Question 1

If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if

Accepted Answer

A)   real GDP rose and the inflation rate were positive.
B)   real GDP rose and the inflation rate were negative.
C)   real GDP fell and the inflation rate were positive.
D)   real GDP fell and the inflation rate were negative.E) All of the above
F) B) and C)

Question 2

The average person's share of the U.S. government debt as a percentage of lifetime income is

Accepted Answer

A)   less than 2 percent.
B)   about 5 percent.
C)   about 10 percent.
D)   over 12 percent.E) All of the above
F) None of the above

Question 3

An individual would suffer lower 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) A) and C)
F) All of the above

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Accepted Answer

A)   both the tax cut and the increase in government expenditures would tend to increase output.
B)   only the tax cut would tend to increase output.
C)   only the increase in government expenditures would tend to increase output.
D)   neither the tax cut nor the increase in government expenditures would tend to increase output.E) A) and D)
F) All of the above

Question 6

In 2009 the federal debt was about

Accepted Answer

A)   $17 billion.
B)   $710 billion.
C)   $7.6 trillion.
D)   $76 trillion.E) None of the above
F) All of the above

Question 7

Double taxation means that both

Accepted Answer

A)   wage income and interest income are taxed, which is currently the case in the United States.
B)   wage income and interest income are taxed, which is not currently the case in the United States.
C)   the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States.
D)   the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States.E) All of the above
F) A) and D)

Question 8

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

A)   the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations.
B)   the costs of reducing inflation persist, but they are smaller if the public reduces its inflation expectations.
C)   the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations.
D)   the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.E) B) and C)
F) All of the above

Question 9

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 10

The principal lag for monetary policy

Accepted Answer

A)   and fiscal policy is the time it takes to implement policy.
B)   and fiscal policy is the time it takes for policy to change spending.
C)   is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending.
D)   is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.E) C) and D)
F) B) and C)

Question 11

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

Question 12

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Accepted Answer

A)   Saving is not very responsive to changes in the tax rate.
B)   Saving is not an important determinant of a nation's ability to produce output.
C)   Reducing the budget deficit instead of changing the tax laws could raise saving.
D)   Changes in the tax laws to induce saving would distribute the tax burden less fairly.E) A) and D)
F) C) and D)

Question 13

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)   its income effect on saving and its effect on the government budget
B)   its income effect on saving but not its effect on the government budget
C)   its effect on the government budget but not its income effect on saving
D)   neither its income effect on saving nor its effect on the government budgetE) All of the above
F) A) and B)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Accepted Answer

A)   increased the money supply because it was concerned about unemployment.
B)   increased the money supply because it was concerned about inflation.
C)   decreased the money supply because it was concerned about unemployment.
D)   decreased the money supply because it was concerned about inflation.E) All of the above
F) None of the above

Question 16

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) B) 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

The effects of a decline in the value of financial assets, such as stocks, on consumption and the economy might be offset by

Accepted Answer

A)   increasing government spending.
B)   decreasing the money supply.
C)   increasing taxes.
D)   undertaking no policy action.E) B) and C)
F) B) and D)

Question 19

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

Question 20

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A)   high and the reduction is unexpected.
B)   high and the reduction is expected.
C)   low and the reduction is unexpected.
D)   low and the reduction is expected.E) B) and D)
F) All of the above

Exam 18: Six Debates Over Macroeconomic Policy

Identify three government policies that discourage saving.

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

The average person's share of the U.S. government debt as a percentage of lifetime income is

Correct AnswerverifiedShow Answer

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct AnswerverifiedShow Answer

Explain the time inconsistency of monetary policy.

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

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

Correct AnswerverifiedShow Answer

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The effects of a decline in the value of financial assets, such as stocks, on consumption and the economy might be offset by

Correct AnswerverifiedShow Answer

In 2009 the federal debt was about

Correct AnswerverifiedShow Answer

Government deficits mean that

Correct AnswerverifiedShow Answer

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Correct AnswerverifiedShow Answer

The principal lag for monetary policy

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Correct AnswerverifiedShow Answer

Double taxation means that both

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if

Correct AnswerverifiedShow Answer

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First, the returns to saving are heavily...
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Time inconsistency refers to the idea th...
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