1. A   reduction in the tax rate on income from saving would (Points : 1

      
      
    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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