Question 1

Which of the following is not a cost of inflation identified by economists?

Accepted Answer

A)   menu costs associated with more frequent adjustment of prices
B)   confusion and inconvenience resulting from a changing value of the unit of account
C)   reduced price flexibility
D)   arbitrary redistributions of wealth associated with dollar-denominated debtsE) A) and D)
F) A) and B)

Question 2

Between 1980 and 1995 government debt as a percentage of GDP

Accepted Answer

A)   increased from about 25% to 50%.
B)   decreased from about 50% to 25%.
C)   decreased from about 25% to almost zero.
D)   increased from about 10% to 20%.E) B) and C)
F) None of the above

Question 3

As compared to government spending, a tax cut is likely to affect aggregate demand

Accepted Answer

A)   more quickly but is more likely to be spent on projects with little benefit.
B)   more quickly and is less likely to be spent on projects with little benefit.
C)   less quickly but is less likely to be spent on projects with little benefit.
D)   less quickly and is more likely to be spent on projects with little benefit.E) None of the above
F) All of the above

Question 4

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Accepted Answer

Policymakers can cut governmen...

Question 5

Paul Volcker's inflation reduction efforts

Accepted Answer

A)   failed to reduce inflation.
B)   failed to reduce expected inflation.
C)   resulted in the highest unemployment rate since the Great Depression.
D)   none of the above are correct.E) A) and C)
F) B) and C)

Question 6

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

Question 7

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)   The cost of something is what you give up to get it (Principle 2) .
B)   Trade can make everyone better off (Principle 5) .
C)   Markets are usually a good way to organize economic activity (Principle 6) .
D)   A country's standard of living depends on its ability to produce goods and services (Principle 8) .E) B) and C)
F) A) and C)

Question 8

If a reduction in taxes on savings reduced the amount of private saving, then the

Accepted Answer

A)   income effect equaled the substitution effect.
B)   income effect outweighed the substitution effect.
C)   the substitution effect outweighed the income effect.
D)   None of the above.E) B) and C)
F) All of the above

Question 9

Policymakers following a "lean against the wind" policy would

Accepted Answer

A)   increase government expenditures when output is low and decrease them when output is high.
B)   increase government expenditures when output is low and do nothing when output is high.
C)   decrease government expenditures when output is low and increase them when output is high.
D)   decrease government expenditures when output is high and do nothing when output is low.E) C) and D)
F) None of the above

Question 10

Eliminating means requirements for government benefits would

Accepted Answer

A)   raise saving and primarily benefit people with lower incomes.
B)   raise saving but primarily benefit people with higher incomes.
C)   reduce saving but primarily benefit people with lower incomes.
D)   reduce saving and primarily benefit people with higher income.E) A) and D)
F) B) and D)

Question 11

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Accepted Answer

A)   decrease the money supply so interest rates rise.
B)   decrease the money supply so interest rates fall.
C)   increase the money supply so interest rates rise.
D)   increase the money supply so interest rates fall.E) B) and D)
F) C) and D)

Question 12

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 13

Which of the following are taxed?

Accepted Answer

A)   both corporate profits and dividends paid to stockholders
B)   corporate profits but not dividends paid to stockholders
C)   dividends paid to stockholders but not corporate profits
D)   neither corporate profits nor dividends paid to stock holdersE) B) and C)
F) None of the above

Question 14

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are...

Question 15

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

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 16

What is the benefit of a high saving rate?

Accepted Answer

A high saving rate provides mo...

Question 17

"Leaning against the wind" is exemplified by a(n)

Accepted Answer

A)   tax increase when there is a recession.
B)   decrease in the money supply when there is a recession.
C)   increase in government expenditures when there is a recession.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 18

List two costs of inflation.

Accepted Answer

shoeleather costs, menu costs,...

Question 19

Which of the following is correct?

Accepted Answer

A)   Deficits always require people to consume at the expense of their children.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   If the government is in debt it must be running a deficit currently.
D)   The current government debt is a large share of lifetime income.E) A) and B)
F) All of the above

Question 20

Economists

Accepted Answer

A)   agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
B)   agree that the costs of moderate inflation are small. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.
C)   disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be smaller if inflation expectations remain high.
D)   disagree about the costs of moderate inflation. The increase in unemployment from reducing inflation will be larger if inflation expectations remain high.E) A) and B)
F) B) and C)

Exam 36: Six Debates Over Macroeconomic Policy

If a reduction in taxes on savings reduced the amount of private saving, then the

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Which of the following are taxed?

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Policymakers following a "lean against the wind" policy would

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List two costs of inflation.

Correct Answerverifiedshoeleather costs, menu costs,...View AnswerShow Answer

What is the benefit of a high saving rate?

Correct AnswerverifiedA high saving rate provides mo...View AnswerShow Answer

Economists

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Between 1980 and 1995 government debt as a percentage of GDP

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Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Correct AnswerverifiedShow Answer

Eliminating means requirements for government benefits would

Correct AnswerverifiedShow 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

"Leaning against the wind" is exemplified by a(n)

Correct AnswerverifiedShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags, but the lags are...View AnswerShow Answer

As compared to government spending, a tax cut is likely to affect aggregate demand

Correct AnswerverifiedShow Answer

Which of the following is correct?

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Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must

Correct AnswerverifiedShow Answer

Which of the following is not a cost of inflation identified by economists?

Correct AnswerverifiedShow Answer

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

Correct AnswerverifiedPolicymakers can cut governmen...View AnswerShow Answer

Paul Volcker's inflation reduction efforts

Correct AnswerverifiedShow Answer

In fiscal year 1997, the U.S. government ran a deficit of about $21.9 billion. In fiscal year 1998, the government ran a surplus of about $69.3 billion. Other things the same, we would expect this change

Correct AnswerverifiedShow 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

Correct Answer
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Correct Answer
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shoeleather costs, menu costs,...
View Answer

Correct Answer
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A high saving rate provides mo...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Both are prone to lags, but the lags are...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Policymakers can cut governmen...
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Correct Answer
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Correct Answer
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Correct Answer
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Because a decrease i...
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