HW4 macro more

According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer: A) increases production. B) does not change production. C) decreases production. D) hires more workers.

B) does not change production.

6. Assume that the sacrifice ratio for an economy is 4. If the central bank wishes to reduce inflation from 10 percent to 5 percent, this will cost the economy ______ percent of one year's GDP. A) 4 B) 5 C) 20 D) 40

C) 20

The time between a shock to the economy and the policy action responding to that shock is called the: A) automatic stabilizer. B) time inconsistency of policy. C) inside lag. D) outside lag.

C) inside lag.

Based on the sticky-price model, the short-run aggregate supply curve will be steeper, the greater the: A) target nominal-wage rate. B) target real-wage rate. C) proportion of firms with flexible prices. D) proportion of firms with sticky prices.

C) proportion of firms with flexible prices.

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1. According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase. A) greater; increase B) smaller; increase C) greater; decrease D) smaller; decrease

A) greater; increase

5. Analysis of the short-run Phillips curve suggests that policymakers who want to reduce unemployment in the short run should ______ aggregate demand at a cost of generating ______ inflation. A) increase; higher B) increase; lower C) decrease; higher D) decrease; lower

A) increase; higher

Fiscal policy has a relatively long ______ lag, and monetary policy has a relatively long ______ lag. A) inside; outside B) outside; inside C) inside; inside D) outside; outside

A) inside; outside

15. In a time of inflation when the real (i.e., deflated) value of the government debt is constant, then the conventionally: A) reported government budget will show a deficit equal to the inflation rate times the outstanding debt. B) reported government budget will show a deficit equal to less than the inflation rate times the outstanding debt. C) reported government budget will be balanced. D) measured government budget will show a surplus equal to the inflation rate times the outstanding debt.

A) reported government budget will show a deficit equal to the inflation rate times the outstanding debt.

18. According to the traditional viewpoint of government debt, a tax cut without a cut in government spending: A) stimulates consumer spending in the short run and reduces national saving. B) stimulates consumer spending in the short run and reduces private saving. C) has no effect on consumer spending but reduces national saving. D) has no effect on consumer spending but reduces private saving.

A) stimulates consumer spending in the short run and reduces national saving.

Assume that the nominal interest rate is 11 percent, the inflation rate is 8 percent, and government debt at the beginning of the year equals $4 trillion. By how much is the government budget deficit overstated as a result of inflation? A) $0.12 trillion B) $0.32 trillion C) $0.44 trillion D) $0.80 trillion

B) $0.32 trillion

17. The debt of the United States government is underreported in the view of many economists because all of the following liabilities are excluded except: A) future pensions of government employees. B) debt owed to foreigners. C) future Social Security benefits. D) government guarantees of student loans.

B) debt owed to foreigners.

12. If people's expectations of inflation are formed rationally rather than based on adaptive expectations and if policymakers make a credible policy move to reduce inflation, then the costs of reducing inflation will be ______ traditional estimates of the sacrifice ratio. A) much higher than B) much lower than C) exactly equal to D) approximately two percent greater than

B) much lower than

If the short-run aggregate supply curve is steep, the Phillips curve will be: A) flat. B) steep. C) backward-bending. D) unrelated to the slope of the short-run aggregate supply curve.

B) steep.

Arguments in favor of passive economic policy include all of the following except: A) monetary and fiscal policies work with long and variable lags, which can produce destabilizing results. B) economic forecasts have too large a margin of error to be useful in formulating stabilization policy. C) recessions do not reduce economic well-being, so using monetary and fiscal policy for stabilization is unnecessary. D) the Great Depression could have been avoided if the Federal Reserve had pursued a policy of steady money growth.

C) recessions do not reduce economic well-being, so using monetary and fiscal policy for stabilization is unnecessary.

7. All of the following are requirements for reducing inflation without causing a recession except: A) workers and firms must form expectations rationally. B) the plan must be announced before expectations are formed. C) the plan must be believed by workers and firms. D the government's budget must be balanced.

D the government's budget must be balanced.

20. When President George H. W. Bush lowered tax withholding in 1992 without lowering the amount of taxes owed, surveys showed that: A) almost everyone spent the higher take-home pay. B) almost everyone saved the higher take-home pay. C) a majority of respondents said they would spend the higher take-home pay, but a significant minority said they would save it. D) a majority of respondents said they would save the higher take-home pay, but a significant minority said they would spend it.

D) a majority of respondents said they would save the higher take-home pay, but a significant minority said they would spend it.

19.D According to the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as ______, so their consumption will ______. A) additional disposable income; increase. B) additional disposable income; remain unchanged. C) a rescheduling of taxes into the future; increase. D) a rescheduling of taxes into the future; remain unchanged.

D) a rescheduling of taxes into the future; remain unchanged.

Unlike a monetarist policy rule, an inflation target has the advantage of: A) eliminating the need to announce the policy target. B) providing a real target rather than a nominal one. C) allowing the central bank unlimited discretion. D) insulating the economy from changes in money velocity.

D) insulating the economy from changes in money velocity.

Each of the following conditions will tend to reduce the sacrifice ratio except when: A) workers and firms set wages and prices based on rational expectations. B) policymakers make credible commitments to policy changes. C) announcements of policy changes are made before workers and firms have formed expectations. D) the concept of hysteresis accurately describes the impact of history on the natural rate of unemployment.

D) the concept of hysteresis accurately describes the impact of history on the natural rate of unemployment.