Question 1

Suppose the economy goes into recession. Which of the following is a list of things policymakers could do to try to end the recession?

Accepted Answer

A)  increase the money supply, increase taxes, and increase government spending 
B)  increase the money supply, increase taxes, and decrease government spending 
C)  increase the money supply, decrease taxes, and increase government spending 
D)  decrease the money supply, increase taxes, and decrease government spending 
A)  increase the money supply, increase taxes, and increase government spending 
B)  increase the money supply, increase taxes, and decrease government spending 
C)  increase the money supply, decrease taxes, and increase government spending 
D)  decrease the money supply, increase taxes, and decrease government spending C

Question 2

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Accepted Answer

A)  The debt is sustainable, but the future burden on your children cannot be offset. 
B)  The debt is not sustainable, and the future burden on your children cannot be offset. 
C)  The debt is sustainable, and the future burden on your children can be offset if you save for them. 
D)  The debt is not sustainable, but the future burden on your children can be offset if you save for them. 
A)  The debt is sustainable, but the future burden on your children cannot be offset. 
B)  The debt is not sustainable, and the future burden on your children cannot be offset. 
C)  The debt is sustainable, and the future burden on your children can be offset if you save for them. 
D)  The debt is not sustainable, but the future burden on your children can be offset if you save for them. C

Question 3

The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt, real GDP, and the price level. Why would one say that inflation is similar to a tax when the government runs a positive public debt?

Accepted Answer

The higher the inflation rate, the lower the debt to nominal GDP ratio. Inflation effectively lowers the government's debt burden. Like always, the debtor is favoured by high inflation, while the creditor is hurt. If the debtor is the government and the creditor is the public, then inflation is similar to a tax.

Question 4

Consider a 25-year-old worker who saves $1000 for retirement. She plans to retire at the age of 70. The interest rate is 10 percent. To stimulate savings in retirement plans, suppose the interest income is not taxed until it is realized (the money is effectively withdrawn from the account.) To simplify, suppose that, when she is 70, our worker withdraws the entire amount in her account. How much will she receive if the tax on interest is 40 percent?

Accepted Answer

If interest is not taxed until realized,

Question 5

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 possible deficit it can have without raising the debt-to-income ratio?

Accepted Answer

A)  just under 3 billion units 
B)  just under 5 billion units 
C)  just under 8 billion units 
D)  just under 15 billion units 
A)  just under 3 billion units 
B)  just under 5 billion units 
C)  just under 8 billion units 
D)  just under 15 billion units

Question 6

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 taxed 
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 taxed

Question 7

What effects does a higher rate of return have on saving?

Accepted Answer

A)  A higher rate of return has an income effect that discourages saving and a substitution effect that encourages saving. 
B)  A higher rate of return has an income effect that encourages saving and a substitution effect that discourages saving. 
C)  A higher rate of return has income and substitution effects that both decrease saving. 
D)  A higher rate of return has income and substitution effects that both increase saving. 
A)  A higher rate of return has an income effect that discourages saving and a substitution effect that encourages saving. 
B)  A higher rate of return has an income effect that encourages saving and a substitution effect that discourages saving. 
C)  A higher rate of return has income and substitution effects that both decrease saving. 
D)  A higher rate of return has income and substitution effects that both increase saving.

Question 8

Why are deficits undesirable?

Accepted Answer

A)  They reduce future output. 
B)  They reduce future consumption. 
C)  They increase inflation. 
D)  They increase unemployment. 
A)  They reduce future output. 
B)  They reduce future consumption. 
C)  They increase inflation. 
D)  They increase unemployment.

Question 9

Which statement best describes RRSP plans?

Accepted Answer

A)  They impose added taxes on those who save. 
B)  They are taxed twice. 
C)  They postpone income taxes. 
D)  They are never taxed. 
A)  They impose added taxes on those who save. 
B)  They are taxed twice. 
C)  They postpone income taxes. 
D)  They are never taxed.

Question 10

Suppose that a central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate demand shifts right, what should the central bank do, and what will happen to output?

Accepted Answer

A)  The central bank should increase the money supply, which causes output to move closer to its long-run equilibrium. 
B)  The central bank should increase the money supply, which causes output to move farther from its long-run equilibrium. 
C)  The central bank should decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D)  The central bank should decrease the money supply, which causes output to move farther from its long-run equilibrium. 
A)  The central bank should increase the money supply, which causes output to move closer to its long-run equilibrium. 
B)  The central bank should increase the money supply, which causes output to move farther from its long-run equilibrium. 
C)  The central bank should decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D)  The central bank should decrease the money supply, which causes output to move farther from its long-run equilibrium.

