Question 1

Which of the following would transfer wealth from old to young?

Accepted Answer

A)  Increases in the budget deficit.
B)  Decreased building of highways and bridges.
C)  More generous education subsidies.
D)  Indexation of Social Security benefits to inflation.E) None of the above
F) B) and D)

Question 2

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

Accepted Answer

A)  left, and the sacrifice ratio will be low.
B)  left, and the sacrifice ratio will be high.
C)  right, and the sacrifice ratio will be low.
D)  right, and the sacrifice ratio will be high.E) None of the above
F) A) and B)

Question 3

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3% and inflation was 2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $94 billion
B)  about $470 billion
C)  about $540 billion
D)  None of the above are correct.E) None of the above
F) B) and C)

Question 4

Suppose the tax rate on interest income from saving were reduced.

Accepted Answer

A)  The income effect, but not the substitution effect, would tend to reduce private saving.
B)  The substitution effect, but not the income effect, would tend to reduce private saving.
C)  Both the income and substitution effect would tend to reduce private saving.
D)  Neither the income nor the substitution effect would tend to reduce private saving.E) A) and B)
F) A) and C)

Question 5

A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

Accepted Answer

A)  only price stability
B)  only maximum employment
C)  only price stability and maximum employment
D)  price stability, maximum employment, and moderate long-term interest ratesE) All of the above
F) A) and B)

Question 6

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

Question 7

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 8

Higher inflation results in

Accepted Answer

A)  more frequent price changes and increased variability of relative prices.
B)  more frequent price changes and decreased variability of relative prices.
C)  less frequent price changes and increased variability of relative prices.
D)  less frequent price changes and decreased variability of relative prices.E) None of the above
F) B) and D)

Question 9

Which of the following is not an argument in favor of requiring the government to balance its budget?

Accepted Answer

A)  Government debt imposes higher taxes or more borrowing on future generations.
B)  A balanced budget will smooth the business cycle.
C)  Deficits lower national saving.
D)  Recent history shows that Congress will run deficits even when deficits are not justified by war or recession.E) B) and C)
F) C) and D)

Question 10

Which of the following is not correct?

Accepted Answer

A)  Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)  The only times deficits have increased have been during times of war or economic downturns.
D)  Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.E) C) and D)
F) B) and D)

Question 11

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

Question 12

Tax cuts affect only aggregate demand not aggregate supply.

Accepted Answer

A) True 
 B)False

Question 13

The Fed lowered interest rates in 2007 and 2008. 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) B) and D)
F) None of the above

Question 14

The Federal Open Market Committee

Accepted Answer

A)  operates with almost complete discretion over monetary policy.
B)  is required to increase the money supply by a given growth rate each year.
C)  is required to keep the interest rate within a range set by Congress.
D)  is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.E) B) and C)
F) A) and D)

Question 15

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) B) and C)
F) B) and D)

Question 16

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

Question 17

Which of the following is correct?

Accepted Answer

A)  No forms of capital income are taxed twice.
B)  The tax code cannot be rewritten to provide greater incentive to save.
C)  Means-tested benefits increase the incentive to save.
D)  There is a correlation between national savings rates and measures of economic well-being.E) A) and D)
F) A) and C)

Question 18

In general, the longest lag for

Accepted Answer

A)  both fiscal and monetary policy is the time it takes to change policy.
B)  both fiscal and monetary policy is the time it takes for policy to affect aggregate demand.
C)  monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand.
D)  fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.E) C) and D)
F) A) and B)

Question 19

Opponents of using policy to stabilize the economy generally believe that

Accepted Answer

A)  neither fiscal nor monetary policy have much impact on aggregate demand.
B)  attempts to stabilize the economy decrease the magnitude of economic fluctuations.
C)  unemployment and inflation are not cause for much concern.
D)  economic conditions can easily change between the start of policy action and when it takes effect.E) None of the above
F) All of the above

Question 20

Some economists argue that since inflation

Accepted Answer

A)  raises the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
B)  raises the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.
C)  reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.
D)  reduces the real value of fixed nominal wages, a little inflation may make it harder for labor markets to adjust.E) A) and B)
F) A) and C)

Exam 23: Six Debates Over Macroeconomic Policy

Policymakers following a "lean against the wind" policy would

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A 1977 amendment to the Federal Reserve Act of 1913 says the Fed should "promote" which of the following goals?

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Suppose the tax rate on interest income from saving were reduced.

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Higher inflation results in

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Tax cuts affect only aggregate demand not aggregate supply.

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At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3% and inflation was 2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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Which of the following would transfer wealth from old to young?

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A higher rate of return on saving has

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The Fed lowered interest rates in 2007 and 2008. This implies, other things the same, that the Fed

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Opponents of using policy to stabilize the economy generally believe that

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The Federal Open Market Committee

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Paul Volcker's inflation reduction efforts

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In general, the longest lag for

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Which of the following is not correct?

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Which of the following is correct?

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Which of the following is not an argument in favor of requiring the government to balance its budget?

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A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

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Some economists argue that since inflation

Correct AnswerverifiedShow Answer

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