Question 1

Consider the following rule for monetary policy: r = 2 percent +   π\piπ + 1/2(y - y*) /y* + 1/2(  π\piπ -   π\piπ *) ,where r is the nominal federal funds rate,y is real GDP,y* is an estimate of the natural rate of output,  π\piπ  is the inflation rate,and   π\piπ * is the inflation target.Other things the same,if the inflation rate rises by 1 percentage point this rule says the Fed should increase the nominal federal funds rate by

Accepted Answer

A)   1/2 percentage point
B)   1 percentage point
C)   1 and 1/2 percentage points
D)   3 and 1/2 percentage points E) A) and B)
F) A) and D)

Question 2

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Accepted Answer

A) True 
 B)False

Question 3

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

Accepted Answer

A)   interest rates and output would rise.
B)   interest rates would rise and output would fall.
C)   interest rates would fall and output would rise.
D)   interest rates and output would fall.E) A) and B)
F) A) and C)

Question 4

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

Accepted Answer

A)   the central bank would have to decrease the money supply which would decrease output.
B)   the central bank would have to decrease the money supply which would increase output.
C)   the central bank would have to increase the money supply which would decrease output.
D)   the central bank would have to increase the money supply which would increase output.E) B) and C)
F) A) and C)

Question 5

Tax laws do not give preferential treatment to some kinds of retirement saving.

Accepted Answer

A) True 
 B)False

Question 6

If the public correctly perceives that the central bank will reduce inflation,then

Accepted Answer

A)   the short-run Phillips curve shifts right,and the sacrifice ratio will be higher.
B)   the short-run Phillips curve shifts right,and the sacrifice ratio will be lower.
C)   the short-run Phillips curve shifts left,and the sacrifice ratio will be higher.
D)   the short-run Phillips curve shifts left,and the sacrifice ratio will be lower.E) All of the above
F) C) and D)

Question 7

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 8

Why might policymakers attempts to stabilize the economy do more harm than good?

Accepted Answer

Policy works with a lag.By the...

Question 9

A reduction in the tax rate on interest income

Accepted Answer

A)   raises the amount earned on savings.Saving will rise if the income effect of the reduction in the tax rate is larger than the substitution effect.
B)   raises the amount earned on savings.Saving will rise if the income effect of the reduction in the tax rate is smaller than the substitution effect.
C)   reduces the amount earned on savings.Saving will rise if the income effect of the reduction in the tax rate is larger than the substitution effect.
D)   reduces the amount earned on savings.Saving will rise if the income effect of the reduction in the tax rate is smaller than the substitution effect.E) B) and C)
F) A) and B)

Question 10

The Fed raised interest rates in 2004 and 2005.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) B) and D)
F) B) and C)

Question 11

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

A)   high and the reduction is unexpected.
B)   high and the reduction is expected.
C)   low and the reduction is unexpected.
D)   low and the reduction is expected.E) A) and B)
F) A) and C)

Question 12

Economists agree that at least in the short run disinflation

Accepted Answer

A)   leads to a period of higher unemployment.They also agree that the costs of even moderate inflation is high.
B)   leads to a period of higher unemployment.They disagree about the cost of moderate inflation.
C)   leads to a period of lower unemployment.They also agree that the cost of even moderate inflation is high.
D)   leads to a period of lower unemployment.They disagree about the cost of moderate inflation.E) A) and B)
F) A) and C)

Question 13

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Accepted Answer

A)   The cost of something is what you give up to get it (Principle 2) .
B)   Trade can make everyone better off (Principle 5) .
C)   Markets are usually a good way to organize economic activity (Principle 6) .
D)   A country's standard of living depends on its ability to produce goods and services (Principle 8) .E) A) and C)
F) All of the above

Question 14

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Accepted Answer

A) True 
 B)False

Question 15

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Accepted Answer

A)   increases the interest rate and decreases spending on capital goods.
B)   increases the interest rate and increases spending on capital goods.
C)   decreases the interest rate and increases spending on capital goods.
D)   decreases the interest rate and decreases spending on capital goods.E) All of the above
F) A) and B)

Question 16

The six debates over macroeconomic policy exist mostly because

Accepted Answer

A)   economists disagree over basic issues such as the importance of saving for economic growth.
B)   there are tradeoffs and people disagree about the best way to deal with them.
C)   politicians offer misleading information.
D)   people fail to clearly see the benefits or the costs of most changes.E) A) and C)
F) None of the above

Question 17

If the unemployment rate rises,which policies would both be appropriate to reduce it?

