Question Week 5 1. The major driver of future federal spending is (Points

05 Jun Question Week 5 1. The major driver of future federal spending is (Points

Question
Week 5

1. The major driver of future federal spending is (Points : 5)

interest on the federal debt.

Social Security obligations.

rising health care costs.

energy prices.

2. If a central bank were required to target inflation at zero, then when there was an unanticipated increase in aggregate supply the central bank (Points : 5)

would have to increase the money supply. This would move unemployment closer to the natural rate.

would have to increase the money supply. This would move unemployment further from the natural rate.

would have to decrease the money supply. This would move unemployment closer to the natural rate.

would have to decrease the money supply. This would move unemployment further from the natural rate.

3. The Federal Open Market Committee (Points : 5)

operates with almost complete discretion over monetary policy.

is required to increase the money supply by a given growth rate each year.

is required to keep the interest rate within a range set by Congress.

is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.

4. Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 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 : 5)

government spending equal to 50 billion units and tax collections equal to 76 billion units

government spending equal to 50 billion units and tax collections equal to 14 billion units

government spending equal to 50 billion units and tax collections equal to 10 billion units

government spending equal to 50 billion units and tax collections equal to 8 billion units

5. Policymakers following a “lean against the wind” policy would (Points : 5)

increase government expenditures when output is low and decrease them when output is high.

increase government expenditures when output is low and do nothing when output is high.

decrease government expenditures when output is low and increase them when output is high.

decrease government expenditures when output is high and do nothing when output is low.

6. 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 : 5)

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.

7. Inflation (Points : 5)

causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.

causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.

causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers.

causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.

8. 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 : 5)

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.

9. “Leaning against the wind” is exemplified by a (Points : 5)

tax cut when there is a recession.

decrease in the money supply when there is a recession.

decrease in government expenditures when there is a recession.

increasing money supply when there is a boom.

10. Which of the following statements is not true? (Points : 5)

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.

11. The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession? (Points : 5)

increase the money supply, increase taxes, increase government spending

increase the money supply, increase taxes, decrease government spending

increase the money supply, decrease taxes, increase government spending

decrease the money supply, increase taxes, decrease government spending

12. Which of the following is correct? (Points : 5)

Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.

Economic forecast are precise and aggregate spending responds to interest rate changes with a lag.

Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes.

Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.

13. Social Security and government health-insurance programs account for (Points : 5)

less than 2% of the federal spending.

5.2% of federal spending.

42% of federal spending.

52% of federal spending.