Question 1

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

Accepted Answer

A)   farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises.
B)   farther to the left than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises.
C)   farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by more than if people had believed its promises
D)   farther to the right than otherwise. If the central bank tries to reduce inflation unemployment will rise by less than if people had believed its promises..E) B) and D)
F) A) and B)

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

Question 3

Critics of active monetary and fiscal policy emphasize

Accepted Answer

A)   that policy affects the economy with a lag and our ability to forecast future economic conditions is poor.
B)   "leaning against the wind" of economic change to stabilize the economy.
C)   cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive.
D)   boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low.E) A) and B)
F) None of the above

Question 4

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A)   the growth rate of output is high
B)   in response to increased debt, parents save more to leave their children larger bequests
C)   some current government spending benefits future taxpayers
D)   All of the above are correct.E) A) and C)
F) B) and D)

Question 7

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

A)   only price stability
B)   only maximum employment
C)   only price stability and maximum employment
D)   price stability, maximum employment, and moderate long-term interest ratesE) A) and B)
F) A) and C)

Question 8

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Accepted Answer

The amendment indicates the Fe...

Question 9

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

Accepted Answer

A)   increase the money supply, increase taxes
B)   increase the money supply, cut taxes
C)   decrease the money supply, increase taxes
D)   decrease the money supply, cut taxesE) None of the above
F) All of the above

Question 10

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Accepted Answer

A)   16.7 trillion
B)   10.0 trillion
C)   6.25 trillion
D)   3.85 trillionE) All of the above
F) A) and B)

Question 11

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 12

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time ...

Question 13

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 C)
F) A) and B)

Question 14

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Accepted Answer

A)   the time inconsistency problem, but not political business cycles.
B)   the political business cycle, but not the time inconsistency problem.
C)   both the time inconsistency problem and political business cycles.
D)   neither the time inconsistency problem nor political business cycles.E) All of the above
F) B) and C)

Question 15

Which of the following is correct? Investment tax credits

Accepted Answer

A)   can increase investment, but stimulating investment is not a key to ending a recession.
B)   can increase investment, which is a key to ending a recession.
C)   can not increase spending on investment goods, but stimulating investment is not a key to ending a recession.
D)   can not increase spending on investment goods, but stimulating investment is a key to ending a recession.E) All of the above
F) B) and D)

Question 16

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Accepted Answer

A)   increase the money supply, which causes output to move closer to its long-run equilibrium.
B)   increase the money supply, which causes output to move farther from long-run equilibrium.
C)   decrease the money supply, which causes output to move closer to its long-run equilibrium.
D)   decrease the money supply, which causes output to move farther from long-run equilibrium.E) B) and D)
F) None of the above

Question 17

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

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

Question 18

Real interest rates

Accepted Answer

A)   cannot be negative.
B)   can be negative only if inflation is negative.
C)   can be negative only if inflation is zero.
D)   can be negative only if inflation is greater than zero.E) All of the above
F) B) and D)

Question 19

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

Question 20

Means-tested government benefits base benefits on

Accepted Answer

A)   a household's wealth and are an incentive to save.
B)   a household's wealth and are a disincentive to save.
C)   the current interest rate and are an incentive to save.
D)   the current interest rate and are a disincentive to save.E) B) and D)
F) A) and D)

Exam 36: Six Debates Over Macroeconomic Policy

A law that requires the money supply to grow by a fixed percentage each year would eliminate

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Explain why policy lags could make stabilization policies counterproductive.

Correct AnswerverifiedAs the textbook explains, it takes time ...View AnswerShow Answer

Fluctuations in employment and output result from changes in

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A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct AnswerverifiedShow Answer

Which of the following are both correct?

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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

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Correct AnswerverifiedShow Answer

Means-tested government benefits base benefits on

Correct AnswerverifiedShow Answer

Last year a country's real GDP grew by 4%, it's inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was it's debt at the start of last year?

Correct AnswerverifiedShow Answer

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

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Critics of active monetary and fiscal policy emphasize

Correct AnswerverifiedShow Answer

Which of the following is correct? Investment tax credits

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According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Correct AnswerverifiedThe amendment indicates the Fe...View AnswerShow Answer

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Correct AnswerverifiedShow Answer

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

If people in a country that has had persistently high inflation expect it to remain high and are skeptical of promises the central bank makes, then the Phillips curve is

Correct AnswerverifiedShow Answer

Real interest rates

Correct AnswerverifiedShow Answer

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As the textbook explains, it takes time ...
View Answer

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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?

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The amendment indicates the Fe...
View Answer

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