Economics Questions Chapter 34-36
If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank
would have to decrease the money supply. This would move unemployment further from the natural rate
Which of the following is correct?
Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.
Tax laws do not give preferential treatment to some kinds of retirement saving
False
Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can
True
Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children
True
If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion
True
Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes
True
The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output
True
Which of the following models imply that a decrease in the money supply reduces unemployment temporarily but not permanently?
both the long-run Phillips curve and the aggregate supply and aggregate demand model
If people eventually adjust their inflation expectations so that in the long run actual and expected inflation are the same, then policymakers
can exploit a tradeoff between inflation and unemployment in the short run but not in the long run.
The principal reason that monetary policy has lags is that it takes a long time for
changes in the interest rate to change aggregate demand
Permanent tax cuts shift the AD curve
farther to the right than do temporary tax cuts.
A program to reduce inflation is likely to have higher costs if the sacrifice ratio is
high and the reduction is unexpected
Policymakers following a "lean against the wind" policy would
increase government expenditures when output is low and decrease them when output is high.
From 1993-2001 the U.S. economy experienced
relatively low inflation and unemployment rates.
The Federal Reserve
requires little time to change policy but aggregate demand responds slowly.
In the long run, a decrease in the money supply growth rate
shifts the short-run Phillips curve left so unemployment returns to its natural rate
The political business cycle refers to
the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected
Monetary Policy in Southland In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years. Refer to Monetary Policy in Southland. Suppose that the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but it actually raises inflation to 30%. Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%. Then
unemployment falls, but it would have fallen less if people had been expecting 25% inflation
Monetary Policy in Southland In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years. Refer to Monetary Policy in Southland. Suppose that the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% but that it actually leaves inflation at 25%. Suppose that the public had expected that the Department of Finance would reduce inflation, but only to 20%. Then
unemployment falls, but it would have fallen more if people had been expecting 12.5% inflation.
Monetary Policy in Southland In Southland the Department of Finance is responsible for monetary policy. Southland has had an inflation rate of 25% for many years. Refer to Monetary Policy in Southland. Suppose that the Southland Department of Finance has run a public relations campaign claiming it will reduce inflation to 12.5% and that it actually reduces inflation to that level. Suppose that the public had expected that the Department of Finance would reduce inflation but only to 22%. Then
unemployment rises, but it would have risen more if people had been expecting 25% inflation
In his famous article published in an economics journal in 1958, A.W. Phillips
used data for the United Kingdom to show a negative relationship between the rate of change of wages in the U.K. and the U.K. unemployment rate
Which of the following statements generates the greatest amount of disagreement among economists? a. In the long run, increases in the money supply increase prices, but not output. b. Recessions are associated with decreases in consumption, investment, and employment. c. Government should use fiscal policy to try to stabilize the economy. d. Increases in the money supply shift aggregate demand to the right.
Government should use fiscal policy to try to stabilize the economy
Which of the following is correct according to the long-run Phillips curve
Monetary policy cannot change the natural rate of unemployment, but other government policies can
In theory the severity of recessions can be diminished with
an increase in government spending, which the length of the political process can delay
According to liquidity preference theory, a. an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward. b. an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward. c. an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right. d. an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward.
an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right
Proponents of tax-law changes to encourage saving would
argue that corporate tax rates should be decreased
A tax increase has
both a crowding out and multiplier effect
Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates? a.U.S. citizens decide to hold more foreign bonds. b. People choose to hold more currency. c. You decide to purchase a new oven for your cookie factory. d. all of the above
d. (All of the above are correct)
People are likely to want to hold more money if the interest rate a. decreases, making the opportunity cost of holding money rise. b. increases, making the opportunity cost of holding money rise. c. increases, making the opportunity cost of holding money fall. d. decreases, making the opportunity cost of holding money fall.
decreases, making the opportunity cost of holding money fall
Which among the following assets is the most liquid
deposits that can be withdrawn using ATMs
If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by a. decreasing the money supply, which lowers interest rates. b. increasing the money supply, which lowers interest rates. c. decreasing the money supply, which raises interest rates. d. increasing the money supply, which raises interest rates
increasing the money supply, which lowers interest rates.
Changes in the interest rate bring the money market into equilibrium according to a. classical theory, but not liquidity preference theory. b. both liquidity preference theory and classical theory. c. neither liquidity preference theory nor classical theory. d. liquidity preference theory, but not classical theory.
liquidity preference theory, but not classical theory
Stimulus spending in 2009 was used for
making payments to the unemployed,building roads and bridges,providing aid to local and state governments (All of the above are correct)