Question 1

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Accepted Answer

If the Fed wanted to see the President r...

Question 2

IRAs, and 401(k)  and 403(b)  plans

Accepted Answer

A)   impose added taxes on those who save.
B)   place no limits on the amount people can deposit into these programs.
C)   impose penalties for withdrawals except under certain circumstances.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 3

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

Question 4

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Accepted Answer

A)   the central bank would have to raise interest rates which would decrease output.
B)   the central bank would have to raise interest rates which would increase output.
C)   the central bank would have to reduce interest rates which would decrease output.
D)   the central bank would have to reduce interest rates which would increase output.E) B) and D)
F) All of the above

Question 5

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Accepted Answer

A)   time inconsistency of policy
B)   flexibility to confront unforeseen circumstances
C)   political business cycle
D)   the ability to craft rules that account for all possible contingencies in advanceE) All of the above
F) B) and D)

Question 6

Explain how tax cuts can increase aggregate supply.

Accepted Answer

When the government reduces marginal tax...

Question 7

Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?

Accepted Answer

Consumers may recognize that b...

Question 8

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 9

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Accepted Answer

A)   raise the money supply. It could do this to counter high unemployment.
B)   raise the money supply. It could do this to counter high inflation.
C)   reduce the money supply. It could do this to counter high unemployment.
D)   reduce the money supply. It could do this to counter high inflation.E) A) and D)
F) A) and C)

Question 10

Supporters of using government expenditures to respond to recession

Accepted Answer

A)   argue that monetary policy should be used first. To respond to a recession the Fed would increase the money supply.
B)   argue that monetary policy should be used first. To respond to a recession the Fed would decrease the money supply.
C)   argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would increase the money supply.
D)   argue that monetary policy should be used only after fiscal policy has been used. To respond to a recession the Fed would decrease the money supply.E) C) and D)
F) B) and C)

Question 11

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Accepted Answer

A)   the central bank would have to decrease the money supply which would decrease output.
B)   the central bank would have to decrease the money supply which would increase output.
C)   the central bank would have to increase the money supply which would decrease output.
D)   the central bank would have to increase the money supply which would increase output.E) C) and D)
F) B) and C)

Question 12

Which of the following is an argument against trying to use policy to stabilize the economy?

Accepted Answer

A)   Recessions represent a waste of resources.
B)   Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C)   "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D)   Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.E) A) and B)
F) A) and C)

Question 13

As opposed to an increase in government expenditures, a tax cut

Accepted Answer

A)   is likely to impact spending faster and according to traditional theory has a larger multiplier.
B)   is likely to impact spending faster, but according to traditional theory has a smaller multiplier.
C)   is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier.
D)   is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplierE) A) and C)
F) C) and D)

Question 14

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

Accepted Answer

A)   she held much currency and on net was a lender.
B)   she held much currency and on net was a borrower.
C)   she held little currency and on net was a lender.
D)   she held little currency and on net was a borrower.E) A) and C)
F) A) and B)

Question 15

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt- to-income ratio?

Accepted Answer

The government could run a def...

Question 16

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Accepted Answer

A)   small and an increase in private saving tends to have a small impact on the capital stock.
B)   small and an increase in private saving tends to have a large impact on the capital stock.
C)   large and an increase in private saving tends to have a small impact on the capital stock.
D)   large and an increase in private saving tends to have a large impact on the capital stock.E) A) and C)
F) A) and B)

Question 17

Identify three government policies that discourage saving.

Accepted Answer

First, the returns to saving are heavily...

Question 18

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

Question 19

Which of the following can tax cuts influence?

Accepted Answer

A)   aggregate demand and aggregate supply
B)   aggregate demand but not aggregate supply
C)   aggregate supply but not aggregate demand
D)   neither aggregate demand nor aggregate supplyE) A) and B)
F) C) and D)

Question 20

A reduction in the tax rate on income from saving would

Accepted Answer

A)   most directly benefit the poor in the short run.
B)   increase real wages over time.
C)   decrease the capital stock over time.
D)   decrease productivity over time.E) All of the above
F) A) and B)

Exam 36: Six Debates Over Macroeconomic Policy

A decrease in the tax rate is more likely to increase the standard of living if the income effect of a change in the interest rate is

Correct AnswerverifiedShow Answer

Supporters of using government expenditures to respond to recession

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Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Identify three government policies that discourage saving.

Correct AnswerverifiedFirst, the returns to saving are heavily...View AnswerShow Answer

Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?

Correct AnswerverifiedConsumers may recognize that b...View AnswerShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then

Correct AnswerverifiedShow Answer

If the Fed announced its intention to sell bonds, then it would be signaling that it was going to

Correct AnswerverifiedShow Answer

Explain how tax cuts can increase aggregate supply.

Correct AnswerverifiedWhen the government reduces marginal tax...View AnswerShow Answer

The Federal Reserve will tend to tighten monetary policy when

Correct AnswerverifiedShow Answer

According to political business cycle theory, if the Fed wanted to increase the chances of a President's re­election, what specific actions might it take?

Correct AnswerverifiedIf the Fed wanted to see the President r...View AnswerShow Answer

An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if

Correct AnswerverifiedShow Answer

As opposed to an increase in government expenditures, a tax cut

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following can tax cuts influence?

Correct AnswerverifiedShow Answer

A reduction in the tax rate on income from saving would

Correct AnswerverifiedShow Answer

Which of the following is an argument against trying to use policy to stabilize the economy?

Correct AnswerverifiedShow Answer

An opponent of monetary policy decisions by rule would point to which of the following as support of his case?

Correct AnswerverifiedShow Answer

IRAs, and 401(k) and 403(b) plans

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt- to-income ratio?

Correct AnswerverifiedThe government could run a def...View AnswerShow Answer

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Time inconsistency refers to the idea th...
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Correct Answer
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First, the returns to saving are heavily...
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Correct Answer
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Consumers may recognize that b...
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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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When the government reduces marginal tax...
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Correct Answer
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According to political business cycle theory, if the Fed wanted to increase the chances of a President's reelection, what specific actions might it take?

Correct Answer
verified
If the Fed wanted to see the President r...
View Answer

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
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Correct Answer
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Correct Answer
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The government could run a def...
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