Question 1

Which of the following would transfer wealth from the old to the young?

Accepted Answer

A)  increases in the budget deficit
B)  decreased building of highways and bridges
C)  more generous education subsidies
D)  indexation of pensions to inflationE) None of the above
F) All of the above

Question 2

If the Canadian government went from a budget deficit to a budget surplus,what would we expect to happen to interest rates and investment?

Accepted Answer

A)  an increase in interest rates and an increase in investment
B)  an increase in interest rates and a decrease in investment
C)  a decrease in interest rates and a decrease in investment
D)  a decrease in interest rates and an increase in investmentE) C) and D)
F) B) and D)

Question 3

Why should policymakers try to stabilize the economy?

Accepted Answer

A)  because economic forecasting is highly imprecise
B)  because long lags may cause stabilization policies to have an opposite effect
C)  because monetary policy affects aggregate demand by changing interest rates
D)  because fiscal policy must go through a long political processE) A) and B)
F) None of the above

Question 4

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 7 percent per year.Which of the following best describes the debt created by these continuing deficits?

Accepted Answer

A)  sustainable, but the future burden on your children cannot be offset
B)  not sustainable, and the future burden on your children cannot be offset
C)  not sustainable, but the future burden on your children can be offset if you save for them
D)  sustainable, and the future burden on your children can be offset if you save for themE) B) and C)
F) A) and D)

Question 5

If we sum the amount of federal government debt plus the amount of provincial and territorial government debt and divide by the population of Canada,we find that in 2011,each Canadian owed about how much?

Accepted Answer

A)  $350
B)  $3500
C)  $30 500
D)  $305 000E) A) and C)
F) All of the above

Question 6

What does the time inconsistency of policy imply?

Accepted Answer

A)  It implies that what policymakers say they will do is generally what they will do, but people don't believe them because of current policy.
B)  It implies that when people expect that inflation will be low, it is harder for the Bank of Canada to increase output by increasing the money supply.
C)  It implies that people will believe the Bank of Canada policy will be more inflationary than the Bank of Canada claims.
D)  It implies that the Bank of Canada coordinates its actions with elected officials.E) B) and D)
F) B) and C)

Question 7

Why does Canadian public policy discourage saving?

Accepted Answer

A)  because, other things the same, taxes increase the return from savings
B)  because means-tested programs such as Old Age Security provide greater benefits to those who saved
C)  because some forms of capital income are not taxed
D)  because capital gains are taxed heavilyE) A) and B)
F) C) and D)

Question 8

The following citation is from the Wall Street Journal's article "Central Bankers Hone Tools to Pop Bubbles." (http://goo.gl/cCkklC)
"With interest rates very low in much of the world,cheap money is everywhere,even flooding into smaller economies such as Israel's.The money is driving up Israel's currency,threatening its important export sector.That presents Israel's central bank with a dilemma: Raising interest rates would likely exacerbate the problem by boosting the currency further,but low rates can fuel a borrowing binge,particularly for home buying."
a. Using the exchange rate determination model NCO-NX, show how does the money "flooding into smaller economies such as Israel's" drive up Israel's currency. How does this threaten Israel's export sector?
b. Using the liquidity preference model and the NCO-NX model, show how "raising interest rates would likely exacerbate the problem."
c. Explain the dilemma that the Israeli central bank faces. Why is this issue important for the economy?

Accepted Answer

a.Foreign money "floods" the Israeli eco...

Question 9

Which of the following 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 D)
F) A) and B)

Question 10

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags,but the lags are ...

Question 11

Why should policymakers NOT try to stabilize the economy?

Accepted Answer

A)  because recessions represent a waste of resources
B)  because pessimism on the part of households and firms may become a self-fulfilling prophecy
C)  because "leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms
D)  because macroeconomic theory is not developed sufficiently to show policymakers how to change aggregate demandE) B) and D)
F) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following are both policies that are consistent with trying to stabilize output when prices and output rise?

Accepted Answer

A)  decrease the money supply and decrease taxes
B)  increase the money supply and decrease taxes
C)  decrease the money supply and decrease government expenditures
D)  increase the money supply and decrease government expendituresE) B) and C)
F) A) and C)

Question 15

Which of the following best defines the political business cycle?

Accepted Answer

A)  the fact that about every four years some politician advocates greater government control of the Bank of Canada
B)  the potential for a central bank to increase the money supply and so output to help the incumbent get re-elected
C)  the part of the business cycle caused by the reluctance of politicians to smooth the business cycle
D)  the changes in output created by the monetary rule the Bank of Canada must followE) B) and C)
F) A) and D)

Question 16

Explain the main argument in favour of economic stabilization.

Accepted Answer

Fluctuations in the economy: recessions ...

Question 17

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains,it takes time t...

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Accepted Answer

The political business cycle describes t...

Question 20

Suppose that a country has an inflation rate of about 2 percent per year and a real growth rate of about 3 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 2 billion units
B)  just under 3 billion units
C)  just under 5 billion units
D)  just under 6 billion unitsE) A) and C)
F) A) and D)

Exam 17: Five Debates over Macroeconomic Policy

Explain why policy lags could make stabilization policies counterproductive.

Correct Answer
verified
As the textbook explains,it takes time t...
View Answer

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct Answer
verified
The political business cycle describes t...
View Answer

Why should policymakers NOT try to stabilize the economy?

Correct Answer
verified

If the Canadian government went from a budget deficit to a budget surplus,what would we expect to happen to interest rates and investment?

Correct Answer
verified

Why should policymakers try to stabilize the economy?

Correct Answer
verified

Which of the following best defines the political business cycle?

Correct Answer
verified

What does the time inconsistency of policy imply?

Correct Answer
verified

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct Answer
verified
Both are prone to lags,but the lags are ...
View Answer

Why does Canadian public policy discourage saving?

Correct Answer
verified

Explain the main argument in favour of economic stabilization.

Correct Answer
verified
Fluctuations in the economy: recessions ...
View Answer

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

Correct Answer
verified

Which of the following are both policies that are consistent with trying to stabilize output when prices and output rise?

Correct Answer
verified

Suppose that a country has an inflation rate of about 2 percent per year and a real growth rate of about 3 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

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

Correct Answer
verified

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 7 percent per year.Which of the following best describes the debt created by these continuing deficits?

Correct Answer
verified

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

Correct Answer
verified

Which of the following will time inconsistency cause?

Correct Answer
verified

If we sum the amount of federal government debt plus the amount of provincial and territorial government debt and divide by the population of Canada,we find that in 2011,each Canadian owed about how much?

Correct Answer
verified

Which of the following would transfer wealth from the old to the young?

Correct Answer
verified

Correct Answer
verified
a.Foreign money "floods" the Israeli eco...
View Answer

Exam 17: Five Debates over Macroeconomic Policy

Explain why policy lags could make stabilization policies counterproductive.

Correct AnswerverifiedAs the textbook explains,it takes time t...View AnswerShow Answer

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

Correct AnswerverifiedThe political business cycle describes t...View AnswerShow Answer

Why should policymakers NOT try to stabilize the economy?

Correct AnswerverifiedShow Answer

If the Canadian government went from a budget deficit to a budget surplus,what would we expect to happen to interest rates and investment?

Correct AnswerverifiedShow Answer

Why should policymakers try to stabilize the economy?

Correct AnswerverifiedShow Answer

Which of the following best defines the political business cycle?

Correct AnswerverifiedShow Answer

What does the time inconsistency of policy imply?

Correct AnswerverifiedShow Answer

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Correct AnswerverifiedBoth are prone to lags,but the lags are ...View AnswerShow Answer

Why does Canadian public policy discourage saving?

Correct AnswerverifiedShow Answer

Explain the main argument in favour of economic stabilization.

Correct AnswerverifiedFluctuations in the economy: recessions ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following are both policies that are consistent with trying to stabilize output when prices and output rise?

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 2 percent per year and a real growth rate of about 3 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

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

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 7 percent per year.Which of the following best describes the debt created by these continuing deficits?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following will time inconsistency cause?

Correct AnswerverifiedShow Answer

If we sum the amount of federal government debt plus the amount of provincial and territorial government debt and divide by the population of Canada,we find that in 2011,each Canadian owed about how much?

Correct AnswerverifiedShow Answer

Which of the following would transfer wealth from the old to the young?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Foreign money "floods" the Israeli eco...View AnswerShow Answer

Correct Answer
verified
As the textbook explains,it takes time t...
View Answer

Correct Answer
verified
The political business cycle describes t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both are prone to lags,but the lags are ...
View Answer

Correct Answer
verified

Correct Answer
verified
Fluctuations in the economy: recessions ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.Foreign money "floods" the Israeli eco...
View Answer