Question 1

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) All of the above
F) C) and D)

Question 2

Deficits do not necessarily burden future generations. Discuss and provide some examples.

Accepted Answer

Some programs tax younger generations to...

Question 3

The following charts are published by the Government of Canada in its Annual Financial Report 2008-2009. Based on the charts, answer the following questions. 
-What was the evolution of Canada's federal debt over the period 1967-2009?

Accepted Answer

Canada's federal debt increase...

Question 4

Suppose that at the start of fiscal year 2006 the government had a debt of $6800 billion. Suppose that during fiscal year 2006, real GDP grew by about 5 percent and inflation was about 3 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $544 billion
B)  about $375 billion
C)  about $245 billion
D)  about $184 billionE) A) and B)
F) A) and D)

Question 5

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate decreasing which of the following?

Accepted Answer

A)  the money supply
B)  taxes
C)  government expenditures
D)  inflationE) A) and D)
F) None of the above

Question 6

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following do opponents of using policy to stabilize the economy generally believe?

Accepted Answer

A)  that neither fiscal nor monetary policy have much impact on aggregate demand
B)  that attempts to stabilize the economy can increase the magnitude of economic fluctuations
C)  that unemployment and inflation are not cause for much concern
D)  that unemployment is a cause for concern, but inflation is not.E) B) and C)
F) None of the above

Question 8

Which of the following might offset the effects of a decline in the value of financial assets, such as stocks, on consumption and the economy?

Accepted Answer

A)  increasing government spending
B)  decreasing the money supply
C)  increasing taxes
D)  increasing both taxes and money supplyE) C) and D)
F) A) and D)

Question 9

The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt, real GDP, and the price level. Why would one say that inflation is similar to a tax when the government runs a positive public debt?

Accepted Answer

The higher the inflation rate, the lower...

Question 10

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) A) and B)
F) A) and C)

Question 11

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 towards 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 towards 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) A) and D)

Question 12

Economists agree that if a monetary policy rule is to be used, the best one is one that makes the growth rate of the money supply constant.

Accepted Answer

A) True 
 B)False

Question 13

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

Accepted Answer

A) True 
 B)False

Question 14

A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 15

Suppose aggregate demand fell. In order to stabilize the economy, which of the following might the government do?

Accepted Answer

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

Question 16

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 17

Suppose the budget deficit is rising 6 percent per year and nominal GDP is rising 10 percent per year. Which of the following best describes the debt created by these 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) B) and D)

Question 18

How would a permanent reduction in inflation impact menu costs and unemployment?

Accepted Answer

A)  It would permanently reduce menu costs and permanently lower unemployment.
B)  It would permanently reduce menu costs and temporarily raise unemployment.
C)  It would temporarily reduce menu costs and temporarily lower unemployment.
D)  It would temporarily reduce menu costs and temporarily raise unemployment.E) B) and C)
F) A) and D)

Question 19

If you deposit $100 now with interest rate of 3 percent, after the first period you will have an amount equal to (100 + 100* 0.03) = 100(1 + 0.03); after the second period the amount will be 100(1 + 0.03) + [100(1 + 0.03)]*0.03 = 100(1 + 0.03)(1 + 0.03) = 100(1 + 0.03)S1U1P12S1S1P0. If we continue this reasoning, we find out that the amount in the account after n periods is equal to $100(1 + 0.03)S1U1P1nS1S1P0. In general, if the interest rate is i percent, the formula for compound interest rate becomes (1 + i%/100)S1U1P1nS1S1P0.
-Suppose there is a tax rate of t percent on capital gain. How does our formula change?

Accepted Answer

Typically, if the ta...

Question 20

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Exam 17: Five Debates Over Macroeconomic Policy

Correct Answer
verified
Typically, if the ta...
View Answer

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct Answer
verified

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

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

Deficits do not necessarily burden future generations. Discuss and provide some examples.

Correct Answer
verified
Some programs tax younger generations to...
View Answer

Suppose aggregate demand fell. In order to stabilize the economy, which of the following might the government do?

