Question 1

The sum of all past budget deficits and surpluses of the federal government is the

Accepted Answer

A)  budget deficit. 
B)  budget surplus. 
C)  national debt. 
D)  trade deficit. 
A)  budget deficit. 
B)  budget surplus. 
C)  national debt. 
D)  trade deficit.

Question 2

How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?

Accepted Answer

In the 1970s, expansionary policies were

Question 3

If monetary and fiscal policy are going to promote economic stability, they must _________ during a recession, and _________ during an economic boom.  (Fill in the blank)

Accepted Answer

A)  add stimulus; apply restraint 
B)  apply restraint; add stimulus 
C)  add stimulus; add stimulus 
D)  apply restraint; apply restraint 
A)  add stimulus; apply restraint 
B)  apply restraint; add stimulus 
C)  add stimulus; add stimulus 
D)  apply restraint; apply restraint

Question 4

If one subtracts the amount of bonds held by agencies of the federal government and the Federal Reserve from the national debt, what remains is known as the

Accepted Answer

A)  external debt. 
B)  privately held government debt. 
C)  trade deficit. 
D)  budget deficit. 
A)  external debt. 
B)  privately held government debt. 
C)  trade deficit. 
D)  budget deficit.

Question 5

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

Accepted Answer

A)  the rapid growth of government expenditures throughout most of the period 
B)  congressional policies that persistently balance the budget 
C)  modifications in fiscal policy that stimulated aggregate demand during economic slowdowns and restrained it during periods of economic boom 
D)  Federal Reserve policies that kept the inflation rate low and relatively stable 
A)  the rapid growth of government expenditures throughout most of the period 
B)  congressional policies that persistently balance the budget 
C)  modifications in fiscal policy that stimulated aggregate demand during economic slowdowns and restrained it during periods of economic boom 
D)  Federal Reserve policies that kept the inflation rate low and relatively stable

Question 6

The adaptive expectations hypothesis implies that people

Accepted Answer

A)  adjust their expectations quickly to policy changes. 
B)  expect the next period to be pretty much like the recent past. 
C)  will always be correct in their forecast for the next period. 
D)  change their expectations about the future if policy changes. 
A)  adjust their expectations quickly to policy changes. 
B)  expect the next period to be pretty much like the recent past. 
C)  will always be correct in their forecast for the next period. 
D)  change their expectations about the future if policy changes.

Question 7

Use the table below to choose the correct answer.   According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be

Accepted Answer

A)  2 percent. 
B)  5 percent. 
C)  7 percent. 
D)  8 percent. 
A)  2 percent. 
B)  5 percent. 
C)  7 percent. 
D)  8 percent.

Question 8

What determines the creditworthiness of any organization, including the federal government?

Accepted Answer

A)  The size of its debt relative to its income base. 
B)  The interest rate at which it can borrow money. 
C)  The length of time it has existed. 
D)  The length of time it is expected to operate. 
A)  The size of its debt relative to its income base. 
B)  The interest rate at which it can borrow money. 
C)  The length of time it has existed. 
D)  The length of time it is expected to operate.

Question 9

What are the proper monetary and fiscal responses to a recession under the activist view and the nonactivist view?

Accepted Answer

The activist view holds that the governm

Question 10

Suppose Congress raises taxes and the monetary authorities slow the annual money supply growth from 10 percent to 5 percent. If decision makers accurately anticipate the impact of these policy changes on prices,

Accepted Answer

A)  unemployment will rise. 
B)  unemployment will fall. 
C)  there will be no effect on unemployment. 
D)  unemployment will fall if the change in monetary policy dominates, but unemployment will rise if the change in fiscal policy dominates. 
A)  unemployment will rise. 
B)  unemployment will fall. 
C)  there will be no effect on unemployment. 
D)  unemployment will fall if the change in monetary policy dominates, but unemployment will rise if the change in fiscal policy dominates.

Question 11

Suppose that during the last five years the rate of inflation was 3 percent each year and the money supply had grown 6 percent annually during the period. However, during the last nine months, the Fed has expanded bank reserves more rapidly and the money supply has been growing at a 12 percent annual rate. As a result, the expected inflation rate for the next period will be

Accepted Answer

A)  higher than 3 percent under the rational expectations hypothesis. 
B)  3 percent under the adaptive expectations hypothesis. 
C)  higher than 3 percent under both the adaptive and rational expectations hypotheses. 
D)  both a and b. 
A)  higher than 3 percent under the rational expectations hypothesis. 
B)  3 percent under the adaptive expectations hypothesis. 
C)  higher than 3 percent under both the adaptive and rational expectations hypotheses. 
D)  both a and b.

