True / False
1. One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy
should be used to try to stabilize the economy.
a.
True
b.
False
2. A recession has no benefit to society-it represents a sheer waste of resources.
a.
True
b.
False
3. A “lean against the wind” policy says the government should not use stabilization policy and simply let the economy
“weather the storm.”
a.
True
b.
False
4. Advocates of stabilization policy argue that when there is a recession, the government should increase the money
supply and increase government expenditures.
a.
True
b.
False
5. Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after
the change is made.
a.
True
b.
False
6. Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects
of policy.
a.
True
b.
False
7. To counter the recession of 2008-2009 President Obama and congress created a large increase in government
expenditures.
a.
True
b.
False
8. According to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in
government expenditures of the same size.
a.
True
b.
False
9. The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate
demand than tax cuts.
a.
True
b.
False
10. Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.
a.
True
b.
False
11. Tax cuts affect only aggregate demand not aggregate supply.
a.
True
b.
False
12. The laws that created the Fed give it only vague recommendations about what goals it should pursue, and they do not
tell the Fed how to pursue whatever goals it might choose.
a.
True
b.
False
13. The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little
discretion in making policy.
a.
True
b.
False
14. The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for
every percentage point that unemployment rises above its natural rate.
a.
True
b.
False
15. 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.
a.
True
b.
False
16. People’s skepticism about central bankers’ announcements of their intentions stems from the fact that policymakers
may act in a fashion that is time inconsistent.
a.
True
b.
False
17. If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.
a.
True
b.
False
18. In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.
a.
True
b.
False
19. Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply
constant.
a.
True
b.
False
20. Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.
a.
True
b.
False
21. The cost of inflation reduction is a large, permanent increase in unemployment.
a.
True
b.
False
22. The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.
a.
True
b.
False
23. It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate
inflation.
a.
True
b.
False
24. There are ways that policymakers could reduce the costs of inflation without reducing inflation.
a.
True
b.
False
25. Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.
a.
True
b.
False
26. When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.
a.
True
b.
False
27. The average U.S. citizens’ share of the government debt represents less than 2 percent of a person’s lifetime income.
a.
True
b.
False
28. Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase
forever.
a.
True
b.
False
29. Social Security transfers wealth from younger generations to older generations.
a.
True
b.
False
30. A nation’s saving rate is not a primary determinant of its long-run economic prosperity.
a.
True
b.
False
31. Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest
income.
a.
True
b.
False
32. Tax laws do not give preferential treatment to some kinds of retirement saving.
a.
True
b.
False
33. In effect, a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an
Individual Retirement Account (IRA).
a.
True
b.
False
34. Some studies have found that saving is not very sensitive to the rate of return on saving.
a.
True
b.
False
35. A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.
a.
True
b.
False
36. A reduction in the marginal tax-rate includes an income effect that tends to increase savings.
a.
True
b.
False
37. In essence, a consumption tax puts all saving into tax-advantaged savings accounts.
a.
True
b.
False
38. If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by
6 percent per year and not increase the ratio of debt to income.
a.
True
b.
False
39. Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger
bequest to their children.
a.
True
b.
False