Question 1

Which of the following would transfer wealth from the young to the old?

Accepted Answer

A)  Taxes are raised to provide better education.
B)  Taxes are raised to improve government infrastructure such as roads and bridges.
C)  Taxes are raised to provide more generous pensions.
D)  Taxes are raised to pay back part of the government debt.E) A) and D)
F) A) and C)

Question 2

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

Question 3

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a significant cost of inflation?

Accepted Answer

A)  printing more money
B)  lower nominal interest rates
C)  relative price variability
D)  higher unemploymentE) None of the above
F) B) and C)

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

Which of the following 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) B) and C)
F) A) and D)

Question 7

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

Accepted Answer

A)  increase the interest rate
B)  decrease government revenue
C)  increase taxes
D)  decrease the government deficitE) B) and C)
F) A) and B)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation.What will happen to the short-run Phillips curve and the sacrifice ratio?

Accepted Answer

A)  The short-run Phillips curve remains to the left, and the sacrifice ratio will be low.
B)  The short-run Phillips curve remains to the left, and the sacrifice ratio will be high.
C)  The short-run Phillips curve remains to the right, and the sacrifice ratio will be low.
D)  The short-run Phillips curve remains to the right, and the sacrifice ratio will be high.E) All of the above
F) None of the above

Question 10

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

Accepted Answer

The debt can grow because the economy gr...

Question 11

Why should the tax laws to encourage saving be reformed?

Accepted Answer

A)  because saving is a key determinant of long-run prosperity
B)  to increase taxes on capital gain
C)  because higher-income households are taxed too much
D)  because economic theory clearly predicts that a higher rate of return encourages savingE) A) and B)
F) A) and C)

Question 12

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)  decreasing the government debtE) A) and D)
F) All of the above

Question 13

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue,so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 14

The theory of a flat short-run aggregate-supply curve implies that an increase in money supply should increase output and employment,while the price level should increase at a slow pace.
a.Why does output increase sometimes much slowly than this theory might predict?
b.How would low inflation hinder economic growth?

Accepted Answer

a.The theory's prediction is based on tw...

Question 15

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

Accepted Answer

Some programs tax younger generations to...

Question 16

The following chart,published by the Wall Street Journal,shows the debt-to-GDP ratios for several countries.The obvious outlier in this chart is Japan.
  
a. What was Japan's debt-to-GDP ratio in 2013, compared to other countries?
b. What are the possible effects of a large government debt?

Accepted Answer

a.Japan's debt-to-GDP ratio was almost 2...

Question 17

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 not currently the case in Canada.
C)  Both the profits of corporations and the dividends shareholders receive are taxed, which is not currently 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) A) and B)
F) B) and C)

Question 18

Why are deficits undesirable?

Accepted Answer

A)  They reduce future output.
B)  They reduce future consumption.
C)  They increase inflation.
D)  They increase unemployment.E) C) and D)
F) None of the above

Question 19

Consider the following rule for monetary policy: r = 2 percent + p + 1/2(y - y*) /y* + 1/2(p - p*) ,where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output,p is the inflation rate,and p* is the inflation target.What is the implication of this rule?

Accepted Answer

A)  If aggregate demand shifts right from long-run equilibrium, this rule unambiguously implies that the Bank of Canada decreases the nominal interest rate.
B)  If aggregate supply shifts right from long-run equilibrium, we cannot tell without more information whether the Bank of Canada should increase or decrease the nominal interest rate.
C)  If output is at its natural level but inflation is above its target, the Bank of Canada must decrease the nominal interest rate.
D)  If inflation is at its targeted level but output is above its natural rate, the Bank of Canada must decrease the federal funds rate.E) A) and C)
F) None of the above

Question 20

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Accepted Answer

A)  High-inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
B)  Inflation reduction works best when it is unexpected, and people in high-inflation countries would quickly anticipate any change in monetary policy.
C)  In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs.
D)  Persistently low inflation has costs in terms of high unemployment.E) A) and D)
F) B) and C)

Exam 17: Five Debates over Macroeconomic Policy

Why are deficits undesirable?

Correct Answer
verified

Correct Answer
verified
a.The theory's prediction is based on tw...
View Answer

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct Answer
verified

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue,so it has little discretion in making policy.

Correct Answer
verified

Consider the following rule for monetary policy: r = 2 percent + p + 1/2(y - y) /y + 1/2(p - p) ,where r is the nominal interest rate,y is real GDP,y is an estimate of the natural rate of output,p is the inflation rate,and p* is the inflation target.What is the implication of this rule?

Correct Answer
verified

Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation.What will happen to the short-run Phillips curve and the sacrifice ratio?

Correct Answer
verified

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

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

Which of the following is an argument against a tax system that encourages savings?

Correct Answer
verified

Which of the following is a significant cost of inflation?

Correct Answer
verified

Correct Answer
verified

Why should the tax laws to encourage saving be reformed?

Correct Answer
verified

What does double taxation mean?

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

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

Correct Answer
verified

Which of the following would transfer wealth from the young to the old?

Correct Answer
verified

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

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

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

Correct Answer
verified

The following chart,published by the Wall Street Journal,shows the debt-to-GDP ratios for several countries.The obvious outlier in this chart is Japan. a. What was Japan's debt-to-GDP ratio in 2013, compared to other countries? b. What are the possible effects of a large government debt?

Correct Answer
verified
a.Japan's debt-to-GDP ratio was almost 2...
View Answer

Exam 17: Five Debates over Macroeconomic Policy

Why are deficits undesirable?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The theory's prediction is based on tw...View AnswerShow Answer

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Correct AnswerverifiedShow Answer

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue,so it has little discretion in making policy.

Correct AnswerverifiedShow Answer

Consider the following rule for monetary policy: r = 2 percent + p + 1/2(y - y*) /y* + 1/2(p - p*) ,where r is the nominal interest rate,y is real GDP,y* is an estimate of the natural rate of output,p is the inflation rate,and p* is the inflation target.What is the implication of this rule?

Correct AnswerverifiedShow Answer

Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation.What will happen to the short-run Phillips curve and the sacrifice ratio?

Correct AnswerverifiedShow Answer

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

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

Which of the following is an argument against a tax system that encourages savings?

Correct AnswerverifiedShow Answer

Which of the following is a significant cost of inflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why should the tax laws to encourage saving be reformed?

Correct AnswerverifiedShow Answer

What does double taxation mean?

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

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

Correct AnswerverifiedShow Answer

Which of the following would transfer wealth from the young to the old?

Correct AnswerverifiedShow Answer

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

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

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

Correct AnswerverifiedShow Answer

The following chart,published by the Wall Street Journal,shows the debt-to-GDP ratios for several countries.The obvious outlier in this chart is Japan. a. What was Japan's debt-to-GDP ratio in 2013, compared to other countries? b. What are the possible effects of a large government debt?

Correct Answerverifieda.Japan's debt-to-GDP ratio was almost 2...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified
a.The theory's prediction is based on tw...
View Answer

Correct Answer
verified

Correct Answer
verified

Consider the following rule for monetary policy: r = 2 percent + p + 1/2(y - y) /y + 1/2(p - p) ,where r is the nominal interest rate,y is real GDP,y is an estimate of the natural rate of output,p is the inflation rate,and p* is the inflation target.What is the implication of this rule?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
a.Japan's debt-to-GDP ratio was almost 2...
View Answer