Question 1

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 2

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Question 5

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following can tax cuts influence?

Accepted Answer

A)  aggregate demand and aggregate supply
B)  aggregate demand but not aggregate supply
C)  aggregate supply but not aggregate demand
D)  neither aggregate demand nor aggregate supplyE) All of the above
F) A) and B)

Question 8

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Accepted Answer

A) True 
 B)False

Question 9

The time inconsistency of policy implies that

Accepted Answer

A)  what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)  when people expect that inflation will be low, it is harder for the Fed to increase output by increasing the money supply.
C)  people will believe Fed policy will be more inflationary than the Fed claims.
D)  what policymakers say they will do is usually not what they do, but people believe them anyway.E) None of the above
F) B) and C)

Question 10

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Accepted Answer

maximum employment, stable pri...

Question 11

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) C) and D)
F) A) and D)

Question 12

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Accepted Answer

A)  the income effect and the substitution effect
B)  the income effect but not the substitution effect
C)  the substitution effect but not the income effect
D)  neither the substitution effect nor the income effectE) A) and D)
F) All of the above

Question 13

Means-tested government benefits base benefits on

Accepted Answer

A)  a household's wealth and are an incentive to save.
B)  a household's wealth and are a disincentive to save.
C)  the current interest rate and are an incentive to save.
D)  the current interest rate and are a disincentive to save.E) C) and D)
F) None of the above

Question 14

Which of the following is correct?

Accepted Answer

A)  Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle.
B)  Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle.
C)  Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle.
D)  Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycleE) None of the above
F) All of the above

Question 15

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Question 16

Critics of active monetary and fiscal policy emphasize

Accepted Answer

A)  that policy affects the economy with a lag and our ability to forecast future economic conditions is poor.
B)  "leaning against the wind" of economic change to stabilize the economy.
C)  cutting government spending, raising taxes, and reducing the money supply when aggregate demand is excessive.
D)  boosting government spending, lowering taxes, and increasing the money supply when aggregate demand is low.E) C) and D)
F) B) and C)

Question 17

Which costs of inflation could the government take action to reduce without reducing inflation?

Accepted Answer

A)  shoeleather costs
B)  unintended changes in tax liabilities
C)  menu costs
D)  none of the above is correct.E) A) and B)
F) None of the above

Question 18

Inflation

Accepted Answer

A)  causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
B)  causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.
C)  causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.
D)  causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.E) B) and D)
F) C) and D)

Question 19

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) A) and D)

Question 20

The time inconsistency of monetary policy means that

Accepted Answer

A)  once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment.
B)  at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low.
C)  monetary policy is not consistent across time because it is influenced by politics.
D)  monetary policy is not consistent across time because policymakers are incompetent.E) C) and D)
F) B) and D)

Exam 36: Six Debates Over Macroeconomic Policy

The time inconsistency of policy implies that

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Correct AnswerverifiedShow Answer

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Correct AnswerverifiedShow Answer

Which of the following would likely increase private saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The time inconsistency of monetary policy means that

Correct AnswerverifiedShow Answer

Inflation

Correct AnswerverifiedShow Answer

Which costs of inflation could the government take action to reduce without reducing inflation?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Correct AnswerverifiedShow Answer

By law what goals are the Federal Reserve to pursue? What, if any, specific weights are given for these goals?

Correct Answerverifiedmaximum employment, stable pri...View AnswerShow Answer

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Correct AnswerverifiedShow Answer

Which of the following can tax cuts influence?

Correct AnswerverifiedShow Answer

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Correct AnswerverifiedShow Answer

Critics of active monetary and fiscal policy emphasize

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

Correct AnswerverifiedShow Answer

Means-tested government benefits base benefits on

Correct AnswerverifiedShow Answer

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If inflation is usually about what peopl...
View Answer

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maximum employment, stable pri...
View Answer

Correct Answer
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