Question 1

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Accepted Answer

A)  decreasing the money supply and cutting taxes. 
B)  decreasing the money supply and raising taxes. 
C)  increasing the money supply and cutting taxes. 
D)  increasing the money supply and raising taxes. 
A)  decreasing the money supply and cutting taxes. 
B)  decreasing the money supply and raising taxes. 
C)  increasing the money supply and cutting taxes. 
D)  increasing the money supply and raising taxes. C

Question 2

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)  stabilizing the economy during a recession 
B)  future generations will benefit from some current expenditures 
C)  both a and b 
D)  neither a nor b 
A)  stabilizing the economy during a recession 
B)  future generations will benefit from some current expenditures 
C)  both a and b 
D)  neither a nor b B

Question 3

Paul Volcker, former chair of the Fed, implemented

Accepted Answer

A)  contractionary policy which increased the popularity of the U.S. president who had appointed him. 
B)  contractionary policy which decreased the popularity of the U.S. president who had appointed him. 
C)  expansionary policy which increased the popularity of the U.S. president who had appointed him. 
D)  expansionary policy which decreased the popularity of the U.S. president who had appointed him. 
A)  contractionary policy which increased the popularity of the U.S. president who had appointed him. 
B)  contractionary policy which decreased the popularity of the U.S. president who had appointed him. 
C)  expansionary policy which increased the popularity of the U.S. president who had appointed him. 
D)  expansionary policy which decreased the popularity of the U.S. president who had appointed him. B

Question 4

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)  decrease the money supply 
B)  increase taxes 
C)  increase government expenditures 
D)  Do nothing and let markets correct themselves. 
A)  decrease the money supply 
B)  increase taxes 
C)  increase government expenditures 
D)  Do nothing and let markets correct themselves.

Question 5

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Accepted Answer

If inflation is usually about what peopl

Question 6

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th

Question 7

The effects of a decline in the value of financial assets, such as stocks, on consumption and the economy might be offset by

Accepted Answer

A)  increasing government spending. 
B)  decreasing the money supply. 
C)  increasing taxes. 
D)  undertaking no policy action. 
A)  increasing government spending. 
B)  decreasing the money supply. 
C)  increasing taxes. 
D)  undertaking no policy action.

Question 8

Which of the following are justifications for running a budget deficit?

Accepted Answer

A)  avoiding raising tax rates 
B)  stabilizing an economy during a recession 
C)  both a and b 
D)  neither a nor b 
A)  avoiding raising tax rates 
B)  stabilizing an economy during a recession 
C)  both a and b 
D)  neither a nor b

Question 9

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Accepted Answer

A)  inflation targeting. 
B)  the monetary policy reaction lag. 
C)  the time inconsistency of policy. 
D)  the sacrifice ratio dilemma. 
A)  inflation targeting. 
B)  the monetary policy reaction lag. 
C)  the time inconsistency of policy. 
D)  the sacrifice ratio dilemma.

Question 10

Explain how tax cuts can increase aggregate supply.

Accepted Answer

When the government reduces marginal tax

Question 11

Which of the following is true concerning IRA's, 401k) and 403b) plans?

Accepted Answer

A)  There are no limits on the amount of funds people can hold in them. 
B)  Some people are not eligible to hold them. 
C)  There are never penalties for withdrawals. 
D)  All of the above are correct. 
A)  There are no limits on the amount of funds people can hold in them. 
B)  Some people are not eligible to hold them. 
C)  There are never penalties for withdrawals. 
D)  All of the above are correct.

Question 12

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a cost of inflation?

Accepted Answer

A)  shoeleather costs 
B)  menu costs 
C)  relative price variability 
D)  All of the above are correct. 
A)  shoeleather costs 
B)  menu costs 
C)  relative price variability 
D)  All of the above are correct.

Question 14

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

Accepted Answer

A)  less than 2 percent. 
B)  about 5 percent. 
C)  about 10 percent. 
D)  over 12 percent. 
A)  less than 2 percent. 
B)  about 5 percent. 
C)  about 10 percent. 
D)  over 12 percent.

Question 15

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. 
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.

Question 16

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to-income ratio constant?

Accepted Answer

A)  government spending equal to 30 billion units and tax collections equal to 25 billion units 
B)  government spending equal to 30 billion units and tax collections equal to 20 billion units 
C)  government spending equal to 30 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 30 billion units and tax collections equal to 5 billion units 
A)  government spending equal to 30 billion units and tax collections equal to 25 billion units 
B)  government spending equal to 30 billion units and tax collections equal to 20 billion units 
C)  government spending equal to 30 billion units and tax collections equal to 10 billion units 
D)  government spending equal to 30 billion units and tax collections equal to 5 billion units

Question 17

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. 
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.

Question 18

"Leaning against the wind" is exemplified by an)

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. 
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.

Question 19

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

Question 20

The political business cycle refers to

Accepted Answer

A)  the fact that about every four years some politician advocates greater government control of the Fed. 
B)  the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected. 
C)  the part of the business cycle caused by the reluctance of politicians to smooth the business cycle. 
D)  changes in output created by the monetary rule the Fed must follow. 
A)  the fact that about every four years some politician advocates greater government control of the Fed. 
B)  the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected. 
C)  the part of the business cycle caused by the reluctance of politicians to smooth the business cycle. 
D)  changes in output created by the monetary rule the Fed must follow.

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Which of the following are justifications for running a budget deficit?

Paul Volcker, former chair of the Fed, implemented

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Explain the time inconsistency of monetary policy.

The effects of a decline in the value of financial assets, such as stocks, on consumption and the economy might be offset by

Which of the following are justifications for running a budget deficit?

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Explain how tax cuts can increase aggregate supply.

Which of the following is true concerning IRA's, 401k) and 403b) plans?

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Which of the following is a cost of inflation?

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

Economists

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

"Leaning against the wind" is exemplified by an)

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

The political business cycle refers to

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

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Exam 18: Six Debates Over Macroeconomic Policy

If financial turmoil overseas reduces U.S. net exports, then those in favor of "lean against the wind policies" would advocate

Which of the following are justifications for running a budget deficit?

Paul Volcker, former chair of the Fed, implemented

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?

Explain the time inconsistency of monetary policy.

The effects of a decline in the value of financial assets, such as stocks, on consumption and the economy might be offset by

Which of the following are justifications for running a budget deficit?

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as

Explain how tax cuts can increase aggregate supply.

Which of the following is true concerning IRA's, 401k) and 403b) plans?

According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.

Which of the following is a cost of inflation?

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

Economists

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model

"Leaning against the wind" is exemplified by an)

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

The political business cycle refers to

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Filters