Title: Macro Policy Options
Course: TEST Course

Q: ________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect.
- Altering the discount rate
- Reserve requirements
- Long and variable time lags
A: Long and variable time lags

Q: What makes it difficult for the central bank to know when a policy will take effect and often causes counterproductive monetary policies?
- discount rate alterations
- reserve requirement changes
- long and variable time lags
A: long and variable time lags

Q: An implementation policy lag describes the length of time it
- takes before policy makers recognize that a recession or expansion is occurring.
- takes funds to be dispersed to government agencies.
- takes to enact a monetary or fiscal policy.
A: takes to enact a monetary or fiscal policy.

Q: A recognition policy lag describes the length of time it ________.
- takes to enact a monetary or fiscal policy.
- takes for policy impacts to be recognized.
- takes before policy makers recognize that a recession or expansion is occurring.
A: takes before policy makers recognize that a recession or expansion is occurring.

Q: Why does the legislative lag influence fiscal policy effectiveness?
- Because it takes time to collect data on the current state of the economy.
- Because it takes time to evaluate differences between states of the economy.
- Because it takes time for Congress to pass a bill.
A: Because it takes time for Congress to pass a bill.

Q: Why does the recognition lag influence fiscal policy effectiveness?
- Because it takes time to agree on a resolution.
- Because it takes time to evaluate differences between states of the economy.
- Because it takes time to collect data on the current state of the economy.
A: Because it takes time to collect data on the current state of the economy.

Q: Why does the effectiveness lag influence monetary policy effectiveness?
- Because collecting data on the current state of the economy takes time.
- Because to agree on a resolution takes time.
- Because businesses have to take time to change investment spending decisions.
A: Because businesses have to take time to change investment spending decisions.

Q: Why does the impact lag influence monetary policy effectiveness?
- Because it takes time to collect data on the current state of the economy.
- Because it takes time to agree on a resolution.
- Because it takes time for businesses to change investment spending decisions.
A: Because it takes time for businesses to change investment spending decisions.

Q: Countercyclical fiscal policies that stimulate an economy in a recession do NOT:
- increase cyclical unemployment while eventually causing inflation.
- increase unemployment above the natural rate without eventually causing inflation.
- reduce unemployment below the natural rate without eventually increasing inflation.
A: reduce unemployment below the natural rate without eventually increasing inflation.

Q: A countercyclical fiscal policy during a recession that effectively boosts an economy does NOT:
- increase cyclical unemployment eventually time causing inflation.
- boost unemployment above the natural rate without causing inflation.
- decrease unemployment below the natural rate without eventually increasing inflation.
A: decrease unemployment below the natural rate without eventually increasing inflation.

Q: Tax cuts that are explicitly temporary have less impact than permanent ones because
- temporary tax cuts are usually smaller than permanent ones.
- temporary tax cuts always have less effect on the budget deficit than permanent ones do.
- individuals and businesses do not change their behavior very much, since they do not expect the tax cuts to last.
A: individuals and businesses do not change their behavior very much, since they do not expect the tax cuts to last.

Q: Why is it that temporary tax cuts cause less of an impact than permanent ones?
- They are usually smaller than permanent tax cuts.
- They always affect a budget deficit less than permanent tax cuts.
- Because temporary tax cuts are for a short amount of time, firms and individuals only slightly change their behavior.
A: Because temporary tax cuts are for a short amount of time, firms and individuals only slightly change their behavior.

Q: Which of the following is a reason for effective policy making to help stabilize the economy?
- forecasting is imprecise
- long lags can exist
- permanent tax cuts
A: permanent tax cuts

Q: Select the reason below that helps to stabilize the economy by effective policy making?
- imprecise macroeconomic future forecasting
- xxisting legislative or data lags
- tax cuts that are permanent
A: tax cuts that are permanent

Q: The main reason that fiscal policy has lags is that
- it needs approval by the Fed.
- it changes due to interest rates.
- it needs legislative approval.
A: it needs legislative approval.

