Question 1

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

Accepted Answer

The debt can grow because the economy gr

Question 2

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 income 
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 income

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 units 
A)  just under 1 billion units 
B)  just under 3 billion units 
C)  just under 6 billion units 
D)  just under 8 billion units

Question 4

Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo

Question 5

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 6

What do opponents of using policy to stabilize the economy generally believe?

Accepted Answer

A)  that neither fiscal nor monetary policy have much impact on aggregate demand 
B)  that attempts to stabilize the economy can increase the magnitude of economic fluctuations 
C)  that unemployment and inflation are not cause for much concern 
D)  that unemployment is a cause for concern, but inflation is not 
A)  that neither fiscal nor monetary policy have much impact on aggregate demand 
B)  that attempts to stabilize the economy can increase the magnitude of economic fluctuations 
C)  that unemployment and inflation are not cause for much concern 
D)  that unemployment is a cause for concern, but inflation is not

Question 7

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 benefits 
A)  permanent costs and temporary benefits 
B)  temporary costs and permanent benefits 
C)  permanent costs and benefits 
D)  temporary costs and benefits

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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. 
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.

Question 10

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 11

Suppose that at the start of fiscal year 2015 the government had a debt of $6060 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $122 billion 
B)  about $184 billion 
C)  about $243 billion 
D)  about $303 billion 
A)  about $122 billion 
B)  about $184 billion 
C)  about $243 billion 
D)  about $303 billion

Question 12

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

Accepted Answer

Some programs tax younger generations to

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

What is a significant cost of inflation?

Accepted Answer

A)  printing more money 
B)  lower nominal interest rates 
C)  unintended changes in tax liabilities 
D)  higher unemployment 
A)  printing more money 
B)  lower nominal interest rates 
C)  unintended changes in tax liabilities 
D)  higher unemployment

Question 16

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 low 
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 low

Question 17

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply 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 18

Explain the main argument in favour of economic stabilization.

Accepted Answer

Fluctuations in the economy-recessions a

Question 19

Why should the tax laws be reformed to encourage saving?

Accepted Answer

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

Question 20

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 supply 
A)  lower demand and lower supply 
B)  lower demand and higher supply 
C)  higher demand and higher supply 
D)  higher demand and lower supply

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

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

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?

Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

What do opponents of using policy to stabilize the economy generally believe?

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

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

Which statement best describes RRSP plans?

Suppose that at the start of fiscal year 2015 the government had a debt of $6060 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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

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

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

What is a significant cost of inflation?

In which situation does inflation reduction have the lowest cost?

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

Explain the main argument in favour of economic stabilization.

Why should the tax laws be reformed to encourage saving?

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

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

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

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?

Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

What do opponents of using policy to stabilize the economy generally believe?

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

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

Which statement best describes RRSP plans?

Suppose that at the start of fiscal year 2015 the government had a debt of $6060 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

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

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

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

What is a significant cost of inflation?

In which situation does inflation reduction have the lowest cost?

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

Explain the main argument in favour of economic stabilization.

Why should the tax laws be reformed to encourage saving?

In the aggregate demand and aggregate supply model, which pair of simultaneous events causes a decrease in output and 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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Filters