Question 11

Which of the following represents the average inflation rate since 1990 and whether the Bank of Canada has been successful in its monetary policy?

Accepted Answer

A)  the rate has been 2 percent and the Bank of Canada has not been successful because the target is 0 percent 
B)  the rate has been 2 percent and the Bank of Canada has been successful because the target is between 1 percent and 3 percent 
C)  the rate has been 0 percent and the Bank of Canada has been successful because the target is 0 percent 
D)  the rate has been 0 percent and the Bank of Canada has not been successful because the target is between 1 percent and 3 percent 
A)  the rate has been 2 percent and the Bank of Canada has not been successful because the target is 0 percent 
B)  the rate has been 2 percent and the Bank of Canada has been successful because the target is between 1 percent and 3 percent 
C)  the rate has been 0 percent and the Bank of Canada has been successful because the target is 0 percent 
D)  the rate has been 0 percent and the Bank of Canada has not been successful because the target is between 1 percent and 3 percent

Question 12

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. 
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.

Question 13

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

Accepted Answer

The debt can grow because the economy gr

Question 14

What was the total amount of Canadian federal government debt in 2018?

Accepted Answer

A)  $72 million 
B)  $720 million 
C)  $72 billion 
D)  $720 billion 
A)  $72 million 
B)  $720 million 
C)  $72 billion 
D)  $720 billion

Question 15

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 changes 
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 changes

Question 16

Some studies have found that saving is not very sensitive to the rate of return on saving.

Accepted Answer

A) True 
 B)False

Question 17

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 and there is a tax of 40 percent on interest income, how much will her savings be worth at the age of 70?

Accepted Answer

With a tax rate of 40 percent,

Question 18

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. 
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.

Question 19

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. 
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.

Question 20

What would those who desire that policymakers stabilize the economy advocate 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 deficit 
A)  decreasing the money supply 
B)  decreasing taxes 
C)  decreasing government expenditures 
D)  decreasing government deficit

Suppose the economy goes into recession. Which of the following is a list of things policymakers could do to try to end the recession?

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt, real GDP, and the price level. Why would one say that inflation is similar to a tax when the government runs a positive public debt?

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 possible deficit it can have without raising the debt-to-income ratio?

Why does Canadian public policy discourage saving?

What effects does a higher rate of return have on saving?

Why are deficits undesirable?

Which statement best describes RRSP plans?

Suppose that a central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate demand shifts right, what should the central bank do, and what will happen to output?

Which of the following represents the average inflation rate since 1990 and whether the Bank of Canada has been successful in its monetary policy?

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

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

What was the total amount of Canadian federal government debt in 2018?

Why do the five debates over macroeconomic policy exist?

Some studies have found that saving is not very sensitive to the rate of return on saving.

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 and there is a tax of 40 percent on interest income, how much will her savings be worth at the age of 70?

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

Why should the central bank aim for zero inflation?

What would those who desire that policymakers stabilize the economy advocate when aggregate demand is insufficient to ensure full employment?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

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Exam 18: Five Debates Over Macroeconomic Policy

Suppose the economy goes into recession. Which of the following is a list of things policymakers could do to try to end the recession?

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt, real GDP, and the price level. Why would one say that inflation is similar to a tax when the government runs a positive public debt?

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 possible deficit it can have without raising the debt-to-income ratio?

Why does Canadian public policy discourage saving?

What effects does a higher rate of return have on saving?

Why are deficits undesirable?

Which statement best describes RRSP plans?

Suppose that a central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate demand shifts right, what should the central bank do, and what will happen to output?

Which of the following represents the average inflation rate since 1990 and whether the Bank of Canada has been successful in its monetary policy?

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

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

What was the total amount of Canadian federal government debt in 2018?

Why do the five debates over macroeconomic policy exist?

Some studies have found that saving is not very sensitive to the rate of return on saving.

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 and there is a tax of 40 percent on interest income, how much will her savings be worth at the age of 70?

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

Why should the central bank aim for zero inflation?

What would those who desire that policymakers stabilize the economy advocate when aggregate demand is insufficient to ensure full employment?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Filters