Question 1

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?

Accepted Answer

A)   The short-run Phillips curve remains to the left, and the sacrifice ratio will be low.
B)   The short-run Phillips curve remains to the left, and the sacrifice ratio will be high.
C)   The short-run Phillips curve remains to the right, and the sacrifice ratio will be low.
D)   The short-run Phillips curve remains to the right, and the sacrifice ratio will be high.E) A) and D)
F) All of the above

Question 2

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

Accepted Answer

A)   if the sacrifice ratio is high and the reduction is unexpected
B)   if the sacrifice ratio is high and the reduction is expected
C)   if the sacrifice ratio is low and the reduction is unexpected
D)   if the sacrifice ratio is low and the reduction is expectedE) A) and D)
F) B) and C)

Question 3

Which statement is consistent with the political business cycle theory?

Accepted Answer

A)   The economy expands after the elections.
B)   The economy contracts after the elections.
C)   The economy expands before the elections.
D)   The economy contracts before the elections.E) A) and B)
F) A) and C)

Question 4

What would those who desire that policymakers stabilize the economy advocate when aggregate demand is insufficient to ensure full employment?

Accepted Answer

A)   decreasing the money supply
B)   decreasing taxes
C)   decreasing government expenditures
D)   decreasing government deficitE) C) and D)
F) B) and D)

Question 5

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Accepted Answer

A)   The debt is sustainable, but the future burden on your children cannot be offset.
B)   The debt is not sustainable, and the future burden on your children cannot be offset.
C)   The debt is sustainable, and the future burden on your children can be offset if you save for them.
D)   The debt is not sustainable, but the future burden on your children can be offset if you save for them.E) All of the above
F) A) and D)

Question 6

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 7

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion)  important?

Accepted Answer

A)   Monetary policy has a large and lasting influence on aggregate demand and therefore on employment and income.
B)   Elected policymakers can benefit from manipulating monetary policy.
C)   Monetary policy announcements will be more credible.
D)   Countries with the most independent central banks tend to have the highest rates of inflation.E) B) and C)
F) All of the above

Question 8

What might offset the effects of a decline in the value of financial assets, such as stocks, on consumption and the economy?

Accepted Answer

A)   increasing government spending
B)   decreasing the money supply
C)   increasing taxes
D)   decreasing the government debtE) B) and D)
F) B) and C)

Question 9

What would proponents of tax-law changes to encourage saving most likely do?

Accepted Answer

A)   They would argue that corporate tax rates should be increased.
B)   They would argue in favour of eliminating or reducing the means tests for government benefits.
C)   They would argue that provincial sales tax should be replaced with provincial income tax.
D)   They would argue in favour of raising taxes for the wealthy.E) A) and D)
F) A) and C)

Question 10

Why do the five debates over macroeconomic policy exist?

Accepted Answer

A)   mostly because economists disagree over basic issues such as the importance of saving for economic growth
B)   mostly because there are tradeoffs and people disagree about the best way to deal with them
C)   mostly because economic policies have conflicting effects on various groups of people
D)   mostly because people fail to clearly see the benefits or the costs of most changesE) All of the above
F) A) and D)

Question 11

What will time inconsistency cause?

Accepted Answer

A)   It will cause the short-run Phillips curve to be higher than it otherwise would.
B)   It will cause the short-run Phillips curve to be lower than it otherwise would.
C)   It will cause the long-run Phillips curve to be farther to the right than it otherwise would.
D)   It will cause the long-run Phillips curve to be farther to the left than it otherwise would.E) A) and B)
F) All of the above

Question 12

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.E) C) and D)
F) A) and D)

Question 13

What does double taxation mean?

Accepted Answer

A)   Both wage income and interest income are taxed, which is currently the case in Canada.
B)   Both wage income and interest income are taxed, which is no longer the case in Canada.
C)   Both the profits of corporations and the dividends shareholders receive are taxed, which is no longer the case in Canada.
D)   Both the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in Canada.E) A) and B)
F) A) and C)

Question 14

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 unemploymentE) A) and B)
F) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 taxedE) All of the above
F) None of the above

Question 17

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The cost of inflation reduction is a small but permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Accepted Answer

A)   The debt is sustainable, but the future burden on your children cannot be offset.
B)   The debt is sustainable, and the future burden on your children can be offset if you save for them.
C)   The debt is not sustainable, and the future burden on your children cannot be offset.
D)   The debt is not sustainable, but the future burden on your children can be offset if you save for them.E) C) and D)
F) All of the above

Exam 17: Five Debates Over Macroeconomic Policy

Why does Canadian public policy discourage saving?

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Which statement is consistent with the political business cycle theory?

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Explain the time inconsistency of monetary policy.

Correct AnswerverifiedTime inconsistency refers to the idea th...View AnswerShow Answer

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion) important?

Correct AnswerverifiedShow Answer

Why do the five debates over macroeconomic policy exist?

Correct AnswerverifiedShow Answer

What does double taxation mean?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The cost of inflation reduction is a small but permanent increase in unemployment.

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Correct AnswerverifiedShow Answer

What would proponents of tax-law changes to encourage saving most likely do?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What would those who desire that policymakers stabilize the economy advocate when aggregate demand is insufficient to ensure full employment?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Correct AnswerverifiedShow Answer

What might offset the effects of a decline in the value of financial assets, such as stocks, on consumption and the economy?

Correct AnswerverifiedShow Answer

What will time inconsistency cause?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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Time inconsistency refers to the idea th...
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