflation could the government reduce without reducing inflation?

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According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Correct AnswerverifiedShow Answer

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Correct AnswerverifiedAn increase in government expe...View AnswerShow 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

The political business cycle refers to

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

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

Suppose aggregate demand fell. In order to stabilize the economy, the government might

Correct AnswerverifiedShow Answer

Means-tested college aid, base college aid primarily on

Correct AnswerverifiedShow Answer

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

Correct AnswerverifiedThe typical estimate of the sacrifice ra...View AnswerShow Answer

When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.

Correct AnswerverifiedShow Answer

In addition to the tax code, other policies reduce the incentives for people to save Provide an example.

Correct AnswerverifiedSome government benefits are m...View AnswerShow Answer

Economists

Correct AnswerverifiedShow Answer

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Correct AnswerverifiedTo counter a recession, a central bank r...View AnswerShow Answer

A balanced budget would require that when real GDP was growing rapidly,

Correct AnswerverifiedShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

In the summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to

Correct AnswerverifiedShow Answer

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An increase in government expe...
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Reducing inflation leads to a temporary ...
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The Federal Open Mar...
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The typical estimate of the sacrifice ra...
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Some government benefits are m...
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To counter a recession, a central bank r...
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Correct Answer
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