Question 1

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   Taxes are raised to provide better education.
B)   Taxes are raised to improve government infrastructure such as roads and bridges.
C)   Taxes are raised to provide more generous pensions.
D)   Taxes are raised to pay back part of the government debt.E) A) and B)
F) None of the above

Question 3

Suppose that a country has an inflation rate of about 3 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 B)

Question 4

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 5

Why should monetary policy be made by rule rather than discretion?

Accepted Answer

A)   The economy is subject to a variety of random shocks.
B)   Monetary policymakers are now allowed undisciplined discretion.
C)   It is not clear how important political business cycles have been in the past.
D)   Central banks can achieve credibility over time by backing up their words with deeds.E) B) and C)
F) B) and D)

Question 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 demand shifts right, what must the central bank do, and what will happen to output?

Accepted Answer

A)   The central bank must decrease the money supply, which will move output back toward its long-run level.
B)   The central bank must decrease the money supply, which will move output farther from its long-run level.
C)   The central bank must increase the money supply, which will move output back toward its long-run level.
D)   The central bank must increase the money supply, which will move output farther from its long-run level.E) B) and C)
F) B) and D)

Question 7

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 increase taxes
D)   increase the money supply and increase taxesE) None of the above
F) A) and C)

Question 8

Some social programs transfer wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 1 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $122 billion
B)   about $184 billion
C)   about $249 billion
D)   about $375 billionE) B) and C)
F) C) and D)

Question 10

Why are deficits undesirable?

Accepted Answer

A)   They reduce future output.
B)   They reduce future consumption.
C)   They increase inflation.
D)   They increase unemployment.E) A) and B)
F) C) and D)

Question 11

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 12

Explain why a government deficit is likely to lead to lower living standards in the future.

Accepted Answer

A government deficit means that the gove...

Question 13

If we calculate the amount of debt, measured in real dollars, what was owed by each Canadian in 2015?

Accepted Answer

A)   $130
B)   $1306
C)   $13,062
D)   $130,620E) C) and D)
F) B) and D)

Question 14

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Accepted Answer

A higher rate of return on saving means ...

Question 15

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 16

In which situation is a program to reduce inflation likely to have the lowest costs?

Accepted Answer

A)   if the sacrifice ratio is high and the reduction is unexpected
B)   if the sacrifice ratio is high and the reduction is expected
C)   if the sacrifice ratio is low and the reduction is unexpected
D)   if the sacrifice ratio is low and the reduction is expectedE) A) and B)
F) All of the above

Question 17

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 18

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Accepted Answer

A) True 
 B)False

Question 19

How is "leaning against the wind" exemplified?

Accepted Answer

A)   by a tax cut when there is economic expansion
B)   by a decrease in the money supply when there is a recession
C)   by an increase in government expenditures when there is a recession
D)   by an increase in government spending when there is economic expansionE) A) and C)
F) A) and D)

Question 20

In general, what is the longest lag for fiscal and monetary policy?

Accepted Answer

A)   For both fiscal and monetary policy, it is the time it takes to change policy.
B)   For both fiscal and monetary policy, it is the time it takes for policy to affect aggregate demand.
C)   For monetary policy, it is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand.
D)   For fiscal policy, it is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.E) B) and C)
F) C) and D)

Exam 17: Five Debates Over Macroeconomic Policy

Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 1 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
verified

Some social programs transfer wealth from younger generations to older generations.

Correct Answer
verified

Why are deficits undesirable?

Correct Answer
verified

Explain why a government deficit is likely to lead to lower living standards in the future.

Correct Answer
verified
A government deficit means that the gove...
View Answer

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

Correct Answer
verified

Suppose that a country has an inflation rate of about 3 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

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

In general, what is the longest lag for fiscal and monetary policy?

Correct Answer
verified

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Correct Answer
verified

If we calculate the amount of debt, measured in real dollars, what was owed by each Canadian in 2015?

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

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 do many economists advocate a consumption tax rather than an income tax?

Correct Answer
verified
The current income tax means that income...
View Answer

Correct Answer
verified

Why should monetary policy be made by rule rather than discretion?

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

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

In which situation is a program to reduce inflation likely to have the lowest costs?

Correct Answer
verified

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct Answer
verified

How is "leaning against the wind" exemplified?

Correct Answer
verified

Exam 17: Five Debates Over Macroeconomic Policy

Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 1 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Some social programs transfer wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

Why are deficits undesirable?

Correct AnswerverifiedShow Answer

Explain why a government deficit is likely to lead to lower living standards in the future.

Correct AnswerverifiedA government deficit means that the gove...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that a country has an inflation rate of about 3 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

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

In general, what is the longest lag for fiscal and monetary policy?

Correct AnswerverifiedShow Answer

In essence, a consumption tax puts all saving into tax-advantaged savings accounts.

Correct AnswerverifiedShow Answer

If we calculate the amount of debt, measured in real dollars, what was owed by each Canadian in 2015?

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

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 do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Why should monetary policy be made by rule rather than discretion?

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

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

In which situation is a program to reduce inflation likely to have the lowest costs?

Correct AnswerverifiedShow Answer

The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Correct AnswerverifiedShow Answer

How is "leaning against the wind" exemplified?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A government deficit means that the gove...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified
The current income tax means that income...
View Answer

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

Correct Answer
verified