Question 1

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)  16.7 trillion
B)  10.0 trillion
C)  6.25 trillion
D)  3.85 trillionE) B) and D)
F) A) and D)

Question 2

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) A) and D)
F) B) and D)

Question 3

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 4

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)  The cost of something is what you give up to get it (Principle 2) .
B)  Trade can make everyone better off (Principle 5) .
C)  Markets are usually a good way to organize economic activity (Principle 6) .
D)  A country's standard of living depends on its ability to produce goods and services (Principle 8) .E) All of the above
F) C) and D)

Question 5

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  would have to increase the interest rate. This would move unemployment closer to the natural rate.
B)  would have to increase the interest rate. This would move unemployment further from the natural rate.
C)  would have to decrease the interest rate. This would move unemployment closer to the natural rate.
D)  would have to decrease the interest rate. This would move unemployment further from the natural rate.E) C) and D)
F) A) and B)

Question 7

All of the following are arguments against stabilization policy except

Accepted Answer

A)  Economic forecasting is highly imprecise.
B)  Long lags may cause stabilization policies to in fact destabilize the economy.
C)  Monetary policy affects aggregate demand by changing interest rates.
D)  Fiscal policy must go through a long political process.E) A) and D)
F) A) and C)

Question 8

Which of the following is not a cost of inflation identified by economists?

Accepted Answer

A)  menu costs associated with more frequent adjustment of prices
B)  confusion and inconvenience resulting from a changing value of the unit of account
C)  reduced price flexibility
D)  arbitrary redistributions of wealth associated with dollar-denominated debtsE) All of the above
F) A) and D)

Question 9

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 B)
F) All of the above

Question 10

Between 1980 and 1995 government debt as a percentage of GDP

Accepted Answer

A)  increased from about 25% to 50%.
B)  decreased from about 50% to 25%.
C)  decreased from about 25% to almost zero.
D)  increased from about 10% to 20%.E) B) and C)
F) A) and D)

Question 11

A reduction in inflation would lead to

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 12

An increase in the money supply

Accepted Answer

A)  reduces interest rates and shifts aggregate demand to the right.
B)  reduces interest rates and shifts aggregate supply to the right
C)  raises interest rates and shifts aggregate demand to the right.
D)  raises interest rates and shifts aggregate supply to the right.E) C) and D)
F) A) and B)

Question 13

Which of the following support the idea that monetary policy should be made by a rule?

Accepted Answer

A)  the political business cycle and the time-inconsistency problem
B)  the political business cycle but not the time-inconsistency problem
C)  the time-inconsistency problem, but not the political business cycle
D)  neither the political business cycle nor the time-inconsistency problemE) All of the above
F) A) and C)

Question 14

From the end of 2005 to the end of 2006, the United States ran a deficit of about $309 billion. The debt at the start of this period was about $4,592 billion. Which of the following combinations of inflation and real GDP growth would have allowed the government to run this deficit while keeping the ratio of real GDP to the debt about the same?

Accepted Answer

A)  about 3% inflation and about 2.2% real GDP growth
B)  about 3% inflation and about 3.2% real GDP growth
C)  about 3.4% inflation and about 3.3% real GDP growth
D)  about 3.4% inflation and about 4% real GDP growthE) C) and D)
F) B) and D)

Question 15

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) A) and D)
F) B) and D)

Question 16

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Accepted Answer

A) True 
 B)False

Question 17

Explain what is meant by saying that capital income is taxed twice.

Accepted Answer

Shareholders are part owners o...

Question 18

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

Accepted Answer

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

Question 19

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Accepted Answer

A)  increase taxes, increase government spending
B)  increase taxes, decrease government spending
C)  decrease taxes, increase government spending
D)  decrease taxes, decrease government spendingE) None of the above
F) A) and B)

Question 20

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A)  the growth rate of output is high
B)  in response to increased debt, parents save more to leave their children larger bequests
C)  some current government spending benefits future taxpayers
D)  All of the above are correct.E) A) and B)
F) C) and D)

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following is not a cost of inflation identified by economists?

Correct Answer
verified

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

Correct Answer
verified

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct Answer
verified

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

Correct Answer
verified

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Correct Answer
verified

An increase in the money supply

Correct Answer
verified

The six debates over macroeconomic policy exist mostly because

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 supply shifts left, the central bank must

Correct Answer
verified

A reduction in inflation would lead to

Correct Answer
verified

Explain what is meant by saying that capital income is taxed twice.

Correct Answer
verified
Shareholders are part owners o...
View Answer

Which of the following support the idea that monetary policy should be made by a rule?

Correct Answer
verified

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

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

Between 1980 and 1995 government debt as a percentage of GDP

Correct Answer
verified

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

Correct Answer
verified

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct Answer
verified

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Correct Answer
verified

All of the following are arguments against stabilization policy except

Correct Answer
verified

Correct Answer
verified

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Correct Answer
verified

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

Which of the following is not a cost of inflation identified by economists?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Correct AnswerverifiedShow Answer

An increase in the money supply

Correct AnswerverifiedShow Answer

The six debates over macroeconomic policy exist mostly because

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 supply shifts left, the central bank must

Correct AnswerverifiedShow Answer

A reduction in inflation would lead to

Correct AnswerverifiedShow Answer

Explain what is meant by saying that capital income is taxed twice.

Correct AnswerverifiedShareholders are part owners o...View AnswerShow Answer

Which of the following support the idea that monetary policy should be made by a rule?

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

Between 1980 and 1995 government debt as a percentage of GDP

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the unemployment rate rises, which policies would both be appropriate to reduce it?

Correct AnswerverifiedShow Answer

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Correct AnswerverifiedShow Answer

All of the following are arguments against stabilization policy except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

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
verified

Correct Answer
verified

Correct Answer
verified
Shareholders are part owners o...
View Answer

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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