Question 1

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

A)   .99 and 1.59.
B)   1.59 and .99
C)   1.3 and 1.7
D)   1.7 and 1.3E) A) and C)
F) B) and D)

Question 2

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 C)

Question 3

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Accepted Answer

A) True 
 B)False

Question 4

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Accepted Answer

Reducing inflation is likely to result i...

Question 5

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

Question 6

Part of the lag in monetary policy effects is due to

Accepted Answer

A)   the long political process of monetary policy decisions.
B)   precise economic forecasts.
C)   the time required for firms and households to alter their spending plans.
D)   changes in the unemployment rate.E) C) and D)
F) None of the above

Question 7

Policies that reduce the incentive for households to save include

Accepted Answer

A)   means-testing.
B)   College and university financial aid administration.
C)   inheritance taxes.
D)   All of the above.E) A) and B)
F) A) and C)

Question 8

Studies have shown significant spending changes arise from interest rate changes after

Accepted Answer

A)   a few days.
B)   a few weeks.
C)   a few months.
D)   about a year and a half..E) A) and B)
F) None of the above

Question 9

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 10

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Accepted Answer

A)   would have to increase the money supply. This would move unemployment closer to the natural rate.
B)   would have to increase the money supply. This would move unemployment further from the natural rate.
C)   would have to decrease the money supply. This would move unemployment closer to the natural rate.
D)   would have to decrease the money supply. This would move unemployment further from the natural rate.E) C) and D)
F) B) and D)

Question 11

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

Question 12

An added benefit of inflation is that it allows for the possibility of

Accepted Answer

A)   menu costs.
B)   aggregate supply shocks.
C)   negative real interest rates.
D)   recessions.E) None of the above
F) B) and C)

Question 13

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

A)   shoeleather and menu costs
B)   menu costs and relative price variability
C)   unintended changes in tax liabilities and arbitrary redistributions of wealth
D)   none of the above is correct.E) B) and C)
F) A) and B)

Question 14

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Accepted Answer

A)   Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes for increasing aggregate demand.
B)   Increased government spending on "shovel­ready" projects can be helpful to boost aggregate demand.
C)   Increases in government spending offer a greater "bang for the buck" than decreases in taxes.
D)   When the government gives a dollar in tax cuts to a household, that dollar immediately and fully adds to aggregate demand.E) C) and D)
F) A) and D)

Question 15

Proponents of zero inflation argue that a successful program to reduce inflation

Accepted Answer

A)   eventually reduces inflation expectations.
B)   eventually raises real interest rates.
C)   permanently decreases output.
D)   permanently raises unemployment.E) None of the above
F) B) and D)

Question 16

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Accepted Answer

reduces, i...

Question 17

Over time, continued budget deficits lead to

Accepted Answer

A)   a higher capital stock and higher productivity.
B)   a higher capital stock and lower productivity.
C)   a lower capital stock and higher productivity.
D)   a lower capital stock and lower productivity.E) A) and C)
F) All of the above

Question 18

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account IRA).

Accepted Answer

A) True 
 B)False

Question 19

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. Other things the same, this change would be expected to have

Accepted Answer

A)   decreased interest rates and investment.
B)   decreased interest rates and increased investment.
C)   increased interest rates and investment.
D)   increased interest rates and decreased investment.E) A) and B)
F) A) and C)

Question 20

When the Federal Open Market Committee meets it

Accepted Answer

A)   looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law.
B)   looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law.
C)   looks only at the state of the economy to determine the target it will set for the federal funds rate.
D)   looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate.E) A) and D)
F) B) and C)

Exam 23: Six Debates Over Macroeconomic Policy

Part of the lag in monetary policy effects is due to

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When the Federal Open Market Committee meets it

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If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that a successful program to reduce inflation

Correct AnswerverifiedShow Answer

Which costs of inflation could the government reduce without reducing inflation?

Correct AnswerverifiedShow Answer

Studies have shown significant spending changes arise from interest rate changes after

Correct AnswerverifiedShow Answer

In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account IRA).

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

Government deficits mean that

Correct AnswerverifiedShow Answer

In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. Other things the same, this change would be expected to have

Correct AnswerverifiedShow Answer

According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Correct AnswerverifiedShow Answer

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

Correct Answerverifiedreduces, i...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Correct AnswerverifiedShow Answer

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Correct AnswerverifiedShow Answer

An added benefit of inflation is that it allows for the possibility of

Correct AnswerverifiedShow Answer

Policies that reduce the incentive for households to save include

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Over time, continued budget deficits lead to

Correct AnswerverifiedShow Answer

Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits. What are the primary costs and benefits they are referring to?

Correct AnswerverifiedReducing inflation is likely to result i...View AnswerShow Answer

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Reducing inflation is likely to result i...
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