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

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Accepted Answer

An increase in government expe...

Question 3

Suppose that the country of Aquilonia has an inflation rate of about 6 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 500 billion units of currency and current nominal national debt of 100 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to income ratio constant?

Accepted Answer

A)  government spending equal to 50 billion units and tax collections equal to 48 billion units
B)  government spending equal to 50 billion units and tax collections equal to 41 billion units
C)  government spending equal to 50 billion units and tax collections equal to 40 billion units
D)  government spending equal to 50 billion units and tax collections equal to 32 billion unitsE) A) and D)
F) A) and B)

Question 4

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

Question 5

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce the frequency of price changes and permanently lower unemployment.
B)  permanently reduce the frequency of price changes and temporarily raise unemployment.
C)  temporarily reduce the frequency of price changes and temporarily lower unemployment.
D)  temporarily reduce the frequency of price changes and temporarily raise unemployment.E) B) and C)
F) A) and D)

Question 6

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Accepted Answer

A)  5%
B)  10%
C)  15%
D)  20%E) A) and D)
F) C) and D)

Question 7

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

Question 8

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

Question 9

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Accepted Answer

A)  A cut in the marginal tax rate increases the incentives to find a job and work longer hours.
B)  Consumers will save a portion of a tax cut.
C)  The government may use the increase in expenditures on projects with little value, particularly if it wishes to respond quickly.
D)  There is no evidence that tax cuts have been followed by increases in economic growth.E) A) and B)
F) B) and D)

Question 10

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

Accepted Answer

A)  cutting taxes and increasing expenditures. The effect of the tax cut is larger.
B)  cutting taxes and increasing expenditures. The effect of the tax cut is smaller.
C)  raising taxes and decreasing expenditures. The effect of the tax increase is larger.
D)  raising taxes and decreasing expenditures. The effect of the tax increase is smaller.E) All of the above
F) C) and D)

Question 11

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

Question 12

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment...

Question 13

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

Accepted Answer

The typical estimate of the sacrifice ra...

Question 14

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 15

A policymaker in favor of stabilizing the economy would be likely to believe

Accepted Answer

A)  recessions are a waste of resources.
B)  economies must suffer through the booms and busts of the business cycle.
C)  the long policy lags make implementing policy changes in response to recession too risky.
D)  policy increases the magnitude of economic fluctuations.E) A) and B)
F) B) and D)

Question 16

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

Question 17

During recessions, even with no changes in policy, the deficit tends to ______ because _____________.

Accepted Answer

rise, income falls so tax reve...

Question 18

A year ago a country reduced the tax rate on all interest income from 40% to 10%. During the year private saving was $600 billion as compared to $500 billion the year before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in government revenues or spending which of the following is correct?

Accepted Answer

A)  the substitution effect was larger than the income effect; national saving rose
B)  the substitution effect was larger than the income effect; national saving fell
C)  the income effect was larger than the substitution effect; national saving rose
D)  the income effect was larger than the substitution effect; national saving fellE) A) and B)
F) B) and C)

Question 19

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

Accepted Answer

Monetary policy is supposed to...

Question 20

The Federal Reserve will tend to tighten monetary policy when

Accepted Answer

A)  interest rates are rising too rapidly.
B)  it thinks the unemployment rate is too high.
C)  the growth rate of real GDP is quite sluggish.
D)  it thinks inflation is too high today, or will become too high in the future.E) A) and B)
F) A) and C)

Exam 36: Six Debates Over Macroeconomic Policy

During recessions, even with no changes in policy, the deficit tends to because _______.

Correct Answer
verified
rise, income falls so tax reve...
View Answer

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

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

A permanent reduction in inflation would

Correct Answer
verified

The Federal Reserve will tend to tighten monetary policy when

Correct Answer
verified

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Correct Answer
verified
An increase in government expe...
View Answer

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Correct Answer
verified

Correct Answer
verified

A policymaker in favor of stabilizing the economy would be likely to believe

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified
Monetary policy is supposed to...
View Answer

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Correct Answer
verified
Investment...
View Answer

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Correct Answer
verified

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

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

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

Correct Answer
verified

A permanent reduction in inflation would

Correct Answer
verified

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 Answer
verified
High debt means that future taxpayers wi...
View Answer

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

Correct Answer
verified
The typical estimate of the sacrifice ra...
View Answer

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

During recessions, even with no changes in policy, the deficit tends to ______ because _____________.

Correct Answerverifiedrise, income falls so tax reve...View AnswerShow Answer

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

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

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

The Federal Reserve will tend to tighten monetary policy when

Correct AnswerverifiedShow Answer

According to traditional Keynesian analysis, which has a greater impact on aggregate demand, changing taxes or changing government expenditures? Why?

Correct AnswerverifiedAn increase in government expe...View AnswerShow Answer

Using the typical estimate of the sacrifice ratio, how much output would be lost in reducing inflation from 3% to 1%?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A policymaker in favor of stabilizing the economy would be likely to believe

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

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Correct AnswerverifiedInvestment...View AnswerShow Answer

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Correct AnswerverifiedShow Answer

According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards full employment by

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

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

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

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

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

Correct AnswerverifiedThe typical estimate of the sacrifice ra...View AnswerShow Answer

Correct AnswerverifiedShow Answer

During recessions, even with no changes in policy, the deficit tends to because _______.

Correct Answer
verified
rise, income falls so tax reve...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An increase in government expe...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Monetary policy is supposed to...
View Answer

Correct Answer
verified
Investment...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
High debt means that future taxpayers wi...
View Answer

Correct Answer
verified
The typical estimate of the sacrifice ra...
View Answer

Correct Answer
verified