Question 1

Proponents of requiring the government to balance its budget argue that debt burdens future generations.Explain one claim they make to support this argument.

Accepted Answer

High debt means that future taxpayers wi...

Question 2

Which inflation costs could the government take actions to 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) A) and C)
F) B) and C)

Question 3

Why is there a lag between the Fed's actions and the economy's response?

Accepted Answer

Monetary policy is supposed to...

Question 4

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

Question 5

An economist would be more likely to argue for reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) B) and C)
F) B) and D)

Question 6

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

Question 7

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 D)
F) A) and B)

Question 8

By law what goals are the Federal Reserve to pursue? What,if any,specific weights are given for these goals?

Accepted Answer

maximum employment,stable pric...

Question 9

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Accepted Answer

A) True 
 B)False

Question 10

If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)   decreasing the money supply.
B)   increasing taxes.
C)   increasing government expenditures.
D)   decreasing government expenditures.E) None of the above
F) A) and B)

Question 11

If the natural rate of unemployment is 6%,but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5% then in the short run which of the following variables will the Fed's policy raise above their long-run levels?

Accepted Answer

A)   the price level and real GDP
B)   the price level but not real GDP
C)   real GDP but not the price level
D)   neither real GDP nor the price levelE) B) and D)
F) All of the above

Question 12

Which of the following does the U.S.currently have?

Accepted Answer

A)   means-tested government benefits and tax laws that tax capital income only once
B)   means-tested government benefits and tax laws that tax some capital income twice
C)   tax laws that tax capital income only once,but not means-tested government benefits
D)   tax laws that tax some capital income twice,but not means-tested government benefitsE) C) and D)
F) A) and B)

Question 13

In theory the severity of recessions can be diminished with

Accepted Answer

A)   an increase in government spending,which the political process cannot delay.
B)   an increase in government spending,which the length of the political process can delay.
C)   a decrease in government expenditures,which the political process cannot delay.
D)   a decrease in government spending,which the length of the political process can delay.E) None of the above
F) A) and B)

Question 14

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Accepted Answer

A)   lower the discount rate and sell bonds.
B)   lower the discount rate and buy bonds.
C)   raise the discount rate and sell bonds.
D)   raise the discount rate and buy bonds.E) All of the above
F) None of the above

Question 15

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008-2009 recession.

Accepted Answer

"Shovel ready" public works pr...

Question 16

The national debt

Accepted Answer

A)   exists because of past government budget deficits.
B)   is the difference between the government's spending and revenue in a given year.
C)   is the amount households owe on credit cards,mortgages and other loans.
D)   is the amount household and firms have borrowed minus the amount they have saved.E) A) and C)
F) B) and C)

Question 17

In fiscal year 2001,the U.S.government ran a surplus of about $127 billion.In fiscal year 2002,the government ran a deficit of $159 billion.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) None of the above
F) B) and C)

Question 18

Some economists argue that since inflation

Accepted Answer

A)   raises the real value of fixed nominal wages,a little inflation may make it easier for labor markets to adjust.
B)   raises the real value of fixed nominal wages,a little inflation may make it harder for labor markets to adjust.
C)   reduces the real value of fixed nominal wages,a little inflation may make it easier for labor markets to adjust.
D)   reduces the real value of fixed nominal wages,a little inflation may make it harder for labor markets to adjust.E) None of the above
F) B) and C)

Question 19

Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?

Accepted Answer

Consumers may recognize that b...

Question 20

The cost of inflation reduction is a large,permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

If the budget deficit were reduced

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In fiscal year 2001,the U.S.government ran a surplus of about $127 billion.In fiscal year 2002,the government ran a deficit of $159 billion.This change would be expected to have

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Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?

Correct AnswerverifiedConsumers may recognize that b...View AnswerShow Answer

The national debt

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Proponents of requiring the government to balance its budget argue that debt burdens future generations.Explain one claim they make to support this argument.

Correct AnswerverifiedHigh debt means that future taxpayers wi...View AnswerShow Answer

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

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The cost of inflation reduction is a large,permanent increase in unemployment.

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Some economists argue that since inflation

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If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.In response to this change,someone who advocated "lean against the wind" policies might advocate

Correct AnswerverifiedShow Answer

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Correct AnswerverifiedShow Answer

Why is there a lag between the Fed's actions and the economy's response?

Correct AnswerverifiedMonetary policy is supposed to...View AnswerShow Answer

In theory the severity of recessions can be diminished with

Correct AnswerverifiedShow Answer

By law what goals are the Federal Reserve to pursue? What,if any,specific weights are given for these goals?

Correct Answerverifiedmaximum employment,stable pric...View AnswerShow Answer

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008-2009 recession.

Correct Answerverified"Shovel ready" public works pr...View AnswerShow Answer

Which of the following does the U.S.currently have?

Correct AnswerverifiedShow Answer

If the natural rate of unemployment is 6%,but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5% then in the short run which of the following variables will the Fed's policy raise above their long-run levels?

Correct AnswerverifiedShow Answer

The principal lag for monetary policy

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If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An economist would be more likely to argue for reducing inflation if she thought that

Correct AnswerverifiedShow Answer

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Consumers may recognize that b...
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High debt means that future taxpayers wi...
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Monetary policy is supposed to...
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maximum employment,stable pric...
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Correct Answer
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"Shovel ready" public works pr...
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Correct Answer
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