Question 1

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 2

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 3

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains,it takes time t

Question 4

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 5

Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?

Accepted Answer

In this case,n = 70 - 25 = 45

Question 6

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.

Question 7

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 8

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

Question 9

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 10

Why should the government balance its budget?

Accepted Answer

A)  because government debt imposes higher taxes or more borrowing on current generations 
B)  because a balanced budget will smooth the business cycle 
C)  because moderate budget deficits are unsustainable 
D)  because recent history shows that the government will not run deficits unless they are justified by war or recession 
A)  because government debt imposes higher taxes or more borrowing on current generations 
B)  because a balanced budget will smooth the business cycle 
C)  because moderate budget deficits are unsustainable 
D)  because recent history shows that the government will not run deficits unless they are justified by war or recession

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  that individuals know better that the government how much to save 
B)  that saving is not an important determinant of a nation's ability to produce output 
C)  that rich people would bear the burden of such a tax system 
D)  that such a tax system would increase inequality 
A)  that individuals know better that the government how much to save 
B)  that saving is not an important determinant of a nation's ability to produce output 
C)  that rich people would bear the burden of such a tax system 
D)  that such a tax system would increase inequality

Question 13

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 14

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.

Question 15

Why should the central bank aim for zero inflation?

Accepted Answer

A)  Reducing inflation imposes temporary costs but provides permanent benefits. 
B)  Reducing inflation from 2 percent to 0 percent is virtually costless. 
C)  The government has indexed tax brackets to prevent the adverse effects of inflation. 
D)  The costs of inflation are very high. 
A)  Reducing inflation imposes temporary costs but provides permanent benefits. 
B)  Reducing inflation from 2 percent to 0 percent is virtually costless. 
C)  The government has indexed tax brackets to prevent the adverse effects of inflation. 
D)  The costs of inflation are very high.

Question 16

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 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

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

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

Explain why policy lags could make stabilization policies counterproductive.

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

Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?

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

Why does Canadian public policy discourage saving?

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

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

Why should the government balance its budget?

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

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

How is "leaning against the wind" exemplified?

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

Why should the central bank aim for zero inflation?

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

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

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

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

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

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

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

Explain why policy lags could make stabilization policies counterproductive.

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

Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?

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

Why does Canadian public policy discourage saving?

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

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

Why should the government balance its budget?

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

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

How is "leaning against the wind" exemplified?

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

Why should the central bank aim for zero inflation?

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

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

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

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

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