Correct Answer
verified

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct Answer
verified

How would a permanent reduction in inflation impact menu costs and unemployment?

Correct Answer
verified

Suppose the budget deficit is rising 6 percent per year and nominal GDP is rising 10 percent per year. Which of the following best describes the debt created by these deficits?

Correct Answer
verified

The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt, real GDP, and the price level. Why would one say that inflation is similar to a tax when the government runs a positive public debt?

Correct Answer
verified
The higher the inflation rate, the lower...
View Answer

Correct Answer
verified

Which of the following do opponents of using policy to stabilize the economy generally believe?

Correct Answer
verified

What does the time inconsistency of policy imply?

Correct Answer
verified

A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Correct Answer
verified

The following charts are published by the Government of Canada in its Annual Financial Report 2008-2009. Based on the charts, answer the following questions. -What was the evolution of Canada's federal debt over the period 1967-2009?

Correct Answer
verified
Canada's federal debt increase...
View Answer

Suppose that at the start of fiscal year 2006 the government had a debt of $6800 billion. Suppose that during fiscal year 2006, real GDP grew by about 5 percent and inflation was about 3 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
verified

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate decreasing which of the following?

Correct Answer
verified

Why should policymakers NOT try to stabilize the economy?

Correct Answer
verified

Economists agree that if a monetary policy rule is to be used, the best one is one that makes the growth rate of the money supply constant.

Correct Answer
verified

Which of the following might offset the effects of a decline in the value of financial assets, such as stocks, on consumption and the economy?

Correct Answer
verified

Exam 17: Five Debates Over Macroeconomic Policy

Correct AnswerverifiedTypically, if the ta...View AnswerShow Answer

Some studies have found that saving is not very sensitive to the rate of return on saving.

Correct AnswerverifiedShow Answer

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

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

Deficits do not necessarily burden future generations. Discuss and provide some examples.

Correct AnswerverifiedSome programs tax younger generations to...View AnswerShow Answer

Suppose aggregate demand fell. In order to stabilize the economy, which of the following might the government do?

Correct AnswerverifiedShow Answer

A nation's saving rate is not a primary determinant of its long-run economic prosperity.

Correct AnswerverifiedShow Answer

How would a permanent reduction in inflation impact menu costs and unemployment?

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 6 percent per year and nominal GDP is rising 10 percent per year. Which of the following best describes the debt created by these deficits?

Correct AnswerverifiedShow Answer

The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt, real GDP, and the price level. Why would one say that inflation is similar to a tax when the government runs a positive public debt?

Correct AnswerverifiedThe higher the inflation rate, the lower...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following do opponents of using policy to stabilize the economy generally believe?

Correct AnswerverifiedShow Answer

What does the time inconsistency of policy imply?

Correct AnswerverifiedShow Answer

A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Correct AnswerverifiedShow Answer

The following charts are published by the Government of Canada in its Annual Financial Report 2008-2009. Based on the charts, answer the following questions. -What was the evolution of Canada's federal debt over the period 1967-2009?

Correct AnswerverifiedCanada's federal debt increase...View AnswerShow Answer

Suppose that at the start of fiscal year 2006 the government had a debt of $6800 billion. Suppose that during fiscal year 2006, real GDP grew by about 5 percent and inflation was about 3 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate decreasing which of the following?

Correct AnswerverifiedShow Answer

Why should policymakers NOT try to stabilize the economy?

Correct AnswerverifiedShow Answer

Economists agree that if a monetary policy rule is to be used, the best one is one that makes the growth rate of the money supply constant.

Correct AnswerverifiedShow Answer

Which of the following might offset the effects of a decline in the value of financial assets, such as stocks, on consumption and the economy?

Correct AnswerverifiedShow Answer

Correct Answer
verified
Typically, if the ta...
View Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified
Some programs tax younger generations to...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The higher the inflation rate, the lower...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Canada's federal debt increase...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified