Question 1

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Accepted Answer

A)  fall. The increase in expenditures makes it likely that future taxes will create smaller distortions.
B)  fall. The increase in expenditures makes it likely that future taxes will create larger distortions.
C)  rise. The increase in expenditures makes it likely that future taxes will create smaller distortions.
D)  rise. The increase in expenditures makes it likely that future taxes will create larger distortions.E) B) and C)
F) B) and D)

Question 2

Which of the following likely occurs when households and firms become more pessimistic?

Accepted Answer

A)  increased spending, increased aggregate demand, rising real GDP, and a rising unemployment rate
B)  decreased spending, increased aggregate demand, rising real GDP, and a falling unemployment rate
C)  decreased spending, decreased aggregate demand, falling real GDP, and a rising unemployment rate
D)  decreased spending, decreased aggregate demand, falling real GDP, and a falling unemployment rateE) All of the above
F) A) and C)

Question 3

A policymaker against stabilizing the economy would be likely to believe

Accepted Answer

A)  policymakers should "do no harm".
B)  there are no obstacles to the practical application of policy in real life.
C)  policy lags are short enough that implementing policy changes in response to recession is not too risky.
D)  policy mitigates the magnitude of economic fluctuations.E) A) and D)
F) A) and C)

Question 4

Which of the following is correct?

Accepted Answer

A)  Deficits always require people to consume at the expense of their children.
B)  If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)  If the government is in debt it must be running a deficit currently.
D)  The current government debt is a large share of lifetime income.E) A) and B)
F) All of the above

Question 5

The principal lag for monetary policy

Accepted Answer

A)  and fiscal policy is the time it takes to implement policy.
B)  and fiscal policy is the time it takes for policy to change spending.
C)  is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending.
D)  is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.E) A) and B)
F) B) and D)

Question 6

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $68.8 billion
B)  about $137.6 billion
C)  about $275.2 billion
D)  about $309.6 billionE) C) and D)
F) B) and D)

Question 7

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 8

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

Accepted Answer

A)  Not everyone is eligible to put funds into them.
B)  There are restrictions on the amount of funds that can be put into them.
C)  Except under unusual circumstances, there are penalties for withdrawals before retirement.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 9

If the Fed announced its intention to sell 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) B) and D)
F) A) and D)

Question 10

Higher saving is associated with

Accepted Answer

A)  a larger capital stock and a higher standard of living.
B)  a larger capital stock but not a higher standard of living.
C)  a higher standard of living but not a larger capital stock.
D)  neither a higher standard of living nor a higher capital stock.E) A) and B)
F) C) and D)

Question 11

Which of the following is true of stimulus policy enacted in 2009?

Accepted Answer

A)  We can be sure that it reduced the severity of the recession because the recession was less severe than the Great Depression.
B)  We can be sure that it reduced the severity of the recession even though the recession was more severe than the Great Depression.
C)  We can not be sure that it reduced the severity of the recession, but the recession was less severe than the Great Depression.
D)  We can not be sure that it reduced the severity of the recession because the recession was more severe than the Great Depression.E) B) and D)
F) B) and C)

Question 12

A higher rate of return on saving has

Accepted Answer

A)  an income effect that discourages saving and a substitution effect that encourages saving.
B)  an income effect that encourages saving and a substitution effect that discourages saving.
C)  income and substitution effects that both decrease saving.
D)  income and substitution effects that both increase saving.E) A) and B)
F) A) and C)

Question 13

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A)  says the Federal Reserve should only promote maximum employment
B)  says the Federal Reserve should only promote price stability
C)  says the Federal Reserve should promote price stability and maximum employment, but does not specify how the Federal Reserve should weight these goals.
D)  says the Federal Reserve should promote price stability and maximum employment, but specifies that it place more weight on promoting price stability.E) None of the above
F) A) and D)

Question 14

When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

Accepted Answer

A)  cutting government spending.
B)  raising taxes.
C)  having the Fed purchase government bonds.
D)  reducing the money supply.E) A) and B)
F) A) and C)

Question 15

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Accepted Answer

Increase g...

Question 16

A consumption tax that replaces an income tax

Accepted Answer

A)  only taxes a household on the money it spends.
B)  discourages saving.
C)  would likely result in a lower level of saving than an income tax.
D)  ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase.E) None of the above
F) A) and D)

Question 17

A permanent reduction in inflation would

Accepted Answer

A)  permanently reduce menu costs and permanently lower unemployment.
B)  permanently reduce menu costs and temporarily raise unemployment.
C)  temporarily reduce menu costs and temporarily lower unemployment.
D)  temporarily reduce menu costs and temporarily raise unemployment.E) A) and D)
F) B) and C)

Question 18

Part of the argument against deficits is that they

Accepted Answer

A)  increase interest rates and investment.
B)  increase interest rates and decrease investment.
C)  decrease interest rates and investment.
D)  decrease interest rates and increase investment.E) A) and B)
F) A) and C)

Question 19

If the budget deficit were reduced,

Accepted Answer

A)  interest rates and investment would increase.
B)  interest rates would increase and investment would decrease.
C)  interest rates and investment would decrease.
D)  interest rates would decrease and investment would increase.E) A) and B)
F) A) and C)

Question 20

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Accepted Answer

A) True 
 B)False

Exam 36: Six Debates Over Macroeconomic Policy

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

Correct AnswerverifiedShow Answer

Higher saving is associated with

Correct AnswerverifiedShow Answer

Part of the argument against deficits is that they

Correct AnswerverifiedShow Answer

Which of the following likely occurs when households and firms become more pessimistic?

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Which of the following is correct?

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The principal lag for monetary policy

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If the budget deficit were reduced,

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A higher rate of return on saving has

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When aggregate demand is too low to ensure full employment, those in favor of using monetary and fiscal policy to stabilize the economy might recommend

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A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

If businesses become more pessimistic about the future, what fiscal policies could the government take to stabilize the economy?

Correct AnswerverifiedIncrease g...View AnswerShow 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

Which of the following is true of stimulus policy enacted in 2009?

Correct AnswerverifiedShow Answer

A permanent reduction in inflation would

Correct AnswerverifiedShow Answer

A consumption tax that replaces an income tax

Correct AnswerverifiedShow Answer

A 1977 amendment to the Federal Reserve Act of 1913

Correct AnswerverifiedShow Answer

In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures

Correct AnswerverifiedShow Answer

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Correct AnswerverifiedShow Answer

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Increase g...
View 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 Answer
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reduces, i...
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