Explain how tax cuts can increase aggregate supply.

When the government reduces marginal tax...

Why is there a lag between the Fed's actions and the economy's response?

Monetary policy is supposed to...

Economists believe that a little bit of inflation may be a good thing.What are the potential benefits of inflation?

First, economists believe that inflation...

According to a 1977 amendment to the Federal Reserve Act of 1913,what weights should the Fed put on the goals of maximum employment,stable prices,and moderate long-term interest rates?

While the amendment indicates ...

Explain what is meant by saying that capital income is taxed twice.

Shareholders are part owners o...

Identify three government policies that discourage saving.

First, the returns to saving are heavily...

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged.If the Fed is required to follow a rule that stabilizes the price level,what will the Fed do to the money supply and what impact will this have on total output in the economy?

To keep the price level stable...

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

The government cut taxes and raised expe...

Provide an example of how current expenditures might benefit future generations.

Expenditures on education rais...

According to political business cycle theory,if the Fed wanted to increase the chances of a President's re-election,what specific actions might it take?

If the Fed wanted to see the President r...

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy,what are some of the reasons why tax cuts might be preferred to increased government spending?

First, tax cuts can influence both aggre...

During recessions,even with no changes in policy,the deficit tends to ------ because -------------.

rise, income falls so tax reve...

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Those who oppose stabilization policy mo...

Carefully explain how monetary policy can be used to counter a recession.Explain what the central bank does as well as how its actions affect the economy.Under what circumstances is fiscal policy especially useful?

To counter a recession, a central bank r...

Suppose a 25-year-old worker purchases a $5,000 bond that pays 6% interest per year which she plans to withdraw when she retires in 40 years.How much will the $5,000 accumulate to in 40 years? If the worker faces a marginal tax rate of 30% on interest income,how much will the $5,000 accumulate to in 40 years?

In the absence of taxes, the bond will accumulate to $51,428.59. With a marginal tax rate of 30% on her interest income, the bond will accumulate to $25,922.61.

Explain what is meant by the time inconsistency of monetary policy.

The time inconsistency of monetary polic...

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Reducing inflation leads to a temporary recession. However, during the recession firms will accumulate less capital and workers will lose job skills. These changes make the standard of living less than it would be otherwise.

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

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

Exam 23: Six Debates Over Macroeconomic Policy: Part A

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Explain how tax cuts can increase aggregate supply.

Correct Answer
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View Answer

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Correct Answer
verified
Monetary policy is supposed to...
View Answer

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Correct Answer
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While the amendment indicates ...
View Answer

Explain what is meant by saying that capital income is taxed twice.

Correct Answer
verified
Shareholders are part owners o...
View Answer

Identify three government policies that discourage saving.

Correct Answer
verified
First, the returns to saving are heavily...
View Answer

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

Correct Answer
verified
A temporar...
View Answer

Correct Answer
verified
To keep the price level stable...
View Answer

A higher return on saving ------ the amount a household needs to save to achieve any target level of future consumption.This effect on saving is called the ------- effect.If the income effect is large enough,then a reduction in taxes on saving might ------ tax revenues.

Correct Answer
verified
reduces, income, reduce

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Correct Answer
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The government cut taxes and raised expe...
View Answer

Provide an example of how current expenditures might benefit future generations.

Correct Answer
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View Answer

According to political business cycle theory,if the Fed wanted to increase the chances of a President's re-election,what specific actions might it take?

Correct Answer
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If the Fed wanted to see the President r...
View Answer

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy,what are some of the reasons why tax cuts might be preferred to increased government spending?

Correct Answer
verified
First, tax cuts can influence both aggre...
View Answer

During recessions,even with no changes in policy,the deficit tends to ------ because -------------.

Correct Answer
verified
rise, income falls so tax reve...
View Answer

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Correct Answer
verified
Those who oppose stabilization policy mo...
View Answer

Carefully explain how monetary policy can be used to counter a recession.Explain what the central bank does as well as how its actions affect the economy.Under what circumstances is fiscal policy especially useful?

Correct Answer
verified
To counter a recession, a central bank r...
View Answer

Correct Answer
verified
In the absence of taxes, the bond will accumulate to $51,428.59. With a marginal tax rate of 30% on her interest income, the bond will accumulate to $25,922.61.

Explain what is meant by the time inconsistency of monetary policy.

Correct Answer
verified
The time inconsistency of monetary polic...
View Answer

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Correct Answer
verified
Reducing inflation leads to a temporary recession. However, during the recession firms will accumulate less capital and workers will lose job skills. These changes make the standard of living less than it would be otherwise.

