Question 1

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Accepted Answer

Government spending exceeds tax revenues...

Question 2

Explain why fiscal policy actions typically work with a lag.

Accepted Answer

Fiscal policy works with a lag primarily...

Question 3

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl...

Question 4

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

A)   only price stability
B)   only maximum employment
C)   only price stability and maximum employment
D)   price stability, maximum employment, and moderate long-term interest ratesE) A) and D)
F) A) and B)

Question 5

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)   its income effect on saving and its effect on the government budget
B)   its income effect on saving but not its effect on the government budget
C)   its effect on the government budget but not its income effect on saving
D)   neither its income effect on saving nor its effect on the government budgetE) A) and B)
F) A) and C)

Question 6

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A)   time inconsistency of policy
B)   flexibility to confront unforeseen circumstances
C)   political business cycle
D)   the ability to craft rules that account for all possible contingencies in advanceE) A) and C)
F) A) and B)

Question 7

Which of the following would likely increase private saving?

Accepted Answer

A)   Both expansion of IRA type accounts and a consumption tax.
B)   Expansion of IRA type accounts, but not a consumption tax.
C)   A consumption tax, but not expansion of IRA type accounts.
D)   Neither expansion of IRA type accounts nor a consumption tax.E) A) and B)
F) A) and C)

Question 8

Means-tested programs tend to favor

Accepted Answer

A)   those with high income as would a consumption tax.
B)   those with high income while a consumption tax would favor those with low income.
C)   those with low income as would a consumption tax.
D)   those with low income while a consumption tax would favor those with high income.E) B) and C)
F) C) and D)

Question 9

Higher inflation results in

Accepted Answer

A)   more frequent price changes and increased variability of relative prices.
B)   more frequent price changes and decreased variability of relative prices.
C)   less frequent price changes and increased variability of relative prices.
D)   less frequent price changes and decreased variability of relative prices.E) All of the above
F) C) and D)

Question 10

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Accepted Answer

A)   setting a policy rule will limit the abuse of power of policymakers.
B)   policymakers can better influence the political business cycle in their favor when following a policy rule.
C)   a policy rule provides policymakers with the greatest flexibility to manage inflation.
D)   if the Fed was required to follow a low-inflation policy, the economy would face a less favorable short-run trade-off between inflation and unemployment.E) B) and D)
F) C) and D)

Question 11

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 12

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) A) and D)
F) None of the above

Question 13

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

Accepted Answer

A)   farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises.
B)   farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises.
C)   farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises
D)   farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises..E) A) and B)
F) A) and C)

Question 14

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)   stabilizing the economy during a recession
B)   future generations will benefit from some current expenditures
C)   both a and b
D)   neither a nor bE) None of the above
F) All of the above

Question 15

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Question 16

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

Accepted Answer

First, tax cuts can influence both aggre...

Question 17

"Leaning against the wind" is exemplified by an)

Accepted Answer

A)   tax increase when there is a recession.
B)   decrease in the money supply when there is a recession.
C)   increase in government expenditures when there is a recession.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 18

Consider the following rule for monetary policy: r = 2 percent + π + 1/2y - y*) /y* + 1/2π - π*) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)   1/2 percentage point
B)   1 percentage point
C)   1 and 1/2 percentage points
D)   3 and 1/2 percentage pointsE) A) and B)
F) A) and C)

Question 19

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 D)
F) A) and B)

Question 20

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Accepted Answer

The amendment indicates the Fe...

Exam 23: Six Debates Over Macroeconomic Policy

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct Answer
verified

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

Correct Answer
verified

Which of the following are justifications for running a budget deficit?

Correct Answer
verified

Which of the following would likely increase private saving?

Correct Answer
verified

Higher inflation results in

Correct Answer
verified

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Correct Answer
verified
If inflation is usually about what peopl...
View Answer

"Leaning against the wind" is exemplified by an)

Correct Answer
verified

Means-tested college aid, base college aid primarily on

Correct Answer
verified

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Correct Answer
verified

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Correct Answer
verified

Explain why fiscal policy actions typically work with a lag.

Correct Answer
verified
Fiscal policy works with a lag primarily...
View Answer

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct Answer
verified

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

Correct Answer
verified

Means-tested programs tend to favor

Correct Answer
verified

Correct Answer
verified

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Correct Answer
verified

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Correct Answer
verified
The amendment indicates the Fe...
View Answer

Social Security transfers wealth from younger generations to older generations.

Correct Answer
verified

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

Correct Answer
verified
First, tax cuts can influence both aggre...
View Answer

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Correct Answer
verified
Government spending exceeds tax revenues...
View Answer

Exam 23: Six Debates Over Macroeconomic Policy

Some studies have found that saving is not very sensitive to the rate of return on 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 of the following are justifications for running a budget deficit?

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

Higher inflation results in

Correct AnswerverifiedShow Answer

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

"Leaning against the wind" is exemplified by an)

Correct AnswerverifiedShow Answer

Means-tested college aid, base college aid primarily on

Correct AnswerverifiedShow Answer

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Correct AnswerverifiedShow Answer

Some people believe that monetary policy should be made by rule rather than by discretion. One of their beliefs is that

Correct AnswerverifiedShow Answer

Explain why fiscal policy actions typically work with a lag.

Correct AnswerverifiedFiscal policy works with a lag primarily...View AnswerShow Answer

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct AnswerverifiedShow Answer

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

Correct AnswerverifiedShow Answer

Means-tested programs tend to favor

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Correct AnswerverifiedShow Answer

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Correct AnswerverifiedThe amendment indicates the Fe...View AnswerShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?

Correct AnswerverifiedFirst, tax cuts can influence both aggre...View AnswerShow Answer

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Correct AnswerverifiedGovernment spending exceeds tax revenues...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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Correct Answer
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If inflation is usually about what peopl...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Fiscal policy works with a lag primarily...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The amendment indicates the Fe...
View Answer

Correct Answer
verified

Correct Answer
verified
First, tax cuts can influence both aggre...
View Answer

Correct Answer
verified
Government spending exceeds tax revenues...
View Answer