Question 1

In which of the following situations does the government NOT need to balance its budget?

Accepted Answer

A)  if nominal GDP grows faster than the growth in debt
B)  if nominal GDP grows slower than the growth in debt
C)  if inflation is zero
D)  if inflation is higher than the growth in debtE) B) and C)
F) C) and D)

Question 2

If a central bank followed a rule for monetary policy,the time-inconsistency problem would be eliminated.

Accepted Answer

A) True 
 B)False

Question 3

Proponents of zero inflation argue that reducing inflation involves which of the following?

Accepted Answer

A)  permanent costs and temporary benefits
B)  temporary costs and permanent benefits
C)  permanent costs and benefits
D)  temporary costs and benefitsE) A) and B)
F) B) and C)

Question 4

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

Accepted Answer

A)  because there is a clear consensus among economists about what a good monetary policy rule would be
B)  because rules would eliminate the political business cycle
C)  because rules respond to any random shocks in the economy
D)  because rules create time inconsistencyE) All of the above
F) A) and B)

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,which of the following might someone who advocated "lean against the wind" policies might advocate?

Accepted Answer

A)  the money supply
B)  taxes
C)  government expenditures
D)  inflationE) B) and C)
F) C) and D)

Question 6

Suppose that in fiscal year 2013 the government ran a deficit of about $160 billion.The debt at the start of this period was about $6126 billion.Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit this large without raising the debt-to-income ratio?

Accepted Answer

A)  inflation = 2 percent; real GDP growth = 3 percent
B)  inflation = 3 percent; real GDP growth = -1.5 percent
C)  inflation = 2 percent; real GDP growth = 1 percent
D)  inflation = 1.5 percent; real GDP growth = 1 percentE) B) and D)
F) A) and B)

Question 7

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)  decreasing the money supply
B)  decreasing taxes
C)  decreasing government expenditures
D)  decreasing government deficitE) B) and D)
F) B) and C)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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) None of the above
F) C) and D)

Question 10

If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low,how would the Phillips curve shift?

Accepted Answer

A)  The short-run Phillips curve would shift up.
B)  The short-run Phillips curve would shift down.
C)  The long-run Phillips curve would shift right.
D)  The long-run Phillips curve would shift left.E) A) and B)
F) A) and C)

Question 11

The Bank of Canada raised interest rates in 1999 and 2000.By doing this,what did the Bank of Canada do to the money supply and why?

Accepted Answer

A)  It increased the money supply because it was concerned about unemployment.
B)  It increased the money supply because it was concerned about inflation.
C)  It decreased the money supply because it was concerned about unemployment.
D)  It decreased the money supply because it was concerned about inflation.E) A) and D)
F) C) and D)

Question 12

Which of the following would proponents of tax-law changes to encourage saving most likely do?

Accepted Answer

A)  They would argue that corporate tax rates should be increased.
B)  They would argue in favour of eliminating or reducing the means tests for government benefits.
C)  They would argue that provincial sales tax should be replaced with provincial income tax.
D)  They would argue in favour of taxing more the rich and less the poor.E) A) and D)
F) All of the above

Question 13

Tax laws do not give preferential treatment to some kinds of retirement saving.

Accepted Answer

A) True 
 B)False

Question 14

In the aggregate demand and aggregate supply model,which of the following pairs of simultaneous events causes a decrease in output and employment?

Accepted Answer

A)  lower demand and lower supply
B)  lower demand and higher supply
C)  higher demand and higher supply
D)  higher demand and lower supplyE) A) and C)
F) C) and D)

Question 15

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

Accepted Answer

A)  because the economy is subject to a variety of random shocks
B)  because monetary policymakers are now allowed undisciplined discretion
C)  because it is not clear how important political business cycles have been in the past
D)  because central banks can achieve credibility over time by backing up their words with deedsE) A) and D)
F) None of the above

Question 16

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 supply shifts left,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) A) and D)
F) A) and B)

Question 17

Why do the five debates over macroeconomic policy exist?

Accepted Answer

A)  mostly because economists disagree over basic issues such as the importance of saving for economic growth
B)  mostly because there are tradeoffs and people disagree about the best way to deal with them
C)  mostly because economic policies have conflicting effects on various groups of people
D)  mostly because people fail to clearly see the benefits or the costs of most changesE) B) and C)
F) All of the above

Question 18

Why should the central bank aim for a moderate rate,instead of a zero rate,of inflation?

Accepted Answer

A)  to keep the natural rate of unemployment low
B)  because the social costs of moderate inflation are high
C)  because it is very difficult to maintain a zero rate of inflation in the long run
D)  to avoid the presumably high costs of lowering inflation to zeroE) B) and D)
F) B) and C)

Question 19

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 20

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Accepted Answer

A) True 
 B)False

Exam 17: Five Debates over Macroeconomic Policy

In the aggregate demand and aggregate supply model,which of the following pairs of simultaneous events causes a decrease in output and employment?

Correct Answer
verified

If a central bank followed a rule for monetary policy,the time-inconsistency problem would be eliminated.

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

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

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,which of the following might someone who advocated "lean against the wind" policies might advocate?

Correct Answer
verified

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

Correct Answer
verified

Which of the following would proponents of tax-law changes to encourage saving most likely do?

Correct Answer
verified

Why should the central bank aim for a moderate rate,instead of a zero rate,of inflation?

Correct Answer
verified

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct Answer
verified

In which of the following situations does the government NOT need to balance its budget?

Correct Answer
verified

The Bank of Canada raised interest rates in 1999 and 2000.By doing this,what did the Bank of Canada do to the money supply and why?

Correct Answer
verified

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Correct Answer
verified

Correct Answer
verified

Why do the five debates over macroeconomic policy exist?

Correct Answer
verified

If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low,how would the Phillips curve shift?

Correct Answer
verified

Proponents of zero inflation argue that reducing inflation involves which of the following?

Correct Answer
verified

Exam 17: Five Debates over Macroeconomic Policy

In the aggregate demand and aggregate supply model,which of the following pairs of simultaneous events causes a decrease in output and employment?

Correct AnswerverifiedShow Answer

If a central bank followed a rule for monetary policy,the time-inconsistency problem would be eliminated.

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

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

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,which of the following might someone who advocated "lean against the wind" policies might advocate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would proponents of tax-law changes to encourage saving most likely do?

Correct AnswerverifiedShow Answer

Why should the central bank aim for a moderate rate,instead of a zero rate,of inflation?

Correct AnswerverifiedShow Answer

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

Correct AnswerverifiedShow Answer

In which of the following situations does the government NOT need to balance its budget?

Correct AnswerverifiedShow Answer

The Bank of Canada raised interest rates in 1999 and 2000.By doing this,what did the Bank of Canada do to the money supply and why?

Correct AnswerverifiedShow Answer

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why do the five debates over macroeconomic policy exist?

Correct AnswerverifiedShow Answer

If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low,how would the Phillips curve shift?

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that reducing inflation involves which of the following?

Correct AnswerverifiedShow Answer

Correct Answer
verified

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