Exam 23: Six Debates Over Macroeconomic Policy: Part B

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

A recession has no benefit to society-it represents a sheer waste of resources.

Forward-looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children.

The average U.S.citizens' share of the government debt represents less than 2 percent of a person's lifetime income.

One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

The Federal Reserve operates under a rule that requires money supply growth to increase by one percentage point for every percentage point that unemployment rises above its natural rate.

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

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

The cost of inflation reduction is a large,permanent increase in unemployment.

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

Tax laws do not give preferential treatment to some kinds of retirement saving.

Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate.

Tax cuts proposed by the Kennedy and Reagan administrations were followed by robust economic growth.

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.

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

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

Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made.

According to traditional Keynesian analysis,a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size.