Question 1

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

Question 2

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 3

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

Accepted Answer

A)   that reducing inflation eventually reduces inflation expectations
B)   that reducing inflation eventually raises real interest rates
C)   that reducing inflation permanently decreases output
D)   that reducing inflation permanently raises unemploymentE) A) and B)
F) B) and C)

Question 4

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 5

Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?

Accepted Answer

In this case,n = 70 - 25 = 45 ...

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

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) None of the above

Question 8

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains,it takes time t...

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Why does Canadian public policy discourage saving?

Accepted Answer

A)   because,other things the same,taxes increase the return from savings
B)   because means-tested programs such as Old Age Security provide greater benefits to those who saved
C)   because some forms of capital income are taxed twice
D)   because capital gains are not taxedE) A) and C)
F) None of the above

Question 11

Which statement is an argument against a tax system that encourages savings?

Accepted Answer

A)   that individuals know better that the government how much to save
B)   that saving is not an important determinant of a nation's ability to produce output
C)   that rich people would bear the burden of such a tax system
D)   that such a tax system would increase inequalityE) None of the above
F) A) and D)

Question 12

Why should the government balance its budget?

Accepted Answer

A)   because government debt imposes higher taxes or more borrowing on current generations
B)   because a balanced budget will smooth the business cycle
C)   because moderate budget deficits are unsustainable
D)   because recent history shows that the government will not run deficits unless they are justified by war or recessionE) A) and B)
F) A) and C)

Question 13

In the aggregate demand and aggregate supply model,which pair 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) B) and C)
F) All of the above

Question 14

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) C) and D)

Question 15

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 B)
F) A) and C)

Question 16

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 17

Why should the central bank aim for zero inflation?

Accepted Answer

A)   Reducing inflation imposes temporary costs but provides permanent benefits.
B)   Reducing inflation from 2 percent to 0 percent is virtually costless.
C)   The government has indexed tax brackets to prevent the adverse effects of inflation.
D)   The costs of inflation are very high.E) A) and B)
F) A) and C)

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

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

Question 20

Would economists say that,in general,the Canadian tax system encourages saving?

Accepted Answer

A)   Yes,because the taxes on capital gains are low.
B)   No,because consumption taxes are generally high.
C)   Yes,because some forms of capital gains are not taxed.
D)   No,because the taxes on capital gains are high.E) A) and D)
F) B) and D)

Exam 17: Five Debates Over Macroeconomic Policy

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

Correct Answer
verified

Why should the central bank aim for zero inflation?

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

Would economists say that,in general,the Canadian tax system encourages saving?

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

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?

Correct Answer
verified
In this case,n = 70 - 25 = 45 ...
View Answer

Which statement is an argument against a tax system that encourages savings?

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

Why does Canadian public policy discourage saving?

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

How is "leaning against the wind" exemplified?

Correct Answer
verified

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

Correct Answer
verified

Explain why policy lags could make stabilization policies counterproductive.

Correct Answer
verified
As the textbook explains,it takes time t...
View Answer

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

Correct Answer
verified

Why should the government balance its budget?

Correct Answer
verified

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

Correct Answer
verified

Exam 17: Five Debates Over Macroeconomic Policy

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

Correct AnswerverifiedShow Answer

Why should the central bank aim for zero inflation?

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

Would economists say that,in general,the Canadian tax system encourages saving?

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?

Correct AnswerverifiedIn this case,n = 70 - 25 = 45 ...View AnswerShow Answer

Which statement is an argument against a tax system that encourages savings?

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

Why does Canadian public policy discourage saving?

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

How is "leaning against the wind" exemplified?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain why policy lags could make stabilization policies counterproductive.

Correct AnswerverifiedAs the textbook explains,it takes time t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Why should the government balance its budget?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified
A government deficit means that the gove...
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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In this case,n = 70 - 25 = 45 ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
As the textbook explains,it takes time t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified