Exam 17: Five Debates Over Macroeconomic Policy

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 200 billion units of currency. What is the highest possible deficit it can have without raising the debt-to-income ratio?

In which of the following situations does the government NOT need to balance its budget?

The Bank of Canada raised interest rates in 1999 and 2000. By doing this, what did the Bank of Canada do to the money supply and why?

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

Identify three of the five costs of inflation.

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

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

Suppose the budget deficit is rising 8 percent per year and nominal GDP is rising 10 percent per year. Which of the following best describes the debt created by these deficits?

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 7 percent per year. Which of the following best describes the debt created by these continuing deficits?

Explain why policy lags could make stabilization policies counterproductive.

Suppose aggregate demand fell. In order to stabilize the economy, what might the government do?