Question 12

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when

Accepted Answer

A)  any inflation is present. 
B)  inflation turns out to be lower than what people expected. 
C)  inflation turns out to be higher than what people expected. 
D)  inflation turns out to be equal to what people expected. 
A)  any inflation is present. 
B)  inflation turns out to be lower than what people expected. 
C)  inflation turns out to be higher than what people expected. 
D)  inflation turns out to be equal to what people expected.

Question 13

The U.S. experience during the 1980s and 1990s illustrates that

Accepted Answer

A)  fiscal policy is substantially more potent than monetary policy. 
B)  a balanced budget is essential for the achievement of price stability. 
C)  a monetary policy that keeps the inflation rate low and steady will help promote economic stability. 
D)  there is a trade-off between inflation and unemployment-the unemployment rate can be reduced if we are willing to tolerate higher rates of inflation. 
A)  fiscal policy is substantially more potent than monetary policy. 
B)  a balanced budget is essential for the achievement of price stability. 
C)  a monetary policy that keeps the inflation rate low and steady will help promote economic stability. 
D)  there is a trade-off between inflation and unemployment-the unemployment rate can be reduced if we are willing to tolerate higher rates of inflation.

Question 14

In the twentieth century, fluctuations in real GDP were

Accepted Answer

A)  less severe during the last 50 years than was true during the first half of the century. 
B)  virtually eliminated as the result of the countercyclical application of fiscal policy. 
C)  more severe during the last 50 years than was true during the first half of the century. 
D)  primarily the result of a fiscal policy that has persistently balanced the federal budget. 
A)  less severe during the last 50 years than was true during the first half of the century. 
B)  virtually eliminated as the result of the countercyclical application of fiscal policy. 
C)  more severe during the last 50 years than was true during the first half of the century. 
D)  primarily the result of a fiscal policy that has persistently balanced the federal budget.

Question 15

Activists and nonactivists both believe that

Accepted Answer

A)  the self-corrective mechanism of a market economy works quite well. 
B)  macro-policy should seek to minimize economic fluctuations, keep the inflation rate low, and establish an environment consistent with strong economic growth. 
C)  discretionary monetary and fiscal policy can be used successfully to speed the adjustment process and reduce the swings of the business cycle. 
D)  policies that stimulate aggregate demand can reduce the long-term rate of unemployment. 
A)  the self-corrective mechanism of a market economy works quite well. 
B)  macro-policy should seek to minimize economic fluctuations, keep the inflation rate low, and establish an environment consistent with strong economic growth. 
C)  discretionary monetary and fiscal policy can be used successfully to speed the adjustment process and reduce the swings of the business cycle. 
D)  policies that stimulate aggregate demand can reduce the long-term rate of unemployment.

Question 16

Which of the following is a major area of disagreement between activists and nonactivists?

Accepted Answer

A)  Activists believe discretionary macroeconomic policy can be applied in a manner that will enhance economic stability. Nonactivists disagree. 
B)  Activists believe monetary policy is more potent than fiscal policy. Nonactivists disagree. 
C)  Activists believe changes in monetary and fiscal policy exert their effects instantaneously. Nonactivists think they work only with a substantial lag. 
D)  Nonactivists think macroeconomic policy is sometimes motivated by the pursuit of political gain. Activists disagree. 
A)  Activists believe discretionary macroeconomic policy can be applied in a manner that will enhance economic stability. Nonactivists disagree. 
B)  Activists believe monetary policy is more potent than fiscal policy. Nonactivists disagree. 
C)  Activists believe changes in monetary and fiscal policy exert their effects instantaneously. Nonactivists think they work only with a substantial lag. 
D)  Nonactivists think macroeconomic policy is sometimes motivated by the pursuit of political gain. Activists disagree.

Question 17

Figure 15-3   As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause

Accepted Answer

A)  labor to adjust nominal wages sluggishly. 
B)  the aggregate supply curve to shift from SRAS1 to SRAS2 
C)  the price level to eventually rise from 100 to 110. 
D)  All of the above. 
A)  labor to adjust nominal wages sluggishly. 
B)  the aggregate supply curve to shift from SRAS1 to SRAS2 
C)  the price level to eventually rise from 100 to 110. 
D)  All of the above.

