Question 1

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

Accepted Answer

A)   increased spending, increased aggregate demand, rising real GDP, and a rising unemployment rate
B)   decreased spending, increased aggregate demand, rising real GDP, and a falling unemployment rate
C)   decreased spending, decreased aggregate demand, falling real GDP, and a rising unemployment rate
D)   decreased spending, decreased aggregate demand, falling real GDP, and a falling unemployment rateE) A) and D)
F) B) and C)

Question 2

Which of the following is not correct?

Accepted Answer

A)   Government debt can continue to rise forever.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   Social Security does not transfer wealth from younger generations to older generations.
D)   The average U.S. citizens' share of the government debt represents less than 2 percent of her lifetime income.E) B) and D)
F) None of the above

Question 3

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation. Sh...

Question 4

Which of the following is correct?

Accepted Answer

A)   Deficits always require people to consume at the expense of their children.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   If the government is in debt it must be running a deficit currently.
D)   The current government debt is a large share of lifetime income.E) A) and B)
F) C) and D)

Question 5

Of means tested programs and IRA's, which lower the rate of return on saving?

Accepted Answer

A)   Both means-tested programs and IRA's.
B)   Means-tested programs, but not IRA's.
C)   IRA's but not means-tested programs.
D)   Neither means-tested program, or IRA's.E) A) and C)
F) B) and D)

Question 6

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Accepted Answer

A)   some forms of capital income are taxed twice
B)   if they are large enough, bequests are taxed
C)   both a and b
D)   neither a nor bE) C) and D)
F) None of the above

Question 7

In 2009 President Barack Obama responded to recession

Accepted Answer

A)   only by cutting taxes.
B)   by cutting taxes and reducing government expenditures.
C)   only by raising government expenditures.
D)   by cutting taxes and by raising government expenditures.E) B) and D)
F) All of the above

Question 8

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 B)
F) B) and D)

Question 9

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)   requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment.
B)   requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability.
C)   requires the Federal Reserve to place equal weight on promoting price stability and maximum employment.
D)   says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.E) B) and C)
F) A) and D)

Question 10

IRAs, and 401k)  and 403b)  plans

Accepted Answer

A)   impose added taxes on those who save.
B)   place no limits on the amount people can deposit into these programs.
C)   impose penalties for withdrawals except under certain circumstances.
D)   None of the above is correct.E) None of the above
F) C) and D)

Question 11

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 12

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A)   increasing government spending.
B)   expanding the money supply.
C)   lowering taxes.
D)   the Fed sell government bonds.E) A) and B)
F) A) and C)

Question 13

During recessions, even with no changes in policy, the deficit tends to ______ because _____________.

Accepted Answer

rise, income falls so tax reve...

Question 14

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Accepted Answer

If the Fed wanted to see the President r...

Question 15

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 16

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 17

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A)   high and the reduction is unexpected.
B)   high and the reduction is expected.
C)   low and the reduction is unexpected.
D)   low and the reduction is expected.E) B) and C)
F) B) and D)

Question 18

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Accepted Answer

Both monetary and fiscal policy work wit...

Question 19

A reduction in the tax rate on income from saving would

Accepted Answer

A)   most directly benefit the poor in the short run.
B)   increase real wages over time.
C)   decrease the capital stock over time.
D)   decrease productivity over time.E) None of the above
F) C) and D)

Question 20

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Accepted Answer

A)   decrease the money supply so interest rates rise.
B)   decrease the money supply so interest rates fall.
C)   increase the money supply so interest rates rise.
D)   increase the money supply so interest rates fall.E) B) and C)
F) All of the above

Exam 23: Six Debates Over Macroeconomic Policy

Which of the following are currently provisions of the U.S. tax system and discourage saving?

Correct AnswerverifiedShow Answer

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

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Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. In practice, however, there are obstacles to the use of such policies. What are the primary difficulties with using monetary and fiscal policy to stabilize the economy?

Correct AnswerverifiedBoth monetary and fiscal policy work wit...View AnswerShow Answer

A 1977 amendment to the Federal Reserve Act of 1913

Correct AnswerverifiedShow Answer

A reduction in the tax rate on income from saving would

Correct AnswerverifiedShow Answer

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Correct AnswerverifiedIf the Fed wanted to see the President r...View AnswerShow Answer

Describe three costs of inflation.

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

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Correct AnswerverifiedShow Answer

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

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

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

Correct AnswerverifiedShow Answer

Of means tested programs and IRA's, which lower the rate of return on saving?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

A recession has no benefit to society-it represents a sheer waste of resources.

Correct AnswerverifiedShow Answer

IRAs, and 401k) and 403b) plans

Correct AnswerverifiedShow Answer

In 2009 President Barack Obama responded to recession

Correct AnswerverifiedShow Answer

During recessions, even with no changes in policy, the deficit tends to ______ because _____________.

Correct Answerverifiedrise, income falls so tax reve...View AnswerShow 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

When aggregate demand is high, risking higher inflation, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

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Both monetary and fiscal policy work wit...
View Answer

Correct Answer
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Correct Answer
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According to political business cycle theory, if the Fed wanted to increase the chances of a President's reelection, what specific actions might it take?

Correct Answer
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If the Fed wanted to see the President r...
View Answer

Correct Answer
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There are several costs of inflation. Sh...
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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During recessions, even with no changes in policy, the deficit tends to because _______.

Correct Answer
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rise, income falls so tax reve...
View Answer

Correct Answer
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The Federal Open Mar...
View Answer

Correct Answer
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Correct Answer
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