Exam 23: Six Debates Over Macroeconomic Policy

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

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

Which of the following is correct? In the 1990's

Explain why policy lags could make stabilization policies counterproductive.

If aggregate demand shifts because of a wave of optimism about stock prices, those who favor a policy that "leans against the wind" would advocate the

A policymaker in favor of stabilizing the economy would be likely to believe

An added benefit of inflation is that it allows for the possibility of

In 2009 Barack Obama responded to recession

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

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.

Policies that reduce the incentive for households to save include

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

A balanced budget would require that when real GDP was growing rapidly,

Accumulated over a long span of time, the tax rate on interest income

As compared to government spending, spending generated by a tax cut is likely to affect aggregate demand

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

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

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

Proponents of tax-law changes to encourage saving would

Suppose that the country of Aquilonia has an inflation rate of about 5 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 and current nominal national debt of 150 billion units of domestic currency. Which of the following government spending and taxation figures will not raise the debt-to-income ratio?