Question 1

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce menu costs and permanently lower unemployment.
B)   permanently reduce menu costs and temporarily raise unemployment.
C)   temporarily reduce menu costs and temporarily lower unemployment.
D)   temporarily reduce menu costs and temporarily raise unemployment.E) All of the above
F) B) and C)

Question 2

The principal reason that monetary policy has lags is that it takes a long time for

Accepted Answer

A)   changes in the interest rate to change aggregate demand.
B)   changes in the money supply to change interest rates.
C)   the Fed to make changes in policy.
D)   the federal government to change the tax code.E) B) and D)
F) C) and D)

Question 3

Which of the following is not correct?

Accepted Answer

A)   Government debt can continue to rise forever.
B)   If the government uses funds to pay for investment programs,on net the debt need not burden future generations.
C)   Social Security does not transfer wealth from younger generations to older generations.
D)   The average U.S.citizens' share of the government debt represents about 1 percent of her lifetime income.E) A) and B)
F) None of the above

Question 4

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

Question 5

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 6

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 B)
F) A) and C)

Question 7

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 8

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) All of the above
F) A) and D)

Question 9

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

Question 10

In essence,a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Question 11

In June of 2010,the government had a debt of about $8.6 trillion.Over the next year real GDP grew by about 1.6% and inflation was about 2%.What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $68.8 billion
B)   about $137.6 billion
C)   about $275.2 billion
D)   about $309.6 billionE) A) and C)
F) None of the above

Question 12

If businesses become more pessimistic about the future,what fiscal policies could the government take to stabilize the economy?

Accepted Answer

Increase g...

Question 13

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains,it takes time t...

Question 14

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Accepted Answer

A)   The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict.
B)   The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict.
C)   The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict.
D)   The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.E) A) and D)
F) A) and B)

Question 15

Government deficits mean that

Accepted Answer

A)   national saving is negative so public saving is negative
B)   national saving is negative so public saving is lower than otherwise.
C)   public saving is negative so national saving is negative
D)   public saving is negative so national saving is lower than otherwise.E) A) and B)
F) A) and C)

Question 16

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Accepted Answer

A) True 
 B)False

Question 17

Why is it desirable,if possible,to use policy to offset the effects of a decrease in aggregate demand?

Accepted Answer

Because a decrease i...

Question 18

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Question 19

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

A government deficit means that the gove...

Question 20

Paul Volcker,former chair of the Fed,implemented

Accepted Answer

A)   contractionary policy which increased the popularity of the U.S.president who had appointed him.
B)   contractionary policy which decreased the popularity of the U.S.president who had appointed him.
C)   expansionary policy which increased the popularity of the U.S.president who had appointed him.
D)   expansionary policy which decreased the popularity of the U.S.president who had appointed him.E) A) and B)
F) A) and C)

Exam 36: Six Debates Over Macroeconomic Policy

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

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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?

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The principal reason that monetary policy has lags is that it takes a long time for

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

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Which of the following is not correct?

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A permanent reduction in inflation would

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Inflation

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Why do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

In June of 2010,the government had a debt of about $8.6 trillion.Over the next year real GDP grew by about 1.6% and inflation was about 2%.What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Explain why policy lags could make stabilization policies counterproductive.

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

Paul Volcker,former chair of the Fed,implemented

Correct AnswerverifiedShow Answer

Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?

Correct AnswerverifiedShow Answer

If businesses become more pessimistic about the future,what fiscal policies could the government take to stabilize the economy?

Correct AnswerverifiedIncrease g...View AnswerShow Answer

Why is it desirable,if possible,to use policy to offset the effects of a decrease in aggregate demand?

Correct AnswerverifiedBecause a decrease i...View AnswerShow Answer

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

Correct AnswerverifiedShow Answer

What's the basis for arguing that deficits are likely to lead to lower living standards in the future?

Correct AnswerverifiedA government deficit means that the gove...View AnswerShow Answer

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct AnswerverifiedShow Answer

In essence,a consumption tax puts all saving into tax-advantaged savings accounts.

Correct AnswerverifiedShow Answer

Government deficits mean that

Correct AnswerverifiedShow Answer

A higher rate of return on saving has

Correct AnswerverifiedShow Answer

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The current income tax means that income...
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As the textbook explains,it takes time t...
View Answer

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Increase g...
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Because a decrease i...
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A government deficit means that the gove...
View Answer

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Correct Answer
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