Question 1

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security, ...

Question 2

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

Question 3

Which of the following is not a typical justification for running a budget deficit?

Accepted Answer

A)   financing a war
B)   dealing with a recession
C)   fighting inflation
D)   dealing with unemploymentE) A) and B)
F) A) and C)

Question 4

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Accepted Answer

A)   price level and real GDP change by more than otherwise.
B)   price level change by more than otherwise and real GDP change by less than otherwise.
C)   price level change by less than otherwise and real GDP change by more than otherwise.
D)   price level and real GDP change by more than otherwiseE) All of the above
F) None of the above

Question 5

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Accepted Answer

A)   Avoid unexpected changes in the inflation rate.
B)   Rewrite the tax laws so that nominal gains were taxed instead of real gains.
C)   Make policy that would discourage firms from issuing indexed bonds.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 6

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

A)   the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)   the central bank lacked credibility and if bonds were usually indexed for inflation.
C)   the central bank had credibility and if bonds were usually not indexed for inflation.
D)   the central bank had credibility and if bonds were usually indexed for inflation.E) All of the above
F) A) and D)

Question 7

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

Accepted Answer

A)   less than 1 percent.
B)   more than 1 percent but less than 2 percent
C)   about 4 percent
D)   over 6 percentE) All of the above
F) None of the above

Question 8

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Accepted Answer

A) True 
 B)False

Question 9

In response to recession, who primarily raised expenditures rather than cut taxes?

Accepted Answer

A)   President George W. Bush and President Barack Obama
B)   President George W. Bush but not President Barack Obama
C)   President Barack Obama but not President George W. Bush
D)   Neither President George W. Bush nor President Barack ObamaE) A) and B)
F) A) and C)

Question 10

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 11

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Accepted Answer

A) True 
 B)False

Question 12

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Accepted Answer

A)   Federal Reserve increase the money supply or the government increase taxes.
B)   Federal Reserve increase the money supply or the government decrease taxes.
C)   Federal Reserve decrease the money supply or the government increase taxes.
D)   Federal Reserve decrease the money supply or the government decrease taxes.E) A) and B)
F) A) and C)

Question 13

Which of the following support the idea that monetary policy should be made by a rule?

Accepted Answer

A)   the political business cycle and the time-inconsistency problem
B)   the political business cycle but not the time-inconsistency problem
C)   the time-inconsistency problem, but not the political business cycle
D)   neither the political business cycle nor the time-inconsistency problemE) C) and D)
F) B) and D)

Question 14

Are there any situations in which running a budget deficit is justified? Explain.

Accepted Answer

The two primary justifications for runni...

Question 15

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Accepted Answer

A) True 
 B)False

Question 16

What is meant by the political business cycle?

Accepted Answer

Central banks sympathetic to i...

Question 17

A permanent reduction in inflation would

Accepted Answer

A)   permanently reduce shoeleather costs and permanently lower unemployment
B)   permanently reduce shoeleather costs and temporarily raise unemployment
C)   temporarily reduce shoeleather costs and temporarily lower unemployment
D)   temporarily reduce shoeleather costs and temporarily raise unemploymentE) A) and B)
F) All of the above

Question 18

Which of the following would likely increase private saving?

Accepted Answer

A)   Both expansion of IRA type accounts and a consumption tax.
B)   Expansion of IRA type accounts, but not a consumption tax.
C)   A consumption tax, but not expansion of IRA type accounts.
D)   Neither expansion of IRA type accounts nor a consumption tax.E) All of the above
F) A) and C)

Question 19

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 B)
F) A) and C)

Question 20

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

Exam 18: Six Debates Over Macroeconomic Policy

In response to recession, who primarily raised expenditures rather than cut taxes?

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

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Correct AnswerverifiedShow Answer

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Correct AnswerverifiedShow Answer

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

Correct AnswerverifiedShow Answer

Which of the following is not a typical justification for running a budget deficit?

Correct AnswerverifiedShow Answer

What is meant by the political business cycle?

Correct AnswerverifiedCentral banks sympathetic to i...View AnswerShow 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

Is it possible that deficits do not burden future generations?

Correct AnswerverifiedSome programs, such as Social Security, ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Are there any situations in which running a budget deficit is justified? Explain.

Correct AnswerverifiedThe two primary justifications for runni...View AnswerShow Answer

An economist would be more likely to argue against reducing inflation if she thought that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following support the idea that monetary policy should be made by a rule?

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct AnswerverifiedShow Answer

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Central banks sympathetic to i...
View Answer

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The government could run a def...
View Answer

Correct Answer
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Some programs, such as Social Security, ...
View Answer

Correct Answer
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Correct Answer
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The two primary justifications for runni...
View Answer

Correct Answer
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Correct Answer
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