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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