Question 1

In general, what is the longest lag for fiscal and monetary policy?

Accepted Answer

A) For both fiscal and monetary policy, it is the time it takes to change policy. 
B) For both fiscal and monetary policy, it is the time it takes for policy to affect aggregate demand. 
C) For monetary policy it is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D) For fiscal policy it is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. 
A) For both fiscal and monetary policy, it is the time it takes to change policy. 
B) For both fiscal and monetary policy, it is the time it takes for policy to affect aggregate demand. 
C) For monetary policy it is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. 
D) For fiscal policy it is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

Question 2

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 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 18 billion units 
B) just under 12 billion units 
C) just under 9 billion units 
D) just under 1 billion units 
A) just under 18 billion units 
B) just under 12 billion units 
C) just under 9 billion units 
D) just under 1 billion units

Question 3

Which of the following best defines the political business cycle?

Accepted Answer

A) the fact that about every four years some politician advocates greater government control of the Bank of Canada 
B) the potential for a central bank to increase the money supply and so output to help the incumbent get re-elected 
C) the part of the business cycle caused by the reluctance of politicians to smooth the business cycle 
D) the changes in output created by the monetary rule the Bank of Canada must follow 
A) the fact that about every four years some politician advocates greater government control of the Bank of Canada 
B) the potential for a central bank to increase the money supply and so output to help the incumbent get re-elected 
C) the part of the business cycle caused by the reluctance of politicians to smooth the business cycle 
D) the changes in output created by the monetary rule the Bank of Canada must follow

Question 4

Which of the following 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 favour the idea of taxing more the rich and less the poor. 
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 favour the idea of taxing more the rich and less the poor.

Question 5

Why should the central bank aim for a moderate rate, instead of a zero rate, of inflation?

Accepted Answer

A) to keep the natural rate of unemployment low 
B) because the social costs of moderate inflation are high 
C) because it is very difficult to maintain a zero rate of inflation in the long run 
D) to avoid the presumably high costs of lowering inflation to zero 
A) to keep the natural rate of unemployment low 
B) because the social costs of moderate inflation are high 
C) because it is very difficult to maintain a zero rate of inflation in the long run 
D) to avoid the presumably high costs of lowering inflation to zero

Question 6

In which of the following situations does inflation reduction have the lowest cost?

Accepted Answer

A) when the efforts are credible, so that the sacrifice ratio is low 
B) when the efforts are credible, so that the sacrifice ratio is high 
C) when the efforts are unexpected, so that the sacrifice ratio is high 
D) when the efforts are unexpected, so that the sacrifice ratio is low 
A) when the efforts are credible, so that the sacrifice ratio is low 
B) when the efforts are credible, so that the sacrifice ratio is high 
C) when the efforts are unexpected, so that the sacrifice ratio is high 
D) when the efforts are unexpected, so that the sacrifice ratio is low

Question 7

Which of the following causes fluctuations in employment and output?

Accepted Answer

A) changes in aggregate demand only 
B) changes in aggregate supply only 
C) changes in aggregate demand and aggregate supply 
D) changes in neither aggregate demand nor aggregate supply 
A) changes in aggregate demand only 
B) changes in aggregate supply only 
C) changes in aggregate demand and aggregate supply 
D) changes in neither aggregate demand nor aggregate supply

Question 8

Which of the following best describes RRSP plans?

Accepted Answer

A) They impose added taxes on those who save. 
B) They are taxed twice. 
C) They impose penalties for withdrawals except under certain circumstances. 
D) They are taxed more than other forms of savings. 
A) They impose added taxes on those who save. 
B) They are taxed twice. 
C) They impose penalties for withdrawals except under certain circumstances. 
D) They are taxed more than other forms of savings.

Question 9

How is "leaning against the wind" exemplified?

