Question 1

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo...

Question 3

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A)   economists disagree over basic issues such as the importance of saving for economic growth.
B)   there are tradeoffs and people disagree about the best way to deal with them.
C)   politicians offer misleading information.
D)   people fail to clearly see the benefits or the costs of most changes.E) A) and C)
F) None of the above

Question 4

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 D)
F) A) and C)

Question 5

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 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 C)
F) A) and D)

Question 6

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

Accepted Answer

The typical estimate of the sacrifice ra...

Question 7

Which of the following is a cost of inflation?

Accepted Answer

A)   shoeleather costs
B)   menu costs
C)   relative price variability
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 8

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

Accepted Answer

A)   less than 2 percent.
B)   about 5 percent.
C)   about 10 percent.
D)   over 12 percent.E) A) and D)
F) B) and C)

Question 9

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Accepted Answer

A) True 
 B)False

Question 10

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Accepted Answer

A)   decreasing the money supply and cutting taxes.
B)   decreasing the money supply and raising taxes.
C)   increasing the money supply and cutting taxes.
D)   increasing the money supply and raising taxes.E) A) and B)
F) B) and D)

Question 11

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock 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 12

Which of the programs below would transfer wealth from the young to the old?

Accepted Answer

A)   Taxes are raised to provide better education.
B)   Taxes are raised to improve government infrastructure such as roads and bridges.
C)   Taxes are raised to provide more generous Social Security benefits.
D)   None of the above transfer wealth form the young to the old.E) B) and C)
F) B) and D)

Question 13

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance, o...

Question 14

Which of the following is correct? In the 1990's

Accepted Answer

A)   the Fed maintained low inflation because it had to follow a policy rule.
B)   the Fed maintained low inflation even without being required to follow a policy rule.
C)   the Fed was not required to follow a policy rule and let inflation move higher.
D)   the Fed was required to follow a policy rule, but it provided the Fed enough discretion that inflation moved higher.E) B) and D)
F) A) and D)

Question 15

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 16

Tax cuts

Accepted Answer

A)   can easily target investment spending, but investment spending falls by only a small percentage during recessions.
B)   can easily target investment spending, which falls by a large percentage during recessions.
C)   cannot easily target investment spending, but investment spending falls by only a small percentage during recessions.
D)   cannot easily target investment spending, which falls by a large percentage during recessions.E) All of the above
F) A) and C)

Question 17

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

Accepted Answer

A)   decreased interest rates and investment.
B)   decreased interest rates and increased investment.
C)   increased interest rates and investment.
D)   increased interest rates and decreased investment.E) A) and B)
F) A) and C)

Question 18

Accumulated over a long span of time, the tax rate on interest income

Accepted Answer

A)   removes all benefits from saving.
B)   reduces the benefits from saving by a small amount.
C)   reduces the benefits from saving by a large amount.
D)   does nor reduce any of the benefits from saving.E) A) and C)
F) C) and D)

Question 19

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Accepted Answer

A)   interest rates and output would rise.
B)   interest rates would rise and output would fall.
C)   interest rates would fall and output would rise.
D)   interest rates and output would fall.E) A) and C)
F) A) and B)

Question 20

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. Other things the same, this change would be expected to have

Correct AnswerverifiedShow Answer

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Correct AnswerverifiedThose who oppose stabilization policy mo...View AnswerShow Answer

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct AnswerverifiedShow Answer

Which of the following is a cost of inflation?

Correct AnswerverifiedShow Answer

Which of the programs below would transfer wealth from the young to the old?

Correct AnswerverifiedShow Answer

The six debates over macroeconomic policy exist mostly because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections

Correct AnswerverifiedShow Answer

Which of the following is correct? In the 1990's

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

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

The average U.S. citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Correct AnswerverifiedShow Answer

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Correct AnswerverifiedShow Answer

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Correct AnswerverifiedShow Answer

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Correct AnswerverifiedShow Answer

Accumulated over a long span of time, the tax rate on interest income

Correct AnswerverifiedShow Answer

President Barrack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand, model which of these policies would tend to reduce unemployment?

Correct AnswerverifiedShow Answer

Tax cuts

Correct AnswerverifiedShow Answer

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Correct AnswerverifiedMeans-tested benefits give assistance, o...View AnswerShow Answer

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Those who oppose stabilization policy mo...
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The political business cycle describes t...
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The typical estimate of the sacrifice ra...
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Means-tested benefits give assistance, o...
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