Question 1

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 expansion 
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 expansion

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 3 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 2 billion units 
B)  just under 3 billion units 
C)  just under 5 billion units 
D)  just under 6 billion units 
A)  just under 2 billion units 
B)  just under 3 billion units 
C)  just under 5 billion units 
D)  just under 6 billion units

Question 4

In general, what is the longest lag for fiscal and monetary policy?

Accepted Answer

A)  For both fiscal and monetary policy, it is the time it takes to change policy. 
B)  For both fiscal and monetary policy, it is the time it takes for policy to affect aggregate demand. 
C)  For monetary policy, it is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  For fiscal policy, it is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A)  For both fiscal and monetary policy, it is the time it takes to change policy. 
B)  For both fiscal and monetary policy, it is the time it takes for policy to affect aggregate demand. 
C)  For monetary policy, it is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D)  For fiscal policy, it is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 5

Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 1 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 $249 billion 
D)  about $375 billion 
A)  about $122 billion 
B)  about $184 billion 
C)  about $249 billion 
D)  about $375 billion

Question 6

If we calculate the amount of debt, measured in real dollars, what was owed by each Canadian in 2015?

Accepted Answer

A)  $130 
B)  $1306 
C)  $13,062 
D)  $130,620 
A)  $130 
B)  $1306 
C)  $13,062 
D)  $130,620

Question 7

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 8

In which situation is a program to reduce inflation likely to have the lowest 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 9

Some social programs transfer wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Accepted Answer

Both are prone to lags, but the lags are

Question 12

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income

Question 13

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 14

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. 
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.

Question 15

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 16

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Accepted Answer

A higher rate of return on saving means

Question 17

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. 
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 18

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 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 taxes 
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 taxes

Question 20

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.

How is "leaning against the wind" exemplified?

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

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 3 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?

In general, what is the longest lag for fiscal and monetary policy?

Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 1 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

If we calculate the amount of debt, measured in real dollars, what was owed by each Canadian in 2015?

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

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

Some social programs transfer wealth from younger generations to older generations.

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Why do many economists advocate a consumption tax rather than an income tax?

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

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

Why are deficits undesirable?

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Explain why a government deficit is likely to lead to lower living standards in the future.

Which of the following are both policies that are consistent with trying to stabilize output when prices and output rise?

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

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

How is "leaning against the wind" exemplified?

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

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 3 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?

In general, what is the longest lag for fiscal and monetary policy?

Suppose that at the start of fiscal year 2015 the government had a debt of $6220 billion. Suppose that during the same fiscal year, real GDP grew by about 3 percent and inflation was about 1 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

If we calculate the amount of debt, measured in real dollars, what was owed by each Canadian in 2015?

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

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

Some social programs transfer wealth from younger generations to older generations.

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Why do many economists advocate a consumption tax rather than an income tax?

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

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

Why are deficits undesirable?

Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.

Explain why a government deficit is likely to lead to lower living standards in the future.

Which of the following are both policies that are consistent with trying to stabilize output when prices and output rise?

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

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