Question 18

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy,

Accepted Answer

A)  eventually it will become difficult for the country to borrow in global credit markets. 
B)  the country will have to pay higher real interest rates in order to induce investors to purchase its bonds. 
C)  at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors. 
D)  all of the above are correct. 
A)  eventually it will become difficult for the country to borrow in global credit markets. 
B)  the country will have to pay higher real interest rates in order to induce investors to purchase its bonds. 
C)  at some point, the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors. 
D)  all of the above are correct.

Question 19

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

Accepted Answer

A)  Policy planners do not know whether a tax cut is expansionary or restrictive. 
B)  Policy makers need to know what economic conditions will be like 6 to 18 months into the future, and this is extremely difficult to forecast accurately. 
C)  Policy planners are reluctant to implement expansionary fiscal policy even during a serious recession. 
D)  Public choice theory suggests that elected political officials will generally favor restrictive fiscal policy. 
A)  Policy planners do not know whether a tax cut is expansionary or restrictive. 
B)  Policy makers need to know what economic conditions will be like 6 to 18 months into the future, and this is extremely difficult to forecast accurately. 
C)  Policy planners are reluctant to implement expansionary fiscal policy even during a serious recession. 
D)  Public choice theory suggests that elected political officials will generally favor restrictive fiscal policy.

Question 20

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

Accepted Answer

A)  Even though computer models have enhanced our forecasting ability, policy makers at the Federal Reserve have been reluctant to utilize information supplied by the models. 
B)  When fiscal policy is altered, the Fed generally shifts monetary policy in a manner that offsets the impact of the fiscal action. 
C)  Changes in government expenditures and taxes are always offset by equal changes in private spending. 
D)  Since it takes time for fiscal policy to work and since the future is difficult to forecast, it is difficult to time fiscal policy changes correctly. 
A)  Even though computer models have enhanced our forecasting ability, policy makers at the Federal Reserve have been reluctant to utilize information supplied by the models. 
B)  When fiscal policy is altered, the Fed generally shifts monetary policy in a manner that offsets the impact of the fiscal action. 
C)  Changes in government expenditures and taxes are always offset by equal changes in private spending. 
D)  Since it takes time for fiscal policy to work and since the future is difficult to forecast, it is difficult to time fiscal policy changes correctly.

The sum of all past budget deficits and surpluses of the federal government is the

How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?

If monetary and fiscal policy are going to promote economic stability, they must _ during a recession, and _ during an economic boom. (Fill in the blank)

If one subtracts the amount of bonds held by agencies of the federal government and the Federal Reserve from the national debt, what remains is known as the

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

The adaptive expectations hypothesis implies that people

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be

What determines the creditworthiness of any organization, including the federal government?

What are the proper monetary and fiscal responses to a recession under the activist view and the nonactivist view?

Suppose Congress raises taxes and the monetary authorities slow the annual money supply growth from 10 percent to 5 percent. If decision makers accurately anticipate the impact of these policy changes on prices,

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when

The U.S. experience during the 1980s and 1990s illustrates that

In the twentieth century, fluctuations in real GDP were

Activists and nonactivists both believe that

Which of the following is a major area of disagreement between activists and nonactivists?

Figure 15-3 As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy,

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 15: Stabilization Policy, Output, and Employment

The sum of all past budget deficits and surpluses of the federal government is the

How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?

If monetary and fiscal policy are going to promote economic stability, they must _________ during a recession, and _________ during an economic boom. (Fill in the blank)

If one subtracts the amount of bonds held by agencies of the federal government and the Federal Reserve from the national debt, what remains is known as the

Which of the following contributed the most to the economic stability and strong growth of real GDP during the 1980s and 1990s?

The adaptive expectations hypothesis implies that people

Use the table below to choose the correct answer. According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be

What determines the creditworthiness of any organization, including the federal government?

What are the proper monetary and fiscal responses to a recession under the activist view and the nonactivist view?

Suppose Congress raises taxes and the monetary authorities slow the annual money supply growth from 10 percent to 5 percent. If decision makers accurately anticipate the impact of these policy changes on prices,

According to the modern expectational Phillips curve, unemployment will equal the natural rate of unemployment when

The U.S. experience during the 1980s and 1990s illustrates that

In the twentieth century, fluctuations in real GDP were

Activists and nonactivists both believe that

Which of the following is a major area of disagreement between activists and nonactivists?

Figure 15-3 As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause

As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy,

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

Which of the following factors substantially reduces the effectiveness of discretionary changes in tax rates or government expenditures as a stabilization tool?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

If monetary and fiscal policy are going to promote economic stability, they must _ during a recession, and _ during an economic boom. (Fill in the blank)

Figure 15-3 As shown in Figure 15-3, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause