Exam 17: Five Debates Over Macroeconomic Policy

What is the main reason that monetary policy has lags?

Suppose that in fiscal year 2015 the government ran a deficit of about $249 billion. The debt at the start of this period was about $5971 billion. Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit this large without raising the debt-to-income ratio?

Which statement is an argument against a tax system that encourages savings?

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

Why should policymakers NOT try to stabilize the economy?

Which of the following best defines the political business cycle?

What could the government do to decrease the costs of inflation without lowering the inflation rate?

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?

If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low, how would the Phillips curve shift?

Assume that the substitution effect is large relative to the income effect. If a tax reform is designed to increase saving, what does it do to the interest rate and spending on capital goods?

Economists agree that if a monetary policy rule is to be used, the best one is one that makes the growth rate of the money supply constant.

If the Canadian government went from a budget deficit to a budget surplus, what would we expect to happen to interest rates and investment?

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

What does the time inconsistency of policy imply?

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. What response might someone who advocated for "lean against the wind" policies support

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

Suppose that the government goes into deficit in order to help local school districts build better schools. Does this action burden future generations?

Which of the following is a part of the argument against deficits?

Why should the government balance its budget?

If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.