Question 1

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 2

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 3

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 4

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

Accepted Answer

The debt can grow because the economy gr...

Question 5

Which of the following is a cost of inflation?

Accepted Answer

A)   shoeleather costs
B)   menu costs
C)   relative price variability
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 6

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not an argument against requiring the government to balance its budget?

Accepted Answer

A)   Some economists believe that rules are better than discretion.
B)   Per-capita debt is small relative to lifetime income.
C)   The effect of deficit spending on future generations depends in part on what the government buys.
D)   Other government policies also redistribute income across generations.E) A) and B)
F) A) and C)

Question 8

Means-tested government programs tend to reduce saving.What are means-tested programs and how do they reduce saving?

Accepted Answer

Means-tested benefits give assistance,or...

Question 9

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce shoeleather costs and permanently lower unemployment
B)   permanently reduce shoeleather costs and temporarily raise unemployment
C)   temporarily reduce shoeleather costs and temporarily lower unemployment
D)   temporarily reduce shoeleather costs and temporarily raise unemploymentE) A) and D)
F) A) and C)

Question 10

Which of the following is not correct?

Accepted Answer

A)   A potential cost of deficits is that they reduce national saving,thereby reducing growth of the capital stock and output growth.
B)   Deficits give people the opportunity to consume at the expense of their children,but they do not require them to do so.
C)   The U.S.debt per-person is large compared with average lifetime income.
D)   In 2005,the U.S.government ran a deficit.E) None of the above
F) All of the above

Question 11

The average U.S.citizens' share of the government debt represents about 10 percent of her lifetime income.

Accepted Answer

A) True 
 B)False

Question 12

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 13

A balanced budget would require that when real GDP was growing rapidly,

Accepted Answer

A)   the government raise taxes or cut expenditures.This would increase the magnitude of economic fluctuations.
B)   the government raise taxes or cut expenditures.This would decrease the magnitude of economic fluctuations.
C)   the government cut taxes or raise expenditures.This would increase the magnitude of economic fluctuations.
D)   the government cut taxes or raise expenditures.This would decrease the magnitude of economic fluctuations.E) None of the above
F) B) and C)

Question 14

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not correct?

Accepted Answer

A)   Deficits give people the opportunity to consume at the expense of their children,but deficits do not require them to do so.
B)   Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)   The only times deficits have increased have been during times of war or economic downturns.
D)   Reducing the budget deficit rather than funding more education spending could,all things considered,make future generations worse off.E) C) and D)
F) None of the above

Question 16

Consider the following rule for monetary policy: r = 2 percent +  + 1/2(y - y*) /y* + 1/2(- *) ,where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output, is the inflation rate,and * is the inflation target.Which of the following statements is not correct?

Accepted Answer

A)   If aggregate demand shifts right from long-run equilibrium,this rule unambiguously implies that the Fed increases the nominal interest rate.
B)   If aggregate supply shifts right from long-run equilibrium at the inflation target,we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate.
C)   If output is at its natural level,but inflation is above its target,the Fed must increase the nominal interest rate.
D)   If inflation is at its targeted level,but output is above its natural rate,the Fed must decrease the federal funds rate.E) A) and D)
F) All of the above

Question 17

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

Accepted Answer

A)   left,and the sacrifice ratio will be low.
B)   left,and the sacrifice ratio will be high.
C)   right,and the sacrifice ratio will be low.
D)   right,and the sacrifice ratio will be high.E) None of the above
F) A) and C)

Question 18

If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock 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) C) and D)
F) A) and B)

Question 19

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

Accepted Answer

A)   the long-run Phillips curve would shift right.
B)   the long-run Phillips curve would shift left.
C)   the short-run Phillips curve would shift up.
D)   the short-run Phillips curve would shift down.E) All of the above
F) B) and D)

Question 20

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

Exam 36: Five Debates Over Macroeconomic Policy

Explain the main arguments in favor of economic stabilization.

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Which of the following is a cost of inflation?

Correct Answer
verified

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

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

Which of the following is not an argument against requiring the government to balance its budget?

Correct Answer
verified

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

Correct Answer
verified

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct Answer
verified

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

Correct Answer
verified

Explain the time inconsistency of monetary policy.

Correct Answer
verified
Time inconsistency refers to the idea th...
View Answer

Which of the following is not correct?

Correct Answer
verified

A balanced budget would require that when real GDP was growing rapidly,

Correct Answer
verified

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct Answer
verified

A permanent reduction in inflation would

Correct Answer
verified

Means-tested government programs tend to reduce saving.What are means-tested programs and how do they reduce saving?

Correct Answer
verified
Means-tested benefits give assistance,or...
View Answer

Correct Answer
verified

Which of the following is not correct?

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

Why do many economists advocate a consumption tax rather than an income tax?

Correct Answer
verified
The current income tax means that income...
View Answer

The average U.S.citizens' share of the government debt represents about 10 percent of her lifetime income.

Correct Answer
verified

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

Correct Answer
verified

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Correct Answer
verified

Exam 36: Five Debates Over Macroeconomic Policy

Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions a...View AnswerShow Answer

Which of the following is a cost of inflation?

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

Which of the following is not an argument against requiring the government to balance its budget?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate,then

Correct AnswerverifiedShow Answer

Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

A balanced budget would require that when real GDP was growing rapidly,

Correct AnswerverifiedShow Answer

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

Means-tested government programs tend to reduce saving.What are means-tested programs and how do they reduce saving?

Correct AnswerverifiedMeans-tested benefits give assistance,or...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not correct?

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

Why do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

The average U.S.citizens' share of the government debt represents about 10 percent of her lifetime income.

Correct AnswerverifiedShow Answer

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

Correct AnswerverifiedShow Answer

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Time inconsistency refers to the idea th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Means-tested benefits give assistance,or...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The current income tax means that income...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified