Question 1

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment...

Question 2

The average person's share of the U.S. government debt as a percentage of lifetime income is

Accepted Answer

A)   less than 1 percent.
B)   more than 1 percent but less than 2 percent
C)   about 4 percent
D)   over 6 percentE) B) and C)
F) A) and D)

Question 3

Explain what is meant by the time inconsistency of monetary policy.

Accepted Answer

The time inconsistency of monetary polic...

Question 4

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)   decreasing the money supply.
B)   increasing taxes.
C)   increasing government expenditures.
D)   All of the aboveE) C) and D)
F) B) and C)

Question 5

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

A)   the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations.
B)   the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations.
C)   the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations.
D)   the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.E) A) and C)
F) A) and B)

Question 6

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 7

When wages are set by contract, inflation

Accepted Answer

A)   reduces real wages; this likely makes labor markets more flexible.
B)   reduces real wages; this likely makes labor markets less flexible.
C)   raises real wages; this likely makes labor markets more flexible.
D)   raises real wages; this likely makes labor markets less flexible.E) A) and C)
F) All of the above

Question 8

Which of the following is not correct?

Accepted Answer

A)   A potential cost of deficits is that they reduce national saving, thereby reducing growth of the capital stock and output growth.
B)   Deficits give people the opportunity to consume at the expense of their children, but they do not require them to do so.
C)   The U.S. debt per-person is large compared with average lifetime income.
D)   Current spending may benefit future generations.E) B) and C)
F) A) and D)

Question 9

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

Accepted Answer

According to the traditional Keynesian m...

Question 10

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

Accepted Answer

A)   both the shift of aggregate demand and the shift of aggregate supply
B)   the shift of aggregate demand, but not the shift of aggregate supply
C)   the shift of aggregate supply, but not the shift of aggregate demand
D)   neither the shift of aggregate demand nor the shift of aggregate supplyE) All of the above
F) B) and D)

Question 11

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase 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) C) and D)

Question 12

Zero inflation

Accepted Answer

A)   might be dangerous because it could lead to rapidly increasing prices.
B)   would limit the flexibility of the labor market and so could at times raise unemployment.
C)   would make it easy for the Central bank to create negative real interest rates.
D)   is impossible to achieve in the real world.E) A) and B)
F) B) and C)

Question 13

Changes in tax laws that reduce taxes more for those who save a lot will

Accepted Answer

A)   favor low-income households.
B)   favor people with high income.
C)   create a more egalitarian society.
D)   unambiguously increase national saving.E) A) and B)
F) A) and C)

Question 14

A policymaker in favor of stabilizing the economy would be likely to believe

Accepted Answer

A)   recessions are a waste of resources.
B)   economies must suffer through the booms and busts of the business cycle.
C)   the long policy lags make implementing policy changes in response to recession too risky.
D)   policy increases the magnitude of economic fluctuations.E) B) and D)
F) None of the above

Question 15

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 16

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

Accepted Answer

High debt means that future taxpayers wi...

Question 17

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

Accepted Answer

Taxing saving at a lower rate ...

Question 18

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

Accepted Answer

A)   Ben Bernanke
B)   Alan Greenspan
C)   Paul Volcker
D)   Arthur BurnsE) B) and C)
F) A) and B)

Question 19

Proponents of tax-law changes to encourage saving would

Accepted Answer

A)   argue that corporate tax rates should be decreased.
B)   increase the number of government benefits which are means-tested.
C)   argue that state sales tax should be replaced with state income tax.
D)   favor none of the above programs.E) B) and C)
F) A) and C)

Question 20

Are there any situations in which running a budget deficit is justified? Explain.

Accepted Answer

The two primary justifications for runni...

Exam 36: Six Debates Over Macroeconomic Policy

Who did President Jimmy Carter appoint to head the Federal Reserve beginning in 1979?

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An economist advising a central bank intending to reduce the inflation rate would likely point out that

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The average person's share of the U.S. government debt as a percentage of lifetime income is

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Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

Correct AnswerverifiedHigh debt means that future taxpayers wi...View AnswerShow Answer

Explain what is meant by the time inconsistency of monetary policy.

Correct AnswerverifiedThe time inconsistency of monetary polic...View AnswerShow Answer

Zero inflation

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Changes in tax laws that reduce taxes more for those who save a lot will

Correct AnswerverifiedShow Answer

Are there any situations in which running a budget deficit is justified? Explain.

Correct AnswerverifiedThe two primary justifications for runni...View AnswerShow 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

Proponents of tax-law changes to encourage saving would

Correct AnswerverifiedShow Answer

A policymaker in favor of stabilizing the economy would be likely to believe

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 fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedAccording to the traditional Keynesian m...View AnswerShow Answer

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Correct AnswerverifiedInvestment...View AnswerShow Answer

When wages are set by contract, inflation

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

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

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

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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High debt means that future taxpayers wi...
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Correct Answer
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The time inconsistency of monetary polic...
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
The two primary justifications for runni...
View Answer

Correct Answer
verified
A government deficit means that the gove...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
According to the traditional Keynesian m...
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Correct Answer
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Investment...
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Correct Answer
verified

Correct Answer
verified

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

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