Question 1

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Question 2

An increase in the money supply

Accepted Answer

A)   reduces interest rates and shifts aggregate demand to the right.
B)   reduces interest rates and shifts aggregate supply to the right
C)   raises interest rates and shifts aggregate demand to the right.
D)   raises interest rates and shifts aggregate supply to the right.E) A) and D)
F) A) and B)

Question 3

If the Fed announced its intention to buy bonds,then it would be signaling that it was going to

Accepted Answer

A)   raise the money supply.It could do this to counter high unemployment.
B)   raise the money supply.It could do this to counter high inflation.
C)   reduce the money supply.It could do this to counter high unemployment.
D)   reduce the money supply.It could do this to counter high inflation.E) All of the above
F) A) and B)

Question 4

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 D)
F) A) and D)

Question 5

Which of the following support the idea that monetary policy should be made by a rule?

Accepted Answer

A)   the political business cycle and the time-inconsistency problem
B)   the political business cycle but not the time-inconsistency problem
C)   the time-inconsistency problem,but not the political business cycle
D)   neither the political business cycle nor the time-inconsistency problemE) A) and D)
F) B) and D)

Question 6

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 1.3E) A) and B)
F) C) and D)

Question 7

If net exports fall,what actions could a central bank take to stabilize the economy?

Accepted Answer

Increase the money s...

Question 8

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 9

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

What did the Fed actions in the 1990's demonstrate about monetary policy and rules?

Accepted Answer

During this time the Fed achieved and ma...

Question 12

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 13

Real interest rates

Accepted Answer

A)   cannot be negative.
B)   can be negative only if inflation is negative.
C)   can be negative only if inflation is zero.
D)   can be negative only if inflation is greater than zero.E) A) and C)
F) B) and C)

Question 14

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)   its substitution effect on saving and its effect on the government budget
B)   its substitution effect on saving but not its effect on the government budget
C)   its effect on the government budget but not its substitution effect on saving
D)   neither its substitution effect on saving nor its effect on the government budgetE) A) and B)
F) A) and C)

Question 15

Studies have shown significant spending changes arise from interest rate changes after

Accepted Answer

A)   a few days.
B)   a few weeks.
C)   a few months.
D)   a few years.E) C) and D)
F) None of the above

Question 16

Which of the following is an argument against trying to use policy to stabilize the economy?

Accepted Answer

A)   Recessions represent a waste of resources.
B)   Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C)   "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D)   Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.E) A) and D)
F) C) and D)

Question 17

Accumulated over a long span of time,the tax rate on interest income

Accepted Answer

A)   removes all benefits from saving.
B)   reduces the benefits from saving by a small amount.
C)   reduces the benefits from saving by a large amount.
D)   does nor reduce any of the benefits from saving.E) A) and B)
F) A) and C)

Question 18

In 2009 Barack Obama responded to recession

Accepted Answer

A)   only by cutting taxes.
B)   by cutting taxes and reducing government expenditures.
C)   only by raising government expenditures.
D)   by cutting taxes and by raising government expenditures.E) A) and B)
F) A) and C)

Question 19

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

Question 20

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Accepted Answer

A)   its income effect on saving and its effect on the government budget
B)   its income effect on saving but not its effect on the government budget
C)   its effect on the government budget but not its income effect on saving
D)   neither its income effect on saving nor its effect on the government budgetE) B) and C)
F) A) and D)

Exam 36: Six Debates Over Macroeconomic Policy

The time inconsistency of policy implies that

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

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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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Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

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Studies have shown significant spending changes arise from interest rate changes after

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Real interest rates

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Accumulated over a long span of time,the tax rate on interest income

Correct AnswerverifiedShow Answer

In 2009 Barack Obama responded to recession

Correct AnswerverifiedShow Answer

Which of the following might explain a decrease in national saving when the tax rate on savings is reduced?

Correct AnswerverifiedShow Answer

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Correct AnswerverifiedShow Answer

Which of the following is an argument against trying to use policy to stabilize the economy?

Correct AnswerverifiedShow Answer

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Correct AnswerverifiedShow Answer

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct AnswerverifiedShow Answer

Which of the following support the idea that monetary policy should be made by a rule?

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

Correct AnswerverifiedShow Answer

If the Fed announced its intention to buy bonds,then it would be signaling that it was going to

Correct AnswerverifiedShow Answer

An increase in the money supply

Correct AnswerverifiedShow Answer

What did the Fed actions in the 1990's demonstrate about monetary policy and rules?

Correct AnswerverifiedDuring this time the Fed achieved and ma...View AnswerShow Answer

If net exports fall,what actions could a central bank take to stabilize the economy?

Correct AnswerverifiedIncrease the money s...View AnswerShow Answer

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During this time the Fed achieved and ma...
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Increase the money s...
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