Question 1

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 2

Consider the following rule for monetary policy: r = 2 percent +  π\piπ  + 1/2(y - y*) /y* + 1/2( π\piπ -  π\piπ *) , where r is the nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output,  π\piπ  is the inflation rate, and  π\piπ * is the inflation target. Other things the same, if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)  1/2 percentage point
B)  1 percentage point
C)  1 and 1/2 percentage points
D)  3 and 1/2 percentage points E) A) and B)
F) A) and D)

Question 3

Zero inflation

Accepted Answer

A)  might be dangerous because it could lead to rapidly increasing prices.
B)  would limit the flexibility of the labor market and so could at times raise unemployment.
C)  would make it easy for the Central bank to create negative real interest rates.
D)  is impossible to achieve in the real world.E) B) and C)
F) A) and C)

Question 4

Higher saving is associated with

Accepted Answer

A)  a larger capital stock and a higher standard of living.
B)  a larger capital stock but not a higher standard of living.
C)  a higher standard of living but not a larger capital stock.
D)  neither a higher standard of living nor a higher capital stock.E) None of the above
F) A) and C)

Question 5

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Accepted Answer

A)  the income effect and the substitution effect
B)  the income effect but not the substitution effect
C)  the substitution effect but not the income effect
D)  neither the substitution effect nor the income effectE) B) and C)
F) All of the above

Question 7

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Accepted Answer

A)  both the tax cut and the increase in government expenditures would tend to increase output.
B)  only the tax cut would tend to increase output.
C)  only the increase in government expenditures would tend to increase output.
D)  neither the tax cut nor the increase in government expenditures would tend to increase output.E) A) and C)
F) B) and C)

Question 8

U.S. public policy discourages saving because

Accepted Answer

A)  other things the same, taxes increase the return from savings.
B)  means tested programs such as Medicaid provide lower benefits to those who did not save.
C)  none of parents' bequest to their children is taxed.
D)  some forms of capital income are taxed twice.E) B) and D)
F) C) and D)

Question 9

Tax policy changes that favor people who save will

Accepted Answer

A)  favor low-income households.
B)  favor people with high income.
C)  create a more egalitarian society.
D)  unambiguously increase national saving.E) All of the above
F) A) and B)

Question 10

Which of the following is an argument in favor of a balanced budget rule?

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

Question 11

A country has a growth rate of 2%. Government spending is 50 billion units of currency and its tax revenues are 30 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt to income ratio unchanged?

Accepted Answer

A)  2%
B)  3%
C)  5%
D)  7%E) A) and D)
F) A) and C)

Question 12

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)  requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment.
B)  requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability.
C)  requires the Federal Reserve to place equal weight on promoting price stability and maximum employment.
D)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.E) B) and D)
F) A) and B)

Question 13

The Federal Open Market Committee meets about

Accepted Answer

A)  every six days.
B)  every six weeks.
C)  every six months.
D)  every sixteen months.E) C) and D)
F) A) and B)

Question 14

The Federal Reserve

Accepted Answer

A)  requires little time to change policy and aggregate demand responds quickly.
B)  requires little time to change policy but aggregate demand responds slowly.
C)  usually requires a substantial time to change policy but aggregate demand responds quickly.
D)  usually requires a substantial time to change policy and aggregate demand responds slowly.E) A) and B)
F) All of the above

Question 15

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Accepted Answer

A)  increased the money supply because it was concerned about unemployment.
B)  increased the money supply because it was concerned about inflation.
C)  decreased the money supply because it was concerned about unemployment.
D)  decreased the money supply because it was concerned about inflation.E) All of the above
F) A) and B)

Question 16

Social Security transfers wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Which of the programs below would not transfer wealth between young and old generations?

Accepted Answer

A)  Taxes are raised to provide better 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 D)

Question 19

"Leaning against the wind" is exemplified by a

Accepted Answer

A)  tax increase when there is a recession.
B)  decrease in the money supply when there is an expansion.
C)  decrease in government expenditures when there is a recession.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 20

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Exam 23: Six Debates Over Macroeconomic Policy

Which of the programs below would not transfer wealth between young and old generations?

Correct Answer
verified

U.S. public policy discourages saving because

Correct Answer
verified

Higher saving is associated with

Correct Answer
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Zero inflation

Correct Answer
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A 1977 amendment to the Federal Reserve Act of 1913

Correct Answer
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Tax policy changes that favor people who save will

Correct Answer
verified

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Correct Answer
verified

Correct Answer
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Which of the following is an argument in favor of a balanced budget rule?

Correct Answer
verified

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Correct Answer
verified

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Correct Answer
verified

The Federal Open Market Committee meets about

Correct Answer
verified

"Leaning against the wind" is exemplified by a

Correct Answer
verified

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct Answer
verified

A country has a growth rate of 2%. Government spending is 50 billion units of currency and its tax revenues are 30 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt to income ratio unchanged?

Correct Answer
verified

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Correct Answer
verified

The Federal Reserve

Correct Answer
verified

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

Correct Answer
verified

Social Security transfers wealth from younger generations to older generations.

Correct Answer
verified

Explain the main arguments in favor of economic stabilization.

Correct Answer
verified
Fluctuations in the economy-recessions a...
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Exam 23: Six Debates Over Macroeconomic Policy

Which of the programs below would not transfer wealth between young and old generations?

Correct AnswerverifiedShow Answer

U.S. public policy discourages saving because

Correct AnswerverifiedShow Answer

Higher saving is associated with

Correct AnswerverifiedShow Answer

Zero inflation

Correct AnswerverifiedShow Answer

A 1977 amendment to the Federal Reserve Act of 1913

Correct AnswerverifiedShow Answer

Tax policy changes that favor people who save will

Correct AnswerverifiedShow Answer

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an argument in favor of a balanced budget rule?

Correct AnswerverifiedShow Answer

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Correct AnswerverifiedShow Answer

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets about

Correct AnswerverifiedShow Answer

"Leaning against the wind" is exemplified by a

Correct AnswerverifiedShow Answer

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct AnswerverifiedShow Answer

A country has a growth rate of 2%. Government spending is 50 billion units of currency and its tax revenues are 30 billion units of currency. The current national debt is 400 billion units of currency. At which inflation rate is its debt to income ratio unchanged?

Correct AnswerverifiedShow Answer

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Correct AnswerverifiedShow Answer

The Federal Reserve

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Social Security transfers wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

Explain the main arguments in favor of economic stabilization.

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

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Fluctuations in the economy-recessions a...
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