Question 1

Economists agree that at least in the short run disinflation

Accepted Answer

A)   leads to a period of higher unemployment. They also agree that the costs of even moderate inflation is high.
B)   leads to a period of higher unemployment. They disagree about the cost of moderate inflation.
C)   leads to a period of lower unemployment. They also agree that the cost of even moderate inflation is high.
D)   leads to a period of lower unemployment. They disagree about the cost of moderate inflation.E) B) and C)
F) B) and D)

Question 2

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

Accepted Answer

A)   arbitrary redistributions of wealth
B)   shoeleather costs
C)   menu costs
D)   none of the above is correct.E) A) and B)
F) All of the above

Question 3

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Accepted Answer

A)   decreasing the money supply.
B)   increasing taxes.
C)   increasing government expenditures.
D)   All of the aboveE) None of the above
F) A) and B)

Question 4

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

Question 5

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) C) and D)

Question 6

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

Question 7

A higher rate of return on saving has

Accepted Answer

A)   an income effect that discourages saving and a substitution effect that encourages saving.
B)   an income effect that encourages saving and a substitution effect that discourages saving.
C)   income and substitution effects that both decrease saving.
D)   income and substitution effects that both increase saving.E) B) and D)
F) C) and D)

Question 8

An increase in the money supply

Accepted Answer

A)   reduces interest rates and shifts aggregate demand to the right.
B)   reduces interest rates and shifts aggregate supply to the right
C)   raises interest rates and shifts aggregate demand to the right.
D)   raises interest rates and shifts aggregate supply to the right.E) C) and D)
F) B) and C)

Question 9

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Accepted Answer

The government cut taxes and raised expe...

Question 10

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

Question 11

Which of the following reduce the incentive for households to save?

Accepted Answer

A)   both means-testing of government benefits and inheritance taxes
B)   means-testing of government benefits but not inheritance taxes
C)   inheritance taxes, but not means-testing of government benefits
D)   neither means-testing of government benefits nor inheritance taxesE) All of the above
F) A) and C)

Question 12

An increase in the tax rate on interest income

Accepted Answer

A)   raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is larger than the substitution effect.
B)   raises the amount earned on savings. Saving will rise if the income effect of the increase in the tax rate is smaller than the substitution effect.
C)   reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is larger than the substitution effect.
D)   reduces the amount earned on savings. Saving will fall if the income effect of the increase in the tax rate is smaller than the substitution effect.E) All of the above
F) A) and B)

Question 13

nominal federal funds rate, y is real GDP, y* is an estimate of the natural rate of output, π is the inflation rate, and π* is the inflation target. Other things the same, if the economy starts at y* and π* and then y rises and exceeds y* by 1% and π rises 2% points above π*, the rule would require the Fed to raise the federal funds rate by

Accepted Answer

A)   1.5 percentage points
B)   2.5 percentage points
C)   3.5 percentage points
D)   5.5 percentage pointsE) B) and D)
F) A) and C)

Question 14

Opponents of tax reforms intended to raise saving argue that such reforms

Accepted Answer

A)   favor those with high income, and that saving may not rise because of the substitution effect.
B)   favor those with high income, and that saving may not rise because of the income effect.
C)   favor those with low income, and that saving may not rise because of the substitution effect.
D)   favor those with low income, and that saving may not rise because of the income effect.E) None of the above
F) A) and B)

Question 15

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Accepted Answer

A)   fall. The increase in expenditures makes it likely that future taxes will create smaller distortions.
B)   fall. The increase in expenditures makes it likely that future taxes will create larger distortions.
C)   rise. The increase in expenditures makes it likely that future taxes will create smaller distortions.
D)   rise. The increase in expenditures makes it likely that future taxes will create larger distortions.E) A) and D)
F) C) and D)

Question 16

Which of the programs below would transfer wealth from the young to the old?

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)   None of the above transfer wealth form the young to the old.E) All of the above
F) A) and B)

Question 17

An individual would suffer higher losses from an unexpectedly higher inflation rate if

Accepted Answer

A)   she held much currency and owned few bonds.
B)   she held much currency and owned many bonds.
C)   she held little currency and owned few bonds.
D)   she held little currency and owned many bonds.E) All of the above
F) C) and D)

Question 18

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt­to­GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)   10.0 trillion
B)   6.7 trillion
C)   4 trillion
D)   None of the above are correct.E) C) and D)
F) None of the above

Question 19

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

Accepted Answer

The typical estimate of the sacrifice ra...

Question 20

If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Exam 23: Six Debates Over Macroeconomic Policy

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Correct Answer
verified

If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.

Correct Answer
verified

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Correct Answer
verified

An individual would suffer higher losses from an unexpectedly higher inflation rate if

Correct Answer
verified

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

Correct Answer
verified

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 fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Correct Answer
verified
The government cut taxes and raised expe...
View Answer

Which of the programs below would transfer wealth from the young to the old?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Which of the following reduce the incentive for households to save?

Correct Answer
verified

An increase in the money supply

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

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

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

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

A higher rate of return on saving has

Correct Answer
verified

Opponents of tax reforms intended to raise saving argue that such reforms

Correct Answer
verified

Economists agree that at least in the short run disinflation

Correct Answer
verified

An increase in the tax rate on interest income

Correct Answer
verified

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debttoGDP ratio was unchanged. About what was it's debt at the start of last year?

Correct Answer
verified

Exam 23: Six Debates Over Macroeconomic Policy

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Correct AnswerverifiedShow Answer

If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.

Correct AnswerverifiedShow Answer

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate

Correct AnswerverifiedShow Answer

An individual would suffer higher losses from an unexpectedly higher inflation rate if

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow 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 fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Correct AnswerverifiedThe government cut taxes and raised expe...View AnswerShow Answer

Which of the programs below would transfer wealth from the young to the old?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following reduce the incentive for households to save?

Correct AnswerverifiedShow Answer

An increase in the money supply

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

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

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation by 3 percent?

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

A higher rate of return on saving has

Correct AnswerverifiedShow Answer

Opponents of tax reforms intended to raise saving argue that such reforms

Correct AnswerverifiedShow Answer

Economists agree that at least in the short run disinflation

Correct AnswerverifiedShow Answer

An increase in the tax rate on interest income

Correct AnswerverifiedShow Answer

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debt­to­GDP ratio was unchanged. About what was it's debt at the start of last year?

Correct AnswerverifiedShow Answer

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The government cut taxes and raised expe...
View Answer

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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Last year a country's real GDP grew by 2%, it's inflation rate was 3%, and it's government budget deficit was about $200 billion. It's debttoGDP ratio was unchanged. About what was it's debt at the start of last year?

Correct Answer
verified