Question 1

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

Question 2

Fluctuations in employment and output result from changes in

Accepted Answer

A)  aggregate demand only.
B)  aggregate supply only.
C)  aggregate demand and aggregate supply.
D)  neither aggregate demand nor aggregate supply.E) A) and B)
F) None of the above

Question 3

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what people expect,the arbitrary redistribution of wealth associated with dollar-denominated debts may be small.High and continuing inflation may lead people to develop ways to lessen the costs of inflation.Indexed bonds and checking accounts or government policy to reduce tax distortions created by the tax code are examples.The costs of inflation reduction may be high if people have become accustomed to inflation.When expected inflation is high,the tradeoff between inflation and unemployment is poor and even small reductions in inflation may require large increases in unemployment.Further,a country that has experienced high inflation for a long time is likely to be skeptical of the central bank's commitment to reduce inflation.

Question 4

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Question 5

If the unemployment rate rises,which policies would both be appropriate to reduce it?

Accepted Answer

A)  increase taxes,increase government spending
B)  increase taxes,decrease government spending
C)  decrease taxes,increase government spending
D)  decrease taxes,decrease government spendingE) C) and D)
F) A) and D)

Question 6

Inflation

Accepted Answer

A)  causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
B)  causes people to spend more time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.
C)  causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
D)  causes people to spend less time reducing money balances.When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.E) A) and C)
F) A) and D)

Question 7

According to traditional Keynesian analysis,a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 8

Supporters of using government expenditures to respond to recession

Accepted Answer

A)  argue that monetary policy should be used first.An increase in the money supply will reduce interest rates.
B)  argue that monetary policy should be used first.An increase in the money supply will raise interest rates.
C)  argue that monetary policy should be used only after fiscal policy has been used.An increase in the money supply will reduce interest rates.
D)  argue that monetary policy should be used only after fiscal policy has been used.An increase in the money supply will raise interest rates.E) B) and D)
F) None of the above

Question 9

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Accepted Answer

A) True 
 B)False  True

Question 10

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

Question 11

Which of the following are both correct?

Accepted Answer

A)  Data show no correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the income effect.
B)  Data show no correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the substitution effect.
C)  Data show a positive correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the income effect.
D)  Data show a positive correlation between saving and measures of economic well-being.A reduction in tax rates may reduce saving because of the substitution effect.E) A) and D)
F) All of the above

Question 12

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Accepted Answer

A)  6 percent of GDP without raising the debt-to-income ratio.
B)  5 percent of GDP without raising the debt-to-income ratio.
C)  1.5 percent of GDP without raising the debt-to-income ratio.
D)  1 percent of GDP without raising the debt-to-income ratio.E) A) and D)
F) B) and C)

Question 14

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Accepted Answer

A)  High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
B)  Inflation reduction works best when it is unexpected,and people in high inflation countries would quickly anticipate any change in monetary policy.
C)  In a country where inflation has been high for a long time,people are likely to have found ways to limit the costs.
D)  In a country where inflation has been high for a long time,there are no costs to the inflation.E) B) and C)
F) A) and D)

Question 15

Proponents of zero inflation argue that a successful program to reduce inflation

Accepted Answer

A)  eventually reduces inflation expectations.
B)  eventually raises real interest rates.
C)  permanently decreases output.
D)  permanently raises unemployment.E) A) and B)
F) A) and C)

Question 16

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

A)  credible so that the sacrifice ratio is low.
B)  credible so that the sacrifice ratio is high.
C)  unexpected so that the sacrifice ratio is high.
D)  unexpected so that the sacrifice ratio is low.E) A) and C)
F) All of the above

Question 17

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

Question 18

The political business cycle refers to

Accepted Answer

A)  the fact that about every four years some politician advocates greater government control of the central bank
B)  the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)  the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)  changes in output created by the monetary rule the central bank must follow.E) A) and B)
F) None of the above

Question 19

When the government has a deficit,a burden is necessarily imposed on future generations of taxpayers.

Accepted Answer

A) True 
 B)False

Question 20

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions and booms-are costly.Recessions in particular are a waste of resources,since people and machines are idle when they could be producing goods and services.Stabilization policies can help to eliminate this waste of resources.

Exam 37: Six Debates Over Macroeconomic Policy

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

Fluctuations in employment and output result from changes in

Correct Answer
verified

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct Answer
verified

If the unemployment rate rises,which policies would both be appropriate to reduce it?

Correct Answer
verified

Inflation

Correct Answer
verified

According to traditional Keynesian analysis,a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Correct Answer
verified

Supporters of using government expenditures to respond to recession

Correct Answer
verified

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Correct Answer
verified
True

Which of the following is correct?

Correct Answer
verified

Which of the following are both correct?

Correct Answer
verified

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct Answer
verified

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Correct Answer
verified

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Correct Answer
verified

Proponents of zero inflation argue that a successful program to reduce inflation

Correct Answer
verified

Inflation reduction has the lowest cost when the efforts are

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

The political business cycle refers to

Correct Answer
verified

When the government has a deficit,a burden is necessarily imposed on future generations of taxpayers.

Correct Answer
verified

Explain the main arguments in favor of economic stabilization.

Correct Answer
verified
Fluctuations in the economy-recessions and booms-are costly.Recessions in particular are a waste of resources,since people and machines are idle when they could be producing goods and services.Stabilization policies can help to eliminate this waste of resources.

Exam 37: Six Debates Over Macroeconomic Policy

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

Fluctuations in employment and output result from changes in

Correct AnswerverifiedShow Answer

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct AnswerverifiedShow Answer

If the unemployment rate rises,which policies would both be appropriate to reduce it?

Correct AnswerverifiedShow Answer

Inflation

Correct AnswerverifiedShow Answer

According to traditional Keynesian analysis,a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Correct AnswerverifiedShow Answer

Supporters of using government expenditures to respond to recession

Correct AnswerverifiedShow Answer

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Correct AnswerverifiedTrue

Which of the following is correct?

Correct AnswerverifiedShow Answer

Which of the following are both correct?

Correct AnswerverifiedShow Answer

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year.Then the government can have a deficit of about

Correct AnswerverifiedShow Answer

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that a successful program to reduce inflation

Correct AnswerverifiedShow Answer

Inflation reduction has the lowest cost when the efforts are

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

The political business cycle refers to

Correct AnswerverifiedShow Answer

When the government has a deficit,a burden is necessarily imposed on future generations of taxpayers.

Correct AnswerverifiedShow Answer

Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions and booms-are costly.Recessions in particular are a waste of resources,since people and machines are idle when they could be producing goods and services.Stabilization policies can help to eliminate this waste of resources.

Correct Answer
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True

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Correct Answer
verified
Fluctuations in the economy-recessions and booms-are costly.Recessions in particular are a waste of resources,since people and machines are idle when they could be producing goods and services.Stabilization policies can help to eliminate this waste of resources.