Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   decrease the money supply
B)   decrease taxes
C)   decrease government expenditures
D)   increase interest ratesE) None of the above
F) A) and C)

Question 3

What is a significant cost of inflation?

Accepted Answer

A)   printing more money
B)   lower nominal interest rates
C)   unintended changes in tax liabilities
D)   higher unemploymentE) All of the above
F) B) and C)

Question 4

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?

Accepted Answer

The higher the inflation rate,the lower ...

Question 5

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?

Accepted Answer

A)   just under 2 billion units
B)   just under 3 billion units
C)   just under 5 billion units
D)   just under 6 billion unitsE) B) and C)
F) All of the above

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

What is one reason for the existence of policy lags?

Accepted Answer

A)   Government experts are slow in figuring out what is going on.
B)   Households and firms plan their spending in advance and therefore are slow in responding to changes in interest rates.
C)   It is impossible to build an accurate model of the economy.
D)   It is difficult for the Bank of Canada to change the bank rate in a timely manner.E) A) and B)
F) A) and C)

Question 8

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?

Accepted Answer

A)   The short-run Phillips curve would shift up.
B)   The short-run Phillips curve would shift down.
C)   The long-run Phillips curve would shift right.
D)   The long-run Phillips curve would shift left.E) C) and D)
F) None of the above

Question 9

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

Accepted Answer

A higher rate of return on saving means ...

Question 10

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?

Accepted Answer

A)   just under 1 billion units
B)   just under 9 billion units
C)   just under 12 billion units
D)   just under 16 billion unitsE) A) and D)
F) A) and C)

Question 11

What is the main reason that monetary policy has lags?

Accepted Answer

A)   It takes a long time for changes in the interest rate to change aggregate demand.
B)   It takes a long time for changes in the money supply to change interest rates.
C)   It takes a long time for the Bank of Canada to make changes in policy.
D)   It takes a long time for the government to pass the necessary laws.E) None of the above
F) B) and C)

Question 12

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) None of the above
F) B) and D)

Question 13

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

Accepted Answer

A)   They increase interest rates and investment.
B)   They increase interest rates and decrease investment.
C)   They decrease interest rates and investment.
D)   They decrease interest rates and increase investment.E) None of the above
F) A) and B)

Question 14

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?

Accepted Answer

A)   It increased the money supply because it was concerned about unemployment.
B)   It increased the money supply because it was concerned about inflation.
C)   It decreased the money supply because it was concerned about unemployment.
D)   It decreased the money supply because it was concerned about inflation.E) A) and B)
F) A) and D)

Question 15

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th...

Question 16

Which statement best describes RRSP plans?

Accepted Answer

A)   They impose added taxes on those who save.
B)   They are taxed twice.
C)   They postpone income taxes.
D)   They are never taxed.E) None of the above
F) C) and D)

Question 17

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) B) and C)
F) C) and D)

Question 18

Suppose that the government goes into deficit in order to help local school districts build better schools.Does this action burden future generations?

Accepted Answer

The benefits of the project ac...

Question 19

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

Accepted Answer

A)   increases in the budget deficit
B)   decreased building of highways and bridges
C)   more generous education subsidies
D)   indexation of pensions to inflationE) A) and B)
F) A) and C)

Question 20

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?

Accepted Answer

A)   about $184 billion
B)   about $375 billion
C)   about $441 billion
D)   about $632 billionE) C) and D)
F) None of the above

Exam 17: Five Debates Over Macroeconomic Policy

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

Correct AnswerverifiedShow Answer

Explain the time inconsistency of monetary policy.

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

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

What is the main reason that monetary policy has lags?

Correct AnswerverifiedShow Answer

Suppose that the government goes into deficit in order to help local school districts build better schools.Does this action burden future generations?

Correct AnswerverifiedThe benefits of the project ac...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

Which statement best describes RRSP plans?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

What is one reason for the existence of policy lags?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedThe higher the inflation rate,the lower ...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

What is a significant cost of inflation?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Time inconsistency refers to the idea th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The benefits of the project ac...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The higher the inflation rate,the lower ...
View Answer

Correct Answer
verified

Correct Answer
verified