Question 1

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 2

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 3

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Explain what is meant by the time inconsistency of monetary policy.

Accepted Answer

The time inconsistency of monetary polic...

Question 6

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Accepted Answer

Reducing inflation leads to a temporary ...

Question 7

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Accepted Answer

A) True 
 B)False

Question 8

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security, ...

Question 9

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

Accepted Answer

High debt means that future taxpayers wi...

Question 10

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Accepted Answer

A)  Increase the money supply, increase taxes, increase government spending
B)  Increase the money supply, increase taxes, decrease government spending
C)  Increase the money supply, decrease taxes, increase government spending
D)  Decrease the money supply, increase taxes, decrease government spendingE) C) and D)
F) A) and C)

Question 11

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 D)
F) A) and C)

Question 12

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Accepted Answer

Investment...

Question 13

Explain the main arguments in favor of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a...

Question 14

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 15

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Accepted Answer

A lag of six months ...

Question 16

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Accepted Answer

A)  The shift of aggregate demand, but not the shift of aggregate supply
B)  Both the shift of aggregate demand and the shift of aggregate supply
C)  The shift of aggregate supply, but not the shift of aggregate demand
D)  Neither the shift of aggregate demand nor the shift of aggregate supplyE) B) and C)
F) A) and B)

Question 17

If U.S. net exports decrease, then those in favor of 'lean against the wind policies' would advocate

Accepted Answer

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

Question 18

A higher return on saving ______ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _______ effect. If the income effect is large enough, then a reduction in taxes on saving might ______ tax revenues.

Accepted Answer

reduces, i...

Question 19

According to traditional Keynesian analysis, if the economy is in a recession,

Accepted Answer

A)  increases in government purchases are more effective than decreases in taxes.
B)  decreases in government purchases are less effective than decreases in taxes.
C)  decreases in government purchases are more effective than increases in taxes.
D)  increases in government purchases are less effective than decreases in taxes.E) All of the above
F) None of the above

Question 20

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

If U.S. net exports decrease, then those in favor of 'lean against the wind policies' would advocate

Correct AnswerverifiedShow Answer

Is it possible that deficits do not burden future generations?

Correct AnswerverifiedSome programs, such as Social Security, ...View AnswerShow Answer

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Correct AnswerverifiedShow Answer

A higher return on saving ______ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _______ effect. If the income effect is large enough, then a reduction in taxes on saving might ______ tax revenues.

Correct Answerverifiedreduces, i...View AnswerShow Answer

Proponents of requiring the government to balance its budget argue that debt burdens future generations. Explain one claim they make to support this argument.

Correct AnswerverifiedHigh debt means that future taxpayers wi...View AnswerShow Answer

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

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

According to traditional Keynesian analysis, if the economy is in a recession,

Correct AnswerverifiedShow Answer

Some economists argue that since inflation

Correct AnswerverifiedShow Answer

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?

Correct AnswerverifiedShow Answer

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct AnswerverifiedShow Answer

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession?

Correct AnswerverifiedShow Answer

Monetary policy affects aggregate demand with a lag. Approximately how long does it take for monetary policy actions to affect aggregate demand?

Correct AnswerverifiedA lag of six months ...View AnswerShow Answer

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

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

Explain the main arguments in favor of economic stabilization.

Correct AnswerverifiedFluctuations in the economy-recessions a...View AnswerShow Answer

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Correct AnswerverifiedReducing inflation leads to a temporary ...View AnswerShow Answer

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

Correct AnswerverifiedShow Answer

What component of GDP is particularly volatile over the business cycle and can be targeted by tax cuts?

Correct AnswerverifiedInvestment...View AnswerShow Answer

Explain what is meant by the time inconsistency of monetary policy.

Correct AnswerverifiedThe time inconsistency of monetary polic...View AnswerShow Answer

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Some programs, such as Social Security, ...
View Answer

Correct Answer
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A higher return on saving __ the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the _ effect. If the income effect is large enough, then a reduction in taxes on saving might ____ tax revenues.

Correct Answer
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reduces, i...
View Answer

Correct Answer
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High debt means that future taxpayers wi...
View Answer

Correct Answer
verified

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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A lag of six months ...
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Correct Answer
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Correct Answer
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Because a decrease i...
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Correct Answer
verified
Fluctuations in the economy-recessions a...
View Answer

Correct Answer
verified
Reducing inflation leads to a temporary ...
View Answer

Correct Answer
verified

Correct Answer
verified
Investment...
View Answer

Correct Answer
verified
The time inconsistency of monetary polic...
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