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Economics 101 Practice Test: Basics of Macroeconomic Policy
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Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It examines economies at a national and global level, analyzing factors like GDP, unemployment, and inflation. The goals of macroeconomic policy are to achieve stable economic growth and maximize the standard of living. These goals are supported by objectives such as: Minimizing unemployment, Increasing productivity, and Controlling inflation.  Macroeconomic policy aims to create a stable economic environment that supports strong and sustainable economic growth. It is concerned with... Show more
Economics 101 Practice Test: Basics of Macroeconomic Policy
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25 Questions

1. Tax changes that reduce taxes on interest and capital income may lower tax revenues which
2. In the late 1990s, the U.S. government had a
3. An increase in the money supply affects output primarily by
4. Opponents of using policy to stabilize the economy generally believe that
5. Which of the following is incorrect?
6. If households and firms became more optimistic about the future real GDP
7. The immediate consequences of Paul Volcker’s inflation reduction efforts were to
8. The five debates over macroeconomic policy exist mostly because
9. Consider the following two sentences. A policy that required a balanced budget would require the government to either increase taxes or reduce expenditures during recessions, which would tend to worsen the recessions. Funding more education spending rather then reducing the government debt could, all things considered, make future generations better-off.
10. Proponents of tax-law changes to encourage saving would
11. Which of the following is incorrect?
12. If people in countries that have had persistently high inflation are skeptical of efforts to reduce inflation the short-run Phillips curve will remain far to the
13. Consider the following two sentences. If the Fed is bound by a rule to decrease the money supply when prices increase, then when aggregate supply shifts left, their actions will reduce output further. Paul Volcker’s monetary policy in 1979 caused a rise in Jimmy Carter’s popularity.
14. Double taxation means that both
15. When the Fed has discretion, policy is time inconsistent which means inflation expectations are
16. Assuming the substitution effect is large relative to the income effect, tax reform designed to increase saving,
17. A reduction in the tax rate on income from saving would
18. Suppose that a country has a real GDP growth rate of about 1% per year and an inflation rate of about 3%. If they have nominal GDP of about 100 billion units of currency, they can have a deficit of about
19. 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 right, the central bank must
20. The political business cycle refers to
21. IRA, 401(k), 403(b), and Keogh plans
22. A lower rate of return on saving has
23. The principal reason that monetary policy has lags is that it takes a long time for
24. Either a constant growth rate of the money supply monetary rule, or a rule requiring the Fed to respond to changes in real GDP would reduce or eliminate
25. In general, the longest lag for

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