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

Exam 23: Six Debates Over Macroeconomic Policy: Part A

Explain how tax cuts can increase aggregate supply.

Correct AnswerverifiedWhen the government reduces marginal tax...View AnswerShow Answer

Why is there a lag between the Fed's actions and the economy's response?

Correct AnswerverifiedMonetary policy is supposed to...View AnswerShow Answer

Economists believe that a little bit of inflation may be a good thing.What are the potential benefits of inflation?

Correct AnswerverifiedFirst, economists believe that inflation...View AnswerShow Answer

According to a 1977 amendment to the Federal Reserve Act of 1913,what weights should the Fed put on the goals of maximum employment,stable prices,and moderate long-term interest rates?

Correct AnswerverifiedWhile the amendment indicates ...View AnswerShow Answer

Explain what is meant by saying that capital income is taxed twice.

Correct AnswerverifiedShareholders are part owners o...View AnswerShow Answer

Identify three government policies that discourage saving.

Correct AnswerverifiedFirst, the returns to saving are heavily...View AnswerShow Answer

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

Correct AnswerverifiedA temporar...View AnswerShow Answer

Correct AnswerverifiedTo keep the price level stable...View AnswerShow Answer

A higher return on saving ------ the amount a household needs to save to achieve any target level of future consumption.This effect on saving is called the ------- effect.If the income effect is large enough,then a reduction in taxes on saving might ------ tax revenues.

Correct Answerverifiedreduces, income, reduce

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

Correct AnswerverifiedThe government cut taxes and raised expe...View AnswerShow Answer

Provide an example of how current expenditures might benefit future generations.

Correct AnswerverifiedExpenditures on education rais...View AnswerShow Answer

According to political business cycle theory,if the Fed wanted to increase the chances of a President's re-election,what specific actions might it take?

Correct AnswerverifiedIf the Fed wanted to see the President r...View AnswerShow Answer

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy,what are some of the reasons why tax cuts might be preferred to increased government spending?

Correct AnswerverifiedFirst, tax cuts can influence both aggre...View AnswerShow Answer

During recessions,even with no changes in policy,the deficit tends to ------ because -------------.

Correct Answerverifiedrise, income falls so tax reve...View AnswerShow Answer

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to long-run output.How would this affect the arguments of those who oppose using policy to stabilize output?

Correct AnswerverifiedThose who oppose stabilization policy mo...View AnswerShow Answer

Carefully explain how monetary policy can be used to counter a recession.Explain what the central bank does as well as how its actions affect the economy.Under what circumstances is fiscal policy especially useful?

Correct AnswerverifiedTo counter a recession, a central bank r...View AnswerShow Answer

Correct AnswerverifiedIn the absence of taxes, the bond will accumulate to $51,428.59. With a marginal tax rate of 30% on her interest income, the bond will accumulate to $25,922.61.

Explain what is meant by the time inconsistency of monetary policy.

Correct AnswerverifiedThe time inconsistency of monetary polic...View AnswerShow Answer

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Correct AnswerverifiedReducing inflation leads to a temporary recession. However, during the recession firms will accumulate less capital and workers will lose job skills. These changes make the standard of living less than it would be otherwise.

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

Correct Answer
verified
When the government reduces marginal tax...
View Answer

Correct Answer
verified
Monetary policy is supposed to...
View Answer

Correct Answer
verified
First, economists believe that inflation...
View Answer

Correct Answer
verified
While the amendment indicates ...
View Answer

Correct Answer
verified
Shareholders are part owners o...
View Answer

Correct Answer
verified
First, the returns to saving are heavily...
View Answer

Correct Answer
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A temporar...
View Answer

Correct Answer
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To keep the price level stable...
View Answer

Correct Answer
verified
reduces, income, reduce

Correct Answer
verified
The government cut taxes and raised expe...
View Answer

Correct Answer
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Expenditures on education rais...
View Answer

Correct Answer
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View Answer

Correct Answer
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First, tax cuts can influence both aggre...
View Answer

Correct Answer
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rise, income falls so tax reve...
View Answer

Correct Answer
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Those who oppose stabilization policy mo...
View Answer

Correct Answer
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View Answer

Correct Answer
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In the absence of taxes, the bond will accumulate to $51,428.59. With a marginal tax rate of 30% on her interest income, the bond will accumulate to $25,922.61.

Correct Answer
verified
The time inconsistency of monetary polic...
View Answer

Correct Answer
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Reducing inflation leads to a temporary recession. However, during the recession firms will accumulate less capital and workers will lose job skills. These changes make the standard of living less than it would be otherwise.

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