Deck 36: True False

Question 1

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

Answer 1

True

Question 2

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

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.

Question 5

Tax cuts affect only aggregate demand not aggregate supply.

Question 6

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Question 7

A recession has no benefit to society-it represents a sheer waste of resources.

Question 8

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.

Question 9

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Question 10

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Question 11

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.

Question 12

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.

Question 13

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Question 14

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

Question 15

Economists agree that if a monetary policy rule is to be used,the best one makes the growth rate of the money supply constant.

Question 16

If the Fed followed a rule for monetary policy,the time inconsistency problem would be eliminated.

Question 17

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.

Question 18

Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.

Question 19

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.

Question 20

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Question 21

When the government has a deficit,a burden is necessarily imposed on future generations of taxpayers.

Question 22

Tax laws do not give preferential treatment to some kinds of retirement saving.

Question 23

Some studies have found that saving is not very sensitive to the rate of return on saving.

Question 24

There are ways that policymakers could reduce the costs of inflation without reducing inflation.

Question 25

The average U.S.citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

Question 26

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Question 27

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.

Question 28

In effect,a consumption tax would put all saving automatically into a tax-advantaged savings account similar to an Individual Retirement Account (IRA).

Question 29

A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.

Question 30

Once state and federal taxes are added together,a typical worker faces about a 40 percent marginal tax-rate on interest income.

Question 31

The cost of inflation reduction is a large,permanent increase in unemployment.

Question 32

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Question 33

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Question 34

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Question 35

Social Security transfers wealth from younger generations to older generations.

Question 36

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

Question 37

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Question 38

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Question 39

In essence,a consumption tax puts all saving into tax-advantaged savings accounts.