Accepted Answer

A) by a tax cut when there is an expansion 
B) by a decrease in the money supply when there is a recession 
C) by an increase in government expenditures when there is a recession 
D) by an increase in government spending when there is an expansion 
A) by a tax cut when there is an expansion 
B) by a decrease in the money supply when there is a recession 
C) by an increase in government expenditures when there is a recession 
D) by an increase in government spending when there is an expansion

Question 10

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) the time inconsistency problem, but not political business cycles 
B) the political business cycle, but not the time inconsistency problem 
C) both the time inconsistency problem and political business cycles 
D) neither the time inconsistency problem nor political business cycles 
A) the time inconsistency problem, but not political business cycles 
B) the political business cycle, but not the time inconsistency problem 
C) both the time inconsistency problem and political business cycles 
D) neither the time inconsistency problem nor political business cycles

Question 12

What does the time inconsistency of monetary policy mean?

Accepted Answer

A) It means that once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. 
B) It means that at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low. 
C) It means that monetary policy is not consistent across time because it is influenced by politics. 
D) It means that monetary policy cannot be consistent across time because the rate of inflation is fluctuating. 
A) It means that once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. 
B) It means that at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low. 
C) It means that monetary policy is not consistent across time because it is influenced by politics. 
D) It means that monetary policy cannot be consistent across time because the rate of inflation is fluctuating.

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

Why should policymakers try to stabilize the economy?

Accepted Answer

A) because economic forecasting is highly imprecise 
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 economic forecasting is highly imprecise 
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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Why are deficits undesirable?

Accepted Answer

A) They reduce private savings. 
B) If deficits accumulate, people consume at the expense of their children. 
C) They lead to high inflation. 
D) They increase unemployment. 
A) They reduce private savings. 
B) If deficits accumulate, people consume at the expense of their children. 
C) They lead to high inflation. 
D) They increase unemployment.

Question 17

What would those who oppose tax-law changes to encourage saving NOT say?

Accepted Answer

A) that saving is not very responsive to changes in the tax rate 
B) that saving is not an important determinant of a nation's ability to produce output 
C) that reducing the budget deficit instead of changing the tax laws could raise saving 
D) that changes in the tax laws to induce saving would distribute the tax burden less fairly 
A) that saving is not very responsive to changes in the tax rate 
B) that saving is not an important determinant of a nation's ability to produce output 
C) that reducing the budget deficit instead of changing the tax laws could raise saving 
D) that changes in the tax laws to induce saving would distribute the tax burden less fairly

Question 18

A reduction in the tax rate on income from saving would do which of the following?

Accepted Answer

A) It would most directly benefit the poor in the short run. 
B) It would increase real wages over time. 
C) It would decrease the capital stock over time. 
D) It would decrease productivity over time. 
A) It would most directly benefit the poor in the short run. 
B) It would increase real wages over time. 
C) It would decrease the capital stock over time. 
D) It would decrease productivity over time.

In general, what is the longest lag for fiscal and monetary policy?

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 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?

Which of the following best defines the political business cycle?

Which of the following would proponents of tax-law changes to encourage saving most likely do?

Why should the central bank aim for a moderate rate, instead of a zero rate, of inflation?

In which of the following situations does inflation reduction have the lowest cost?

Which of the following causes fluctuations in employment and output?

Which of the following best describes RRSP plans?

How is "leaning against the wind" exemplified?

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

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

What does the time inconsistency of monetary policy mean?

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

Why should policymakers try to stabilize the economy?

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

Why are deficits undesirable?

What would those who oppose tax-law changes to encourage saving NOT say?

A reduction in the tax rate on income from saving would do which of the following?

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 Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

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Exam 17: Five Debates Over Macroeconomic Policy

In general, what is the longest lag for fiscal and monetary policy?

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 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?

Which of the following best defines the political business cycle?

Which of the following would proponents of tax-law changes to encourage saving most likely do?

Why should the central bank aim for a moderate rate, instead of a zero rate, of inflation?

In which of the following situations does inflation reduction have the lowest cost?

Which of the following causes fluctuations in employment and output?

Which of the following best describes RRSP plans?

How is "leaning against the wind" exemplified?

A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

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

What does the time inconsistency of monetary policy mean?

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

Why should policymakers try to stabilize the economy?

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

Why are deficits undesirable?

What would those who oppose tax-law changes to encourage saving NOT say?

A reduction in the tax rate on income from saving would do which of the following?

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 Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Filters