1. A reduction in the tax rate on income from saving would (Points : 1) most directly benefit the poor in the short run. increase real wages over time. decrease the capital stock over time. decrease productivity over time. 2. According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might (Points : 1) lower the discount rate and sell bonds. lower the discount rate and buy bonds. raise the discount rate and sell bonds. raise the discount rate and buy bonds. 3. Opponents of using policy to stabilize the economy generally believe that (Points : 1) neither fiscal nor monetary policy have much impact on aggregate demand. attempts to stabilize the economy decrease the magnitude of economic fluctuations. unemployment and inflation are not cause for much concern. economic conditions can easily change between the start of policy action and when it takes effect. 4. "Leaning against the wind" is exemplified by a (Points : 1) tax increase when there is a recession. decrease in the money supply when there is an expansion. decrease in government expenditures when there is a recession. All of the above are correct. 5. Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 1 percent per year. Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency. Which of the following government spending and taxation figures will not raise the debt-to-income ratio? (Points : 1) government spending equal to 20 billion units and tax collections equal to 16 billion units government spending equal to 20 billion units and tax collections equal to 14 billion units government spending equal to 20 billion units and tax collections equal to 10 billion units government spending equal to 20 billion units and tax collections equal to 8 billion units 6. If aggregate demand shifts because of a wave irrational exuberance, those who favor a policy that "leans against the wind" would advocate the (Points : 1) Federal Reserve increase the money supply or the government increase taxes. Federal Reserve increase the money supply or the government decrease taxes. Federal Reserve decrease the money supply or the government increase taxes. Federal Reserve decrease the money supply or the government decrease taxes. 7. Proponents of zero inflation argue that a successful program to reduce inflation (Points : 1) eventually reduces inflation expectations. eventually raises real interest rates. permanently decreases output. permanently raises unemployment. 8. Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must (Points : 1) decrease the money supply, which will move output back towards its long-run level. decrease the money supply, which will move output farther from its long-run level. increase the money supply, which will move output back towards its long-run level. increase the money supply, which will move output farther from its long-run level. 9. If a central bank had to give up its discretion and follow a rule that required it to keep inflation low, (Points : 1) the short-run Phillips curve would shift up. the short-run Phillips curve would shift down. the long-run Phillips curve would shift right. the long-run Phillips curve would shift left. 10. IRA, 401(k), 403(b), and Keogh plans (Points : 1) impose added taxes on those who save. place no limits on the amount people can deposit into these programs. impose penalties for withdrawals except under certain circumstances. None of the above is correct. 11. Part of the lag in monetary policy effects is due to (Points : 1) the long political process of monetary policy decisions. precise economic forecasts. the time required for firms and households to alter their spending plans. changes in the unemployment rate. 12. Which of the following statements is not true? (Points : 1) All budget deficits can be justified as being due to war or recession. The U.S. federal debt in 2008 was $5.2 trillion. Government debt represents about 1 percent of a typical worker's lifetime resources. Forward looking parents can reverse adverse effects of government debt. 13. Accumulated over a long span of time, the tax rate on interest income (Points : 1) removes all benefits from saving. reduces the benefits from saving by a small amount. reduces the benefits from saving by a large amount. does nor reduce any of the benefits from saving. 14. Time inconsistency will cause the (Points : 1) short-run Phillips curve to be higher than otherwise. short-run Phillips curve to be lower the otherwise. long-run Phillips curve to be farther to the right than otherwise. long-run Phillips curve to be farther left than otherwise. 15. Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is (Points : 1) sustainable, but the future burden on your children cannot be offset. sustainable, and the future burden on your children can be offset if you save for them. not sustainable, and the future burden on your children cannot be offset. not sustainable, but the future burden on your children can be offset if you save for them. 16. Some economists believe that there are positives from a little inflation and that it may "grease the wheels" (Points : 1) in the stock market. in the foreign exchange market. in the bond market. in the labor market. 17. Which of the following is not correct? (Points : 1) Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so. Deficits and surpluses could be used to avoid fluctuations in the tax rate. The only times deficits have increased have been during times of war or economic downturns. Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off. 18. The Federal Open Market Committee meets about (Points : 1) every six days. every six weeks. every six months. every sixteen months. 19. All of the following are arguments against stabilization policy except (Points : 1) Economic forecasting is highly imprecise. Long lags may cause stabilization policies to in fact destabilize the economy. Monetary policy affects aggregate demand by changing interest rates. Fiscal policy must go through a long political process. 20. The political business cycle refers to (Points : 1) the fact that about every four years some politician advocates greater government control of the Fed. the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected. the part of the business cycle caused by the reluctance of politicians to smooth the business cycle. changes in output created by the monetary rule the Fed must follow.  |
