Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion) important?

Accepted Answer

A)  Monetary policy has a large and lasting influence on aggregate demand and therefore on employment and income. 
B)  Elected policymakers can benefit from manipulating monetary policy. 
C)  Monetary policy announcements will be more credible. 
D)  Countries with the most independent central banks tend to have the highest rates of inflation. 
A)  Monetary policy has a large and lasting influence on aggregate demand and therefore on employment and income. 
B)  Elected policymakers can benefit from manipulating monetary policy. 
C)  Monetary policy announcements will be more credible. 
D)  Countries with the most independent central banks tend to have the highest rates of inflation.

Question 5

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 6

What 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 raising taxes for the wealthy. 
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 raising taxes for the wealthy.

Question 7

What will time inconsistency cause?

Accepted Answer

A)  It will cause the short-run Phillips curve to be higher than it otherwise would. 
B)  It will cause the short-run Phillips curve to be lower than it otherwise would. 
C)  It will cause the long-run Phillips curve to be farther to the right than it otherwise would. 
D)  It will cause the long-run Phillips curve to be farther to the left than it otherwise would. 
A)  It will cause the short-run Phillips curve to be higher than it otherwise would. 
B)  It will cause the short-run Phillips curve to be lower than it otherwise would. 
C)  It will cause the long-run Phillips curve to be farther to the right than it otherwise would. 
D)  It will cause the long-run Phillips curve to be farther to the left than it otherwise would.

Question 8

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 unemployment 
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 unemployment

Question 9

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 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 sustainable, and the future burden on your children can be offset if you save for them. 
C)  The debt is not sustainable, and the future burden on your children cannot be offset. 
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 sustainable, and the future burden on your children can be offset if you save for them. 
C)  The debt is not sustainable, and the future burden on your children cannot be offset. 
D)  The debt is not sustainable, but the future burden on your children can be offset if you save for them.

Question 10

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. 
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.

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. 
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.

Question 12

The cost of inflation reduction is a small but permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 13

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.

Question 14

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 15

Which statement is consistent with the political business cycle theory?

Accepted Answer

A)  The economy expands after the elections. 
B)  The economy contracts after the elections. 
C)  The economy expands before the elections. 
D)  The economy contracts before the elections. 
A)  The economy expands after the elections. 
B)  The economy contracts after the elections. 
C)  The economy expands before the elections. 
D)  The economy contracts before the elections.

Question 16

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 17

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th

Question 18

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 debt 
A)  increasing government spending 
B)  decreasing the money supply 
C)  increasing taxes 
D)  decreasing the government debt

Question 19

In which situation is a program to reduce inflation likely to have the highest costs?

Accepted Answer

A)  if the sacrifice ratio is high and the reduction is unexpected 
B)  if the sacrifice ratio is high and the reduction is expected 
C)  if the sacrifice ratio is low and the reduction is unexpected 
D)  if the sacrifice ratio is low and the reduction is expected 
A)  if the sacrifice ratio is high and the reduction is unexpected 
B)  if the sacrifice ratio is high and the reduction is expected 
C)  if the sacrifice ratio is low and the reduction is unexpected 
D)  if the sacrifice ratio is low and the reduction is expected

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. 
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.

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

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

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

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion) important?

Why do the five debates over macroeconomic policy exist?

What would proponents of tax-law changes to encourage saving most likely do?

What will time inconsistency cause?

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

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

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?

What does double taxation mean?

The cost of inflation reduction is a small but permanent increase in unemployment.

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?

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Which statement is consistent with the political business cycle theory?

Why does Canadian public policy discourage saving?

Explain the time inconsistency of monetary policy.

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

In which situation is a program to reduce inflation likely to have the highest costs?

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

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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

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Exam 17: Five Debates Over Macroeconomic Policy

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

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

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

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion) important?

Why do the five debates over macroeconomic policy exist?

What would proponents of tax-law changes to encourage saving most likely do?

What will time inconsistency cause?

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

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

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?

What does double taxation mean?

The cost of inflation reduction is a small but permanent increase in unemployment.

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?

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Which statement is consistent with the political business cycle theory?

Why does Canadian public policy discourage saving?

Explain the time inconsistency of monetary policy.

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

In which situation is a program to reduce inflation likely to have the highest costs?

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

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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Filters