Accepted Answer

A)   increase taxes,increase government spending
B)   increase taxes,decrease government spending
C)   decrease taxes,increase government spending
D)   decrease taxes,decrease government spendingE) B) and D)
F) A) and B)

Question 18

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Accepted Answer

The Federal Open Mar...

Question 19

What is meant by the political business cycle?

Accepted Answer

Central banks sympathetic to i...

Question 20

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

Exam 36: Six Debates Over Macroeconomic Policy

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

Correct Answer
verified

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Correct Answer
verified

Why might policymakers attempts to stabilize the economy do more harm than good?

Correct Answer
verified
Policy works with a lag.By the...
View Answer

Economists agree that at least in the short run disinflation

Correct Answer
verified

If the unemployment rate rises,which policies would both be appropriate to reduce it?

Correct Answer
verified

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Correct Answer
verified

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

Correct Answer
verified

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

Correct Answer
verified

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct Answer
verified

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Correct Answer
verified

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Correct Answer
verified
The Federal Open Mar...
View Answer

A policymaker against stabilizing the economy would be likely to believe

Correct Answer
verified

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Correct Answer
verified

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct Answer
verified

A reduction in the tax rate on interest income

Correct Answer
verified

The Fed raised interest rates in 2004 and 2005.This implies,other things the same,that the Fed

Correct Answer
verified

Correct Answer
verified

If the public correctly perceives that the central bank will reduce inflation,then

Correct Answer
verified

What is meant by the political business cycle?

Correct Answer
verified
Central banks sympathetic to i...
View Answer

The six debates over macroeconomic policy exist mostly because

Correct Answer
verified

Exam 36: Six Debates Over Macroeconomic Policy

If the central bank has discretion to make policy,it may create economic fluctuations that reflect the electoral calendar.This is called the political business cycle.

Correct AnswerverifiedShow Answer

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Correct AnswerverifiedShow Answer

Why might policymakers attempts to stabilize the economy do more harm than good?

Correct AnswerverifiedPolicy works with a lag.By the...View AnswerShow Answer

Economists agree that at least in the short run disinflation

Correct AnswerverifiedShow Answer

If the unemployment rate rises,which policies would both be appropriate to reduce it?

Correct AnswerverifiedShow Answer

Assuming that the substitution effect is large relative to the income effect,tax reform designed to increase saving

Correct AnswerverifiedShow Answer

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

Correct AnswerverifiedShow Answer

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

Correct AnswerverifiedShow Answer

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Correct AnswerverifiedShow Answer

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Correct AnswerverifiedShow Answer

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

Correct AnswerverifiedThe Federal Open Mar...View AnswerShow Answer

A policymaker against stabilizing the economy would be likely to believe

Correct AnswerverifiedShow Answer

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

Correct AnswerverifiedShow Answer

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct AnswerverifiedShow Answer

A reduction in the tax rate on interest income

Correct AnswerverifiedShow Answer

The Fed raised interest rates in 2004 and 2005.This implies,other things the same,that the Fed

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the public correctly perceives that the central bank will reduce inflation,then

Correct AnswerverifiedShow Answer

What is meant by the political business cycle?

Correct AnswerverifiedCentral banks sympathetic to i...View AnswerShow Answer

The six debates over macroeconomic policy exist mostly because

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Policy works with a lag.By the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Federal Open Mar...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Central banks sympathetic to i...
View Answer

Correct Answer
verified