Question 1

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Accepted Answer

A)  Saving is a key determinant of long-run prosperity.
B)  Current tax laws discourage saving for the purpose of leaving a large bequest.
C)  The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.
D)  The tax code currently taxes some forms of capital income twice.E) A) and D)
F) C) and D)

Question 2

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags,but the lags are ...

Question 3

A reduction in the tax rate on income from saving would

Accepted Answer

A)  most directly benefit the poor in the short run.
B)  increase real wages over time.
C)  decrease the capital stock over time.
D)  decrease productivity over time.E) All of the above
F) None of the above

Question 4

U.S.public policy discourages saving because

Accepted Answer

A)  other things the same, taxes reduce the return from savings.
B)  means tested programs such as Medicaid provide greater benefits to those who did not save.
C)  at least some of the amount parents bequest to their children is taxed.
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 5

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Accepted Answer

A higher rate of return on saving means ...

Question 6

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs,such as Social Security,ta...

Question 7

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) None of the above
F) B) and C)

Question 8

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

Question 9

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 10

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Accepted Answer

A)  the time inconsistency problem, but not political business cycles.
B)  the political business cycle, but not the time inconsistency problem.
C)  both the time inconsistency problem and political business cycles.
D)  neither the time inconsistency problem nor political business cycles.E) None of the above
F) A) and D)

Question 11

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 12

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) None of the above

Question 13

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 14

From the end of 2003 to the end of 2004,the United States ran a deficit of about $121 billion.The debt at the start of this period was about $3,924 billion.Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit and kept the ratio of real GDP to the deficit about the same?

Accepted Answer

A)  about 1% inflation and about 1% real GDP growth
B)  about 1% inflation and about 3% real GDP growth
C)  about 2% inflation and about 1% real GDP growth
D)  about 2% inflation and about 2% real GDP growthE) A) and B)
F) None of the above

Question 15

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Accepted Answer

A)  Saving is not very responsive to changes in the tax rate.
B)  Saving is not an important determinant of a nation's ability to produce output.
C)  Reducing the budget deficit instead of changing the tax laws could raise saving.
D)  Changes in the tax laws to induce saving would distribute the tax burden less fairly.E) A) and B)
F) None of the above

Question 16

Suppose aggregate demand fell.In order to stabilize the economy,the government might

Accepted Answer

A)  increase the money supply.
B)  increase government expenditures.
C)  decrease taxes.
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 17

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

Accepted Answer

A)  increase the money supply, increase taxes
B)  increase the money supply, cut taxes
C)  decrease the money supply, increase taxes
D)  decrease the money supply, cut taxesE) A) and C)
F) A) and B)

Question 18

The political business cycle refers to

Accepted Answer

A)  the fact that about every four years some politician advocates greater government control of the Fed.
B)  the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)  the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)  changes in output created by the monetary rule the Fed must follow.E) A) and C)
F) C) and D)

Question 19

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Accepted Answer

A)  lower the discount rate and sell bonds.
B)  lower the discount rate and buy bonds.
C)  raise the discount rate and sell bonds.
D)  raise the discount rate and buy bonds.E) None of the above
F) A) and B)

Question 20

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Accepted Answer

A)  avoid unexpected changes in the inflation rate
B)  rewrite the tax laws so that nominal gains were taxed instead of real gains
C)  make policy that would discourage firms from issuing indexed bonds
D)  All of the above are correct.E) B) and C)
F) A) and D)

Exam 36: Five Debates Over Macroeconomic Policy

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct Answer
verified

Which of the following is not an argument in favor of requiring the government to balance its budget?

Correct Answer
verified

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

Correct Answer
verified

U.S.public policy discourages saving because

Correct Answer
verified

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct Answer
verified

A reduction in the tax rate on income from saving would

Correct Answer
verified

A higher rate of return on saving has

Correct Answer
verified

Is it possible that deficits do not burden future generations?

Correct Answer
verified
Some programs,such as Social Security,ta...
View Answer

Suppose aggregate demand fell.In order to stabilize the economy,the government might

Correct Answer
verified

The political business cycle refers to

Correct Answer
verified

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct Answer
verified
Both are prone to lags,but the lags are ...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Correct Answer
verified

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Correct Answer
verified

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct Answer
verified

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Correct Answer
verified

Exam 36: Five Debates Over Macroeconomic Policy

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

Correct AnswerverifiedShow Answer

Which of the following is not an argument in favor of requiring the government to balance its budget?

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

U.S.public policy discourages saving because

Correct AnswerverifiedShow Answer

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Correct AnswerverifiedShow Answer

A reduction in the tax rate on income from saving would

Correct AnswerverifiedShow Answer

A higher rate of return on saving has

Correct AnswerverifiedShow Answer

Is it possible that deficits do not burden future generations?

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

Suppose aggregate demand fell.In order to stabilize the economy,the government might

Correct AnswerverifiedShow Answer

The political business cycle refers to

Correct AnswerverifiedShow Answer

Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags,but the lags are ...View AnswerShow 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

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

Correct AnswerverifiedShow Answer

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Correct AnswerverifiedShow Answer

Which of the following is not an argument by those who oppose tax-law changes to encourage saving?

Correct AnswerverifiedShow Answer

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct AnswerverifiedShow Answer

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Correct AnswerverifiedShow Answer

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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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Some programs,such as Social Security,ta...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Correct Answer
verified
Both are prone to lags,but the lags are ...
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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