Question 1

A recession has no benefit to society-it represents a sheer waste of resources.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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

Question 3

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 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 1 billion units
B)   just under 3 billion units
C)   just under 6 billion units
D)   just under 8 billion unitsE) All of the above
F) A) and B)

Question 4

Why should policymakers try to stabilize the economy?

Accepted Answer

A)   because shocks that cause economic fluctuations are unpredictable
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) A) and C)

Question 5

Which tax policy will lead to a tax system with increased equality?

Accepted Answer

A)   increase the limit on retirement savings plans
B)   increase the limit on tax-free savings accounts
C)   increase the consumption tax
D)   reduce taxation of capital incomeE) A) and B)
F) A) and C)

Question 6

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

Accepted Answer

A)   There is a clear consensus among economists about what a good monetary policy rule would be.
B)   Rules would eliminate the political business cycle.
C)   Rules respond to any random shock in the economy.
D)   Rules create time inconsistency.E) B) and C)
F) B) and D)

Question 7

What 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)   decreasing the government debtE) A) and D)
F) A) and C)

Question 8

The following citation is from the Wall Street Journal's article "Central Bankers Hone Tools to Pop Bubbles," July 9,2013 (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

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

Accepted Answer

A) True 
 B)False

Question 10

Suppose the budget deficit is rising 8 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) All of the above
F) None of the above

Question 11

What does double taxation mean?

Accepted Answer

A)   Both wage income and interest income are taxed,which is currently the case in Canada.
B)   Both wage income and interest income are taxed,which is no longer the case in Canada.
C)   Both the profits of corporations and the dividends shareholders receive are taxed,which is no longer the case in Canada.
D)   Both the profits of corporations and the dividends shareholders receive are taxed,which is currently the case in Canada.E) B) and C)
F) B) and D)

Question 12

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) A) and C)
F) A) and D)

Question 13

Assume that the substitution effect is large relative to the income effect.If a tax reform is designed to increase saving,what does it do to the interest rate and spending on capital goods?

Accepted Answer

A)   It increases the interest rate and decreases spending on capital goods.
B)   It increases the interest rate and increases spending on capital goods.
C)   It decreases the interest rate and increases spending on capital goods.
D)   It decreases the interest rate and decreases spending on capital goods.E) None of the above
F) All of the above

Question 14

In which situation does inflation reduction have the lowest cost?

Accepted Answer

A)   when the efforts are credible,so that the sacrifice ratio is low
B)   when the efforts are credible,so that the sacrifice ratio is high
C)   when the efforts are unexpected,so that the sacrifice ratio is high
D)   when the efforts are unexpected,so that the sacrifice ratio is lowE) A) and D)
F) B) and C)

Question 15

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 B)
F) B) and C)

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Explain how it is possible for the government debt to grow forever.

Accepted Answer

The debt can grow because the economy gr...

Question 20

A reduction in the tax rate on income from saving would do which of the following?

Accepted Answer

A)   It would most directly benefit the poor in the short run.
B)   It would increase labour productivity over time.
C)   It would decrease the capital stock over time.
D)   It would decrease real wages over time.E) A) and B)
F) A) and C)

Exam 17: Five Debates Over Macroeconomic Policy

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

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 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

Suppose the budget deficit is rising 8 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

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

Correct Answer
verified

A recession has no benefit to society-it represents a sheer waste of resources.

Correct Answer
verified

Assume that the substitution effect is large relative to the income effect.If a tax reform is designed to increase saving,what does it do to the interest rate and spending on capital goods?

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 should monetary policy be made by rule rather than discretion?

Correct Answer
verified

Explain how it is possible for the government debt to grow forever.

Correct Answer
verified
The debt can grow because the economy gr...
View Answer

What does double taxation mean?

Correct Answer
verified

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

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

Correct Answer
verified

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

Correct Answer
verified

A reduction in the tax rate on income from saving would do which of the following?

Correct Answer
verified

Why should policymakers try to stabilize the economy?

Correct Answer
verified

In which situation does inflation reduction have the lowest cost?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which tax policy will lead to a tax system with increased equality?

Correct Answer
verified

Exam 17: Five Debates Over Macroeconomic Policy

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

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 5 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

Suppose the budget deficit is rising 8 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

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

Correct AnswerverifiedShow Answer

A recession has no benefit to society-it represents a sheer waste of resources.

Correct AnswerverifiedShow Answer

Assume that the substitution effect is large relative to the income effect.If a tax reform is designed to increase saving,what does it do to the interest rate and spending on capital goods?

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 should monetary policy be made by rule rather than discretion?

Correct AnswerverifiedShow Answer

Explain how it is possible for the government debt to grow forever.

Correct AnswerverifiedThe debt can grow because the economy gr...View AnswerShow Answer

What does double taxation mean?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A reduction in the tax rate on income from saving would do which of the following?

Correct AnswerverifiedShow Answer

Why should policymakers try to stabilize the economy?

Correct AnswerverifiedShow Answer

In which situation does inflation reduction have the lowest cost?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which tax policy will lead to a tax system with increased equality?

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

Correct Answer
verified
The debt can grow because the economy gr...
View Answer

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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