Question 1

Supporters of using government expenditures to respond to recession

Accepted Answer

A)   argue that monetary policy should be used first. To respond to a recession the Fed would increase the money supply.
B)   argue that monetary policy should be used first. To respond to a recession the Fed would decrease the money supply.
C)   argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would increase the money supply.
D)   argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would decrease the money supply.E) None of the above
F) A) and D)

Question 2

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 3

If the budget deficit were reduced

Accepted Answer

A)   interest rates and investment would increase.
B)   interest rates would increase and investment would decrease.
C)   interest rates and investment would decrease.
D)   interest rates would decrease and investment would increase.E) A) and D)
F) A) and C)

Question 4

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Accepted Answer

A)   5%
B)   10%
C)   15%
D)   20%E) All of the above
F) None of the above

Question 5

The time inconsistency of policy implies that

Accepted Answer

A)   what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)   when people expect that inflation will be low, it is easier for the Fed to increase output by increasing the money supply.
C)   people will believe Fed policy will be less inflationary than the Fed claims.
D)   what policymakers say they will do is usually not what they do, but people believe them anyway.E) C) and D)
F) All of the above

Question 6

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) None of the above

Question 7

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Accepted Answer

A)   sustainable, but the future burden on your children cannot be offset.
B)   sustainable, and the future burden on your children can be offset if you save for them.
C)   not sustainable, and the future burden on your children cannot be offset.
D)   not sustainable, but the future burden on your children can be offset if you save for them.E) None of the above
F) C) and D)

Question 8

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged. If the Fed is required to follow a rule that stabilizes the price level, what will the Fed do to the money supply and what impact will this have on total output in the economy?

Accepted Answer

To keep the price level stable...

Question 9

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Accepted Answer

A) True 
 B)False

Question 10

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)   policymakers should "do no harm".
B)   there are no obstacles to the practical application of policy in real life.
C)   policy lags are short enough that implementing policy changes in response to recession is not too risky.
D)   policy mitigates the magnitude of economic fluctuations.E) None of the above
F) A) and C)

Question 11

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 12

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 D)
F) A) and C)

Question 13

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 14

In fiscal year 2011, the U.S. government ran a deficit of about $1,300 billion. In fiscal year 2012, the government ran a deficit of about $1,087 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 15

Which of the following is an important advantage of discretionary monetary policy?

Accepted Answer

A)   Influencing the political business cycle
B)   Flexibility to deal with changing economic conditions
C)   Limiting the opportunities for abuse of power by policymakers
D)   Avoiding the time inconsistency of policy problemE) None of the above
F) A) and B)

Question 16

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would likely increase private saving?

Accepted Answer

A)   both expansion of means testing and a consumption tax
B)   expansion of means testing, but not a consumption tax
C)   a consumption tax, but not expansion of means testing
D)   neither expansion of means testing nor a consumption taxE) A) and D)
F) A) and B)

Question 18

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 demand shifts right, the central bank must

Accepted Answer

A)   decrease the money supply, which shifts aggregate demand further right.
B)   decrease the money supply, which shifts aggregate demand left.
C)   increase the money supply, which shifts aggregate demand further right.
D)   increase the money supply, which shifts aggregate demand left.E) A) and B)
F) B) and C)

Question 19

In response to recession, who primarily raised expenditures rather than cut taxes?

Accepted Answer

A)   President George W. Bush and President Barack Obama
B)   President George W. Bush but not President Barack Obama
C)   President Barack Obama but not President George W. Bush
D)   Neither President George W. Bush nor President Barack ObamaE) A) and C)
F) A) and B)

Question 20

The time inconsistency of monetary policy means that

Accepted Answer

A)   once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment.
B)   at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low.
C)   monetary policy is not consistent across time because it is influenced by politics.
D)   monetary policy is not consistent across time because policymakers are incompetent.E) A) and B)
F) A) and C)

Exam 23: Six Debates Over Macroeconomic Policy

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct Answer
verified

Supporters of using government expenditures to respond to recession

Correct Answer
verified

The time inconsistency of policy implies that

Correct Answer
verified

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

Correct Answer
verified
Means-tested benefits give assistance, o...
View Answer

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Correct Answer
verified

Which of the following is an important advantage of discretionary monetary policy?

Correct Answer
verified

In fiscal year 2011, the U.S. government ran a deficit of about $1,300 billion. In fiscal year 2012, the government ran a deficit of about $1,087 billion. Other things the same, this change would be expected to have

Correct Answer
verified

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 demand shifts right, the central bank must

Correct Answer
verified

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

Correct Answer
verified

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Correct Answer
verified

Correct Answer
verified
To keep the price level stable...
View Answer

Proponents of tax-law changes to encourage saving would

Correct Answer
verified

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Correct Answer
verified

The time inconsistency of monetary policy means that

Correct Answer
verified

In response to recession, who primarily raised expenditures rather than cut taxes?

Correct Answer
verified

If the budget deficit were reduced

Correct Answer
verified

Tax cuts affect only aggregate demand not aggregate supply.

Correct Answer
verified

A policymaker against stabilizing the economy would be likely to believe

Correct Answer
verified

Which of the following would likely increase private saving?

Correct Answer
verified

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct AnswerverifiedShow Answer

Supporters of using government expenditures to respond to recession

Correct AnswerverifiedShow Answer

The time inconsistency of policy implies that

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

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Correct AnswerverifiedShow Answer

Which of the following is an important advantage of discretionary monetary policy?

Correct AnswerverifiedShow Answer

In fiscal year 2011, the U.S. government ran a deficit of about $1,300 billion. In fiscal year 2012, the government ran a deficit of about $1,087 billion. Other things the same, this change would be expected to have

Correct AnswerverifiedShow 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 demand shifts right, the central bank must

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTo keep the price level stable...View AnswerShow Answer

Proponents of tax-law changes to encourage saving would

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Correct AnswerverifiedShow Answer

The time inconsistency of monetary policy means that

Correct AnswerverifiedShow Answer

In response to recession, who primarily raised expenditures rather than cut taxes?

Correct AnswerverifiedShow Answer

If the budget deficit were reduced

Correct AnswerverifiedShow Answer

Tax cuts affect only aggregate demand not aggregate supply.

Correct AnswerverifiedShow Answer

A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct AnswerverifiedShow Answer

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Correct Answer
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Means-tested benefits give assistance, o...
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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To keep the price level stable...
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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