Exam 17: Five Debates Over Macroeconomic Policy

Explain the time inconsistency of monetary policy.

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?

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

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 would transfer wealth from the old to the young?

What is a significant cost of inflation?

Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation.What will happen to the short-run Phillips curve and the sacrifice ratio?

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?

Suppose that at the start of fiscal year 2013 the government had a debt of $6300 billion.Suppose that during fiscal year 2015,real GDP grew by about 4 percent and inflation was about 3 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

What is the main reason that monetary policy has lags?

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

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?

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue,so it has little discretion in making policy.

Which statement best describes RRSP plans?

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 situation is a program to reduce inflation likely to have the highest costs?

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

What is one reason for the existence of policy lags?

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?

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