Q: What is the main reason that fiscal policy lags behind the current economic situation?
- Because fiscal policy needs approval by the Fed.
- Because fiscal policy changes are due to interest rate changes.
- Because fiscal policy requires approval by the legislative body.
A: Because fiscal policy requires approval by the legislative body.

Q: A neoclassical policy to address unemployment is likely to
- try to increase the natural rate of unemployment.
- offer larger or longer benefits for those who are unemployed.
- help to reduce obstacles that create frictional unemployment.
A: help to reduce obstacles that create frictional unemployment.

Q: Which of the following is unlikely to be a neoclassical policy to address unemployment?
- Trying to reduce the natural rate of unemployment.
- Helping to reduce obstacles that create frictional unemployment.
- Stimulating aggregate demand using fiscal or monetary policy.
A: Stimulating aggregate demand using fiscal or monetary policy.

Q: In a recessionary period of low economic output, a neoclassical economist would
- propose increases in the supply of money.
- propose increases in government spending.
- believe the economy will eventually rebound.
A: believe the economy will eventually rebound.

Q: In a recessionary period of low economic output, a neoclassical economist would:
- propose increases in the supply of money.
- propose increases in government spending.
- believe decreases in prices will eventually return the economy to potential output.
A: believe decreases in prices will eventually return the economy to potential output.

Q: How would Keynesian and neoclassical economics propose dealing with cyclical unemployment?
- Both would suggest an increase in aggregate demand by increasing government spending.
- Keynesians would suggest increasing government spending, while neoclassicals would suggest tax increases that stimulate productivity growth and labor demand.
- Keynesians would suggest an increase government spending, while neoclassicals would suggest doing nothing because the labor market will correct itself.
A: Keynesians would suggest an increase government spending, while neoclassicals would suggest doing nothing because the labor market will correct itself.

Q: How would you contrast and compare the various approaches to dealing with cyclical unemployment by Keynesian and neoclassical economics?
- Both would suggest an increase in aggregate supply by increasing government spending.
- Neoclassicals would suggest tax increases that stimulate productivity growth and labor demand. Keynesians would suggest increasing government spending.
- Neoclassicals would suggest doing nothing because the labor market will correct itself. Keynesians would suggest an increase in government spending.
A: Neoclassicals would suggest doing nothing because the labor market will correct itself. Keynesians would suggest an increase in government spending.

Q: A limitation of a countercyclical fiscal policy is that:
- it has a longer impact lag than monetary policy.
- It has a shorter implementation lag than monetary policy.
- higher taxes and lower spending can be politically difficult to achieve during economic booms.
A: higher taxes and lower spending can be politically difficult to achieve during economic booms.

Q: Which of the following is an example of discretionary countercyclical fiscal policy?
- Unemployment insurance
- Increasing interest rates as GDP growth accelerates
- Government infrastructure spending in a recession
A: Government infrastructure spending in a recession

Q: The experience of the 1970s taught economists that changes in:
- aggregate supply can affect the economy in the long run.
- aggregate demand can affect the economy in the long run.
- both aggregate demand and aggregate supply are important in understanding changes in the economy in the short run.
A: both aggregate demand and aggregate supply are important in understanding changes in the economy in the short run.

Q: After the 1970s, what did economists learn?
- In the long-run, an economy can be affected by changes in aggregate supply.
- In the long-run, an economy can be affected by changes in aggregate demand.
- Changes in the economy in the short-run are best understood by looking at both aggregate demand and aggregate supply.
A: Changes in the economy in the short-run are best understood by looking at both aggregate demand and aggregate supply.

Q: The experience of the 1970’s led Keynesian economists to understand that when it comes to aggregate supply and stagflation, policy responses
- were easier to implement and have successful results when using a contractionary monetary or fiscal policy.
- were easier to implement and have successful results when using a expansionary monetary or fiscal policy.
- had no good solution because using either an expansionary or contractionary policy lead to increasing either unemployment or inflation.
A: had no good solution because using either an expansionary or contractionary policy lead to increasing either unemployment or inflation.

