Question 1

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not an argument against rules and for discretion?

Accepted Answer

A)  The economy is subject to a variety of random shocks.
B)  Rules would eliminate time inconsistency.
C)  Historically, it is not clear how important political business cycles have been.
D)  Central banks can achieve credibility over time by backing up their words with deeds.E) All of the above
F) B) and C)

Question 3

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 B)
F) B) and C)

Question 4

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

Accepted Answer

A) True 
 B)False

Question 5

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) B) and C)

Question 6

Part of the argument against deficits is that they

Accepted Answer

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

Question 7

Fluctuations in employment and output result from changes in

Accepted Answer

A)  aggregate demand only.
B)  aggregate supply only.
C)  aggregate demand and aggregate supply.
D)  neither aggregate demand nor aggregate supply.E) B) and D)
F) B) and C)

Question 8

The principal lag for monetary policy

Accepted Answer

A)  and fiscal policy is the time it takes to implement policy.
B)  and fiscal policy is the time it takes for policy to change spending.
C)  is the time it takes to implement policy.The principal lag for fiscal policy is the time it takes for policy to change spending.
D)  is the time it takes for policy to change spending.The principal lag for fiscal policy is the time it takes to implement it.E) A) and B)
F) B) and C)

Question 9

Describe three costs of inflation.

Accepted Answer

There are several costs of inflation.Sho...

Question 10

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr...

Question 11

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) All of the above
F) C) and D)

Question 12

How long have studies shown it takes for interest rate changes to lead to significant changes in spending?

Accepted Answer

A)  A few days.
B)  A few weeks.
C)  A few months.
D)  A few years.E) C) and D)
F) A) and B)

Question 13

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) None of the above
F) All of the above

Question 14

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not an argument against reforming the tax laws to encourage saving?

Accepted Answer

A)  A public budget surplus can raise national saving.
B)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
C)  Low-income households save a larger fraction of their income than high-income households.
D)  Tax cuts might cause a budget deficit.E) C) and D)
F) B) and C)

Question 18

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce menu costs and permanently lower unemployment.
B)  permanently reduce menu costs and temporarily raise unemployment.
C)  temporarily reduce menu costs and temporarily lower unemployment.
D)  temporarily reduce menu costs and temporarily raise unemployment.E) B) and C)
F) All of the above

Question 19

If in some year,real GDP rises by 4% and inflation is 3%,then the budget deficit could grow as much as

Accepted Answer

A)  12% without raising the ratio of debt to GDP.
B)  7% without raising the ratio of debt to GDP.
C)  4% without raising the ratio of debt to GDP.
D)  1% without raising the ratio of debt to GDP.E) All of the above
F) A) and D)

Question 20

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Accepted Answer

A)  both the tax cut and the increase in government expenditures would tend to increase output.
B)  only the tax cut would tend to increase output.
C)  only the increase in government expenditures would tend to increase output.
D)  neither the tax cut nor the increase in government expenditures would tend to increase output.E) A) and B)
F) A) and C)

Exam 36: Five Debates Over Macroeconomic Policy

Which of the following is not an argument against rules and for discretion?

Correct AnswerverifiedShow Answer

President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model

Correct AnswerverifiedShow Answer

Which of the following is not an argument against reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

Correct AnswerverifiedShow Answer

Part of the argument against deficits is that they

Correct AnswerverifiedShow Answer

Explain how it is possible for the government debt to grow forever.

Correct AnswerverifiedThe debt can grow because the economy gr...View AnswerShow Answer

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Correct AnswerverifiedShow Answer

All of the following are arguments against stabilization policy except

Correct AnswerverifiedShow Answer

If the budget deficit were reduced

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow 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

The principal lag for monetary policy

Correct AnswerverifiedShow Answer

How long have studies shown it takes for interest rate changes to lead to significant changes in spending?

Correct AnswerverifiedShow Answer

If in some year,real GDP rises by 4% and inflation is 3%,then the budget deficit could grow as much as

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

The time inconsistency of monetary policy means that

Correct AnswerverifiedShow Answer

Describe three costs of inflation.

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

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

Correct AnswerverifiedShow Answer

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The debt can grow because the economy gr...
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If inflation is usually about what peopl...
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There are several costs of inflation.Sho...
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Correct Answer
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