Question 1

What is one reason for the existence of policy lags?

Accepted Answer

A)   Government experts are slow in figuring out what is going on.
B)   Households and firms plan their spending in advance and therefore are slow in responding to changes in interest rates.
C)   It is impossible to build an accurate model of the economy.
D)   It is difficult for the Bank of Canada to change the bank rate in a timely manner.E) A) and B)
F) A) and C)

Question 2

In which situation does inflation reduction have the lowest cost?

Accepted Answer

A)   when the efforts are credible, so that the sacrifice ratio is low
B)   when the efforts are credible, so that the sacrifice ratio is high
C)   when the efforts are unexpected, so that the sacrifice ratio is high
D)   when the efforts are unexpected, so that the sacrifice ratio is lowE) All of the above
F) C) and D)

Question 3

Which of the following numbers best creates a natural focal point for the real interest rate target?

Accepted Answer

A)   0
B)   1
C)   2
D)   3E) C) and D)
F) A) and B)

Question 4

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 percent per year. Suppose also that it has nominal GDP of about 100 billion units of currency. What is the highest deficit it can have without raising the debt-to-income ratio?

Accepted Answer

A)   just under 1 billion units
B)   just under 3 billion units
C)   just under 6 billion units
D)   just under 8 billion unitsE) A) and B)
F) All of the above

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

What will time inconsistency cause?

Accepted Answer

A)   It will cause the short-run Phillips curve to be higher than it otherwise would.
B)   It will cause the short-run Phillips curve to be lower than it otherwise would.
C)   It will cause the long-run Phillips curve to be farther to the right than it otherwise would.
D)   It will cause the long-run Phillips curve to be farther to the left than it otherwise would.E) B) and C)
F) B) and D)

Exam 18: Five Debates Over Macroeconomic Policy

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 percent per year. Suppose also that it has nominal GDP of about 100 billion units of currency. What is the highest deficit it can have without raising the debt-to-income ratio?

Correct Answer
verified

Which of the following numbers best creates a natural focal point for the real interest rate target?

Correct Answer
verified

In which situation does inflation reduction have the lowest cost?

Correct Answer
verified

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

Correct Answer
verified

What will time inconsistency cause?

Correct Answer
verified

What is one reason for the existence of policy lags?

Correct Answer
verified

Exam 18: Five Debates Over Macroeconomic Policy

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 percent per year. Suppose also that it has nominal GDP of about 100 billion units of currency. What is the highest deficit it can have without raising the debt-to-income ratio?

Correct AnswerverifiedShow Answer

Which of the following numbers best creates a natural focal point for the real interest rate target?

Correct AnswerverifiedShow Answer

In which situation does inflation reduction have the lowest cost?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What will time inconsistency cause?

Correct AnswerverifiedShow Answer

What is one reason for the existence of policy lags?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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