Q: After the 1970’s stagflation, Keynesian economists now understand that when it comes to aggregate supply, policy responses in that type of economic scenario:
- were more successful when using a contractionary monetary or fiscal policy.
- were more successful when using a expansionary monetary or fiscal policy.
- lead to increasing either unemployment or inflation and offered no good economic solution regardless of policy type implemented.
A: lead to increasing either unemployment or inflation and offered no good economic solution regardless of policy type implemented.

Q: A negative supply shock will cause price levels and unemployment to ________.
- fall
- not change
- rise
A: rise

Q: How will a negative supply shock affect price levels and unemployment levels?
- A negative supply shock will make both levels fall.
- A negative supply shock will not change both types of levels.
- A negative supply shock will make both levels rise.
A: A negative supply shock will make both levels rise.

Q: If another period of stagflation occurs and shifts the AS curve to the left in the economy, what would happen if an expansionary fiscal or monetary policy is used to stimulate the economy?
- Lower inflation and unemployment and be a good economic solution.
- Lower inflation but boost unemployment and not a good economic solution.
- Lower unemployment but boost inflation and not a good economic solution.
A: Lower unemployment but boost inflation and not a good economic solution.

Q: If a period of stagflation occurs and shifts the AS curve to the left in the economy, what would happen if an contractionary fiscal or monetary policy is used to stimulate the economy?
- It would reduce inflation and unemployment and be a good economic solution.
- It would reduce unemployment but increase inflation and not be a good economic solution.
- It would reduce inflation but increase unemployment and not be a good economic solution.
A: It would reduce inflation but increase unemployment and not be a good economic solution.

Q: Experience in the 1970’s suggested that:
- monetary policy is not useful to combat recession.
- Keynesian aggregate demand policies are the most important policy tools to address recessions.
- recessions can be caused by shifts in both the short run supply curve and the aggregate demand curve.
A: recessions can be caused by shifts in both the short run supply curve and the aggregate demand curve.

Q: What were some of the economic takeaways from the experience in the 1970’s?
- Monetary policies are not helpful in combating recessions.
- Neoclassical aggregate supply policies are the most important policy tools to address recessions.
- Recessions can be caused by both the aggregate demand curve and the short run supply curve shifting.
A: Recessions can be caused by both the aggregate demand curve and the short run supply curve shifting.

Q: The experience of the Great Recession showed that when the economy is in a recession, from a Keynesian perspective, the government can increase its spending
- at the risk of crowding out private investment.
- without a need to rely on the expenditure multiplier effects.
- with minimal risk of crowding out private investment.
A: with minimal risk of crowding out private investment.

Q: From a neoclassical perspective, when the economy is in a recession if the government increases its spending it is
- with minimal risk of crowding out private investment.
- without a need to rely on the expenditure multiplier effects.
- at the risk of crowding out private investment.
A: at the risk of crowding out private investment.

Q: From a Keynesian view, during a recession, government investment in physical capital
- always generates positive returns to investment.
- has no risk of crowding out private investment in physical capital.
- helps increase the output and productivity of an economy.
A: helps increase the output and productivity of an economy.

Q: In a recession, government investment in physical capital, from a neoclassical perspective
- increases the output and productivity of an economy.
- always generates positive returns to investment.
- is not necessary and the focus should be on decreasing taxes to stimulate consumption.
A: is not necessary and the focus should be on decreasing taxes to stimulate consumption.

Q: Effective Keynesian government policies to promote long term economic growth might include:
- government unemployment benefits.
- government entitlement programs.
- grants for university research and development.
A: grants for university research and development.

Q: From a neoclassical point of view effective government policies to promote long term economic growth might include:
- government unemployment benefits.
- government investment in infrastructure.
- creating a stable economic environment through government taking a hands off approach.
A: creating a stable economic environment through government taking a hands off approach.

Q: Keynesians government policies include investments in capital. These include
- human capital investments such as immigration plans.
- financial capital investments such as government bonds.
- physical capital investments such as roads and bridges.
A: physical capital investments such as roads and bridges.

Q: According to Keynesian, policy during a recession government should investment in capital, which includes
- physical capital investments such as maintenance of federal office buildings.
- financial capital investments such as government treasury bills.
- human capital investments such as primary education.
A: human capital investments such as primary education.