Question 1

If we total the amount of federal and provincial/territorial debt, what was owed by each Canadian in 2018?

Accepted Answer

A)  $365 
B)  $3,657 
C)  $36,557 
D)  $365,570 
A)  $365 
B)  $3,657 
C)  $36,557 
D)  $365,570

Question 2

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 3

Explain why policy lags could make stabilization policies counterproductive.

Accepted Answer

As the textbook explains, it takes time

Question 4

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 5

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, what should the central bank do, and what will happen to output?

Accepted Answer

A)  The central bank should increase the money supply, which causes output to move closer to its long-run equilibrium. 
B)  The central bank should increase the money supply, which causes output to move farther from its long-run equilibrium. 
C)  The central bank should decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D)  The central bank should decrease the money supply, which causes output to move farther from its long-run equilibrium. 
A)  The central bank should increase the money supply, which causes output to move closer to its long-run equilibrium. 
B)  The central bank should increase the money supply, which causes output to move farther from its long-run equilibrium. 
C)  The central bank should decrease the money supply, which causes output to move closer to its long-run equilibrium. 
D)  The central bank should decrease the money supply, which causes output to move farther from its long-run equilibrium.

Question 6

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

Accepted Answer

A) True 
 B)False

Question 7

A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Accepted Answer

A) True 
 B)False

Question 8

Many studies suggest that the first effects of monetary policy are felt after about how many months?

Accepted Answer

A)  one 
B)  six 
C)  ten 
D)  twelve 
A)  one 
B)  six 
C)  ten 
D)  twelve

Question 9

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. 
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.

Question 10

Let d be the percentage change in government debt, g the rate of growth in real GDP, RGDP the real GDP, NGDP the nominal GDP, P the price level, and ð the inflation rate. Let G[X] denote the growth rate in variable X, which is the same thing as the percentage change in X; thus, G[X] = (X2 - X1)/X1 ×100% for small changes in X. Here are two properties of the growth rate operator G: (i) G[X×Y] = G[X] + G[Y], and (ii) G[X/Y] = G[X] - G[Y].
a. Show that the growth rate in NGDP is equal to g + ð, where g is the real GDP growth rate and ð is the inflation rate.
b. Show that d is equal to (Deficit/Debt) × 100%.
c. Show that the percentage change in the Debt/NGDP ratio is equal to d - (g + ð).
d. Show that the condition for the Debt to NGDP ratio not to increase is d = g + ð.

Accepted Answer

a. Using the growth rate operator G, the

Question 11

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 4 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. 
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.

Question 12

Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

Accepted Answer

Those who oppose stabilization policy mo

Question 13

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

Question 14

Identify three government policies that discourage saving.

Accepted Answer

First, the returns to saving are heavily

Question 15

Identify four of the six costs of inflation.

Accepted Answer

There are several costs of inflation, in

Question 16

Which tax policy will lead to a tax system with increased equality?

Accepted Answer

A)  increase the limit on retirement savings plans 
B)  increase the limit on tax-free savings accounts 
C)  increase the consumption tax 
D)  reduce taxation of capital income 
A)  increase the limit on retirement savings plans 
B)  increase the limit on tax-free savings accounts 
C)  increase the consumption tax 
D)  reduce taxation of capital income

Question 17

Why should policymakers try to stabilize the economy?

Accepted Answer

A)  because shocks that cause economic fluctuations are unpredictable 
B)  because long lags may cause stabilization policies to have an opposite effect 
C)  because monetary policy affects aggregate demand by changing interest rates 
D)  because fiscal policy must go through a long political process 
A)  because shocks that cause economic fluctuations are unpredictable 
B)  because long lags may cause stabilization policies to have an opposite effect 
C)  because monetary policy affects aggregate demand by changing interest rates 
D)  because fiscal policy must go through a long political process

Question 18

Why should policymakers NOT try to stabilize the economy?

Accepted Answer

A)  Recessions represent a waste of resources. 
B)  Pessimism on the part of households and firms may become a self-fulfilling prophecy. 
C)  "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. 
D)  Economic conditions can easily change between the time when a policy action begins and when it takes effect. 
A)  Recessions represent a waste of resources. 
B)  Pessimism on the part of households and firms may become a self-fulfilling prophecy. 
C)  "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. 
D)  Economic conditions can easily change between the time when a policy action begins and when it takes effect.

Question 19

In which situation is a program to reduce inflation likely to have the lowest 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 expected 
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 expected

Question 20

Explain the time inconsistency of monetary policy.

Accepted Answer

Time inconsistency refers to the idea th

If we total the amount of federal and provincial/territorial debt, what was owed by each Canadian in 2018?

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

Explain why policy lags could make stabilization policies counterproductive.

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

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, what should the central bank do, and what will happen to output?

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Many studies suggest that the first effects of monetary policy are felt after about how many months?

What is the main reason that monetary policy has lags?

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 4 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

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

Identify three government policies that discourage saving.

Identify four of the six costs of inflation.

Which tax policy will lead to a tax system with increased equality?

Why should policymakers try to stabilize the economy?

Why should policymakers NOT try to stabilize the economy?

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

Explain the time inconsistency of monetary policy.

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 Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

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Exam 18: Five Debates Over Macroeconomic Policy

If we total the amount of federal and provincial/territorial debt, what was owed by each Canadian in 2018?

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

Explain why policy lags could make stabilization policies counterproductive.

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

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, what should the central bank do, and what will happen to output?

Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

Many studies suggest that the first effects of monetary policy are felt after about how many months?

What is the main reason that monetary policy has lags?

Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 4 percent per year. How are the debt and the burden on future generations created by these continuing deficits?

Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?

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

Identify three government policies that discourage saving.

Identify four of the six costs of inflation.

Which tax policy will lead to a tax system with increased equality?

Why should policymakers try to stabilize the economy?

Why should policymakers NOT try to stabilize the economy?

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

Explain the time inconsistency of monetary policy.

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 Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Filters