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.
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