Question 1

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

Question 2

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 demand shifts right, the central bank must

Accepted Answer

A)   decrease the money supply, which will move output back towards its long-run level.
B)   decrease the money supply, which will move output farther from its long-run level.
C)   increase the money supply, which will move output back towards its long-run level.
D)   increase the money supply, which will move output farther from its long-run level.E) B) and C)
F) None of the above

Question 3

Approximately how often does the Federal Open Market Committee meet?

Accepted Answer

The FOMC m...

Question 4

If there is an increase in the money supply, in the short run

Accepted Answer

A)   the interest rises. It takes several weeks for spending to fully respond to this change.
B)   the interest rises. It takes several months for spending to fully respond to this change.
C)   the interest falls. It takes several weeks for spending to fully respond to this change.
D)   the interest falls. It takes several months for spending to fully respond to this change.E) A) and B)
F) A) and C)

Question 5

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

Question 6

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate provides mo...

Question 7

Which of the following is correct?

Accepted Answer

A)   Deficits always require people to consume at the expense of their children.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   If the government is in debt it must be running a deficit currently.
D)   The current government debt is a large share of lifetime income.E) A) and C)
F) None of the above

Question 8

Higher saving is associated with

Accepted Answer

A)   a larger capital stock and higher productivity.
B)   a larger capital stock but not higher productivity.
C)   higher productivity but not a higher capital stock.
D)   neither a higher capital stock nor higher productivity.E) All of the above
F) A) and D)

Question 9

As it is usually practiced, inflation targeting sets

Accepted Answer

A)   a specific inflation rate for the central bank to target and prohibits it from deviating from the target even when some shock pushes inflation away from that number.
B)   a specific inflation rate for the central bank to target but allows it to deviate from the target when some shock pushes inflation away from that number.
C)   sets some range of inflation rates for the central bank to target and prohibits it from deviating from that range even when some shock pushes inflation outside the range.
D)   sets some range of inflation rates for the central bank to target but allows it to deviate from that range when some shock pushes inflation outside the range.E) A) and B)
F) C) and D)

Question 10

Tax laws do not give preferential treatment to some kinds of retirement saving.

Accepted Answer

A) True 
 B)False

Question 11

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. Other things the same, 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) All of the above
F) A) and B)

Question 12

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

Question 13

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged. If the Fed is required to follow a rule that stabilizes the price level, what will the Fed do to the money supply and what impact will this have on total output in the economy?

Accepted Answer

To keep the price level stable...

Question 14

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

A)   the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations.
B)   the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations.
C)   the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations.
D)   the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.E) C) and D)
F) B) and C)

Question 15

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

Question 16

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Accepted Answer

A)   buy bonds. These purchases also move the price level closer to its original level.
B)   buy bonds. However these purchases move the price level farther from its original level.
C)   sell bonds. These sales also move the price level closer to its original level.
D)   sell bonds. However these sales move the price level farther from its original level.E) A) and D)
F) None of the above

Question 17

Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Question 18

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $68.8 billion
B)   about $137.6 billion
C)   about $275.2 billion
D)   about $309.6 billionE) A) and D)
F) All of the above

Question 19

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)   Current spending may benefit future generations.E) A) and B)
F) All of the above

Question 20

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Accepted Answer

To counter a recession, a central bank r...

Exam 18: Six Debates Over Macroeconomic Policy

If there is an increase in the money supply, in the short run

Correct Answer
verified

The national debt

Correct Answer
verified

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct Answer
verified

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

Correct Answer
verified

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct Answer
verified

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

Correct Answer
verified

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Correct Answer
verified
To counter a recession, a central bank r...
View Answer

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. Other things the same, this change would be expected to have

Correct Answer
verified

Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Higher saving is associated with

Correct Answer
verified

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Correct Answer
verified

A reduction in inflation would lead to

Correct Answer
verified

Correct Answer
verified
To keep the price level stable...
View Answer

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

As it is usually practiced, inflation targeting sets

Correct Answer
verified

Approximately how often does the Federal Open Market Committee meet?

Correct Answer
verified
The FOMC m...
View 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 demand shifts right, the central bank must

Correct Answer
verified

What is the benefit of a high saving rate?

Correct Answer
verified
A high saving rate provides mo...
View Answer

Exam 18: Six Debates Over Macroeconomic Policy

If there is an increase in the money supply, in the short run

Correct AnswerverifiedShow Answer

The national debt

Correct AnswerverifiedShow Answer

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Correct AnswerverifiedTo counter a recession, a central bank r...View AnswerShow Answer

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. Other things the same, this change would be expected to have

Correct AnswerverifiedShow Answer

Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Higher saving is associated with

Correct AnswerverifiedShow Answer

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Correct AnswerverifiedShow Answer

A reduction in inflation would lead to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTo keep the price level stable...View AnswerShow Answer

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

As it is usually practiced, inflation targeting sets

Correct AnswerverifiedShow Answer

Approximately how often does the Federal Open Market Committee meet?

Correct AnswerverifiedThe FOMC m...View AnswerShow 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 demand shifts right, the central bank must

Correct AnswerverifiedShow Answer

What is the benefit of a high saving rate?

Correct AnswerverifiedA high saving rate provides mo...View AnswerShow Answer

Correct Answer
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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
verified
To counter a recession, a central bank r...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
To keep the price level stable...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The FOMC m...
View Answer

Correct Answer
verified

Correct Answer
verified
A high saving rate provides mo...
View Answer