Question 1

In the early 1980's the Fed tightened monetary policy. Over the next few years

Accepted Answer

A)   inflation remained high and unemployment rose.
B)   inflation fell but unemployment rose temporarily.
C)   inflation and unemployment fell.
D)   inflation and unemployment rose.E) A) and C)
F) None of the above

Question 2

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 3

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

Question 4

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Accepted Answer

A lag of six months ...

Question 5

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 C)
F) C) and D)

Question 6

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 7

If a central bank were required to target inflation at zero, then when there was an unanticipated increase in aggregate supply the central bank

Accepted Answer

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

Question 8

Which costs of inflation could the government take action to reduce without reducing inflation?

Accepted Answer

A)   shoeleather costs
B)   unintended changes in tax liabilities
C)   menu costs
D)   none of the above is correct.E) A) and D)
F) All of the above

Question 9

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) A) and C)
F) A) and D)

Question 10

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following would transfer wealth from old to young?

Accepted Answer

A)   Increases in the budget deficit.
B)   Decreased building of highways and bridges.
C)   More generous education subsidies.
D)   Indexation of Social Security benefits to inflation.E) B) and C)
F) A) and B)

Question 12

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Accepted Answer

The benefits of the project ac...

Question 13

As opposed to an increase in government expenditures, a tax cut

Accepted Answer

A)   is likely to impact spending faster and according to traditional theory has a larger multiplier.
B)   is likely to impact spending faster, but according to traditional theory has a smaller multiplier.
C)   is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier.
D)   is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplierE) None of the above
F) A) and B)

Question 14

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

Accepted Answer

The debt can grow because the economy gr...

Question 15

Which of the programs below would not transfer wealth from young to old generations?

Accepted Answer

A)   Taxes are reduced as a result of cutting expenditures on education.
B)   Taxes are raised to improve government infrastructure such as roads and bridges.
C)   Taxes are raised to provide more generous Social Security benefits.
D)   Taxes are raised to provide more generous Medicare benefits.E) C) and D)
F) A) and C)

Question 16

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...

Question 17

An increase in the tax rate on interest income

Accepted Answer

A)   raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is larger than the substitution effect.
B)   raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is smaller than the substitution effect.
C)   reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is larger than the substitution effect.
D)   reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is smaller than the substitution effect.E) A) and B)
F) A) and D)

Question 18

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Accepted Answer

Tax policies designed to encourage savin...

Question 19

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 20

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A)   shoeleather and menu costs
B)   menu costs and relative price variability
C)   unintended changes in tax liabilities and arbitrary redistributions of wealth
D)   none of the above is correct.E) None of the above
F) A) and D)

Exam 18: Six Debates Over Macroeconomic Policy

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

Correct AnswerverifiedTax policies designed to encourage savin...View AnswerShow Answer

Which costs of inflation could the government reduce without reducing inflation?

Correct AnswerverifiedShow Answer

As opposed to an increase in government expenditures, a tax cut

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which costs of inflation could the government take action to reduce without reducing inflation?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

In 2009 President Barack Obama responded to recession

Correct AnswerverifiedShow Answer

If a central bank were required to target inflation at zero, then when there was an unanticipated increase in aggregate supply the central bank

Correct AnswerverifiedShow Answer

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Correct AnswerverifiedShow Answer

Which of the following would transfer wealth from old to young?

Correct AnswerverifiedShow Answer

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

Correct AnswerverifiedThe benefits of the project ac...View AnswerShow Answer

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct AnswerverifiedShow Answer

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Correct AnswerverifiedA lag of six months ...View AnswerShow Answer

An increase in the tax rate on interest income

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

Which of the programs below would not transfer wealth from young to old generations?

Correct AnswerverifiedShow Answer

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct AnswerverifiedShow 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

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

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

In the early 1980's the Fed tightened monetary policy. Over the next few years

Correct AnswerverifiedShow Answer

Correct Answer
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Tax policies designed to encourage savin...
View Answer

Correct Answer
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Correct Answer
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The benefits of the project ac...
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A lag of six months ...
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Correct Answer
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Correct Answer
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The amendment indicates the Fe...
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Correct Answer
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Correct Answer
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Correct Answer
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The Federal Open Mar...
View Answer

Correct Answer
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The debt can grow because the economy gr...
View Answer

Correct Answer
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