Exam 36: Six Debates Over Macroeconomic Policy

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.

Carefully explain how monetary policy can be used to counter a recession. Explain what the central bank does as well as how its actions affect the economy. Under what circumstances is fiscal policy especially useful?

Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?

When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.

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

A law that requires the money supply to grow by a fixed percentage each year would eliminate

Which of the following two effects of a decrease in the tax rate on saving would raise savings?

Explain the time inconsistency of monetary policy.

According to a 1977 amendment to the Federal Reserve Act of 1913, what are the goals the Fed should promote?

Eliminating double-taxation would likely

Suppose a 25-year-old worker purchases a $5,000 bond that pays 6% interest per year which she plans to withdraw when she retires in 40 years. How much will the $5,000 accumulate to in 40 years? If the worker faces a marginal tax rate of 30% on interest income, how much will the $5,000 accumulate to in 40 years?

Proponents of tax law changes to encourage saving would

To counter the recession of 2008-2009 President Obama and congress created a large increase in government expenditures.

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures.

Which of the following reduce the incentive for households to save?

The Obama administration believed that transfer payments to the unemployed would have a larger impact on aggregate demand than tax cuts.

Explain what is meant by saying that capital income is taxed twice.

Suppose that changes in aggregate demand tended to be infrequent and that it takes 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?

Why is there a lag between the Fed's actions and the economy's response?