Question 1

Inflation confers benefit to society, and it imposes very few real costs.

Accepted Answer

A) True 
 B)False  False

Question 2

A nation's saving rate is a key determinant of its long-run economic prosperity.

Accepted Answer

A) True 
 B)False  True

Question 3

In 1997, the newly elected Labour government in England decided to grant much more independence to the English Central Bank (the bank was previously largely under the control of the government). Why do you think they did this?

Accepted Answer

The experience of the US and other countries shows that there is considerable benefit in having an independent central bank. An independent central bank possesses more credibility with the population, because people think it is less likely to make decisions on the basis of politics rather than economics.

Question 4

Discretion in the conduct of monetary policy does not limit incompetence and abuse of power.

Accepted Answer

A) True 
 B)False

Question 5

Reducing inflation is a policy with temporary costs and permanent benefits.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct?

Accepted Answer

A)  The economy's capacity to pay off its debt can grow over time 
B)  The government cannot run a budget deficit forever, because productivity cannot increase over time 
C)  As long as the government debt grows faster than the economy's income, government deficits can grow forever 
D)  As long as the government debt grows more slowly than the economy's income, government deficits cannot grow forever 
A)  The economy's capacity to pay off its debt can grow over time 
B)  The government cannot run a budget deficit forever, because productivity cannot increase over time 
C)  As long as the government debt grows faster than the economy's income, government deficits can grow forever 
D)  As long as the government debt grows more slowly than the economy's income, government deficits cannot grow forever

Question 7

In the 1970s, the Australian government decided to charge fees for university education.

Accepted Answer

A) True 
 B)False

Question 8

What are the costs of inflation for society?

Accepted Answer

a. Shoe leather costs
b. Menu

Question 9

Advocates of governments' balanced budgets, believe that failure to do this will:

Accepted Answer

A)  shift the burden of debt repayment to future generations 
B)  create possibly unsustainable levels of debt 
C)  potentially lower the standard of living in the future 
D)  all of the above 
A)  shift the burden of debt repayment to future generations 
B)  create possibly unsustainable levels of debt 
C)  potentially lower the standard of living in the future 
D)  all of the above

Question 10

Which of the following statements is correct?

Accepted Answer

A)  As long as the government debt grows faster than the economy's income, government deficits can grow forever 
B)  As long as the government debt grows more slowly than the economy's income, government deficits can grow forever 
C)  As long as the government debt grows more slowly than the economy's income, government deficits cannot grow forever 
D)  None of the above 
A)  As long as the government debt grows faster than the economy's income, government deficits can grow forever 
B)  As long as the government debt grows more slowly than the economy's income, government deficits can grow forever 
C)  As long as the government debt grows more slowly than the economy's income, government deficits cannot grow forever 
D)  None of the above

Question 11

The collapse of Lehman Brothers Investment Bank in the US and a worldwide recession showed that a policy rule could not possibly consider all the contingencies and specify in advance the correct policy response.

Accepted Answer

A) True 
 B)False

Question 12

Since the GFC, the RBNZ has also been slow to raise its interest rates, even though the medium inflation in the 2010-2011 year was over 5 %. Why, in the light of this, may the Bank chosen to have avoided the automatic adjustment of the cash rate?

Accepted Answer

In the RBNZ's defence, it chose not to r

Question 13

Which of the following is the benefit of reducing inflation to zero?

Accepted Answer

A)  Eliminating shoe leather costs 
B)  Eliminating menu costs 
C)  Eliminating the confusion and inconvenience resulting from a changing unit of account 
D)  All of the above 
A)  Eliminating shoe leather costs 
B)  Eliminating menu costs 
C)  Eliminating the confusion and inconvenience resulting from a changing unit of account 
D)  All of the above

Question 14

Your economics professor has probably told you that there will be a final exam in your economics class. The main reason for this final exam is to make sure that everyone has an incentive to work hard, come to class and read the textbook. When the day of the examination comes, however, it seems as if everyone would be better off if the professor cancelled the exam. You wouldn't have to take the exam, and your professor wouldn't have to mark it. Do you think your economics professor is likely to cancel the exam? Why not? What economic idea does this illustrate?

Accepted Answer

The professor is unlikely to cancel the

Question 15

If the economy goes into a recession, then automatic stabilisers are likely to lead to an increase in the budget deficit. Why might such a deficit be beneficial?

Accepted Answer

Because this deficit

Question 16

If the government's plan is credible, then:

Accepted Answer

A)  the short-run Phillips curve will not shift 
B)  people will not adjust their expectations of inflation 
C)  the cost of disinflation will be high 
D)  the cost of reducing inflation will be low 
A)  the short-run Phillips curve will not shift 
B)  people will not adjust their expectations of inflation 
C)  the cost of disinflation will be high 
D)  the cost of reducing inflation will be low

Question 17

Evaluate the following statement: 'Fiscal policy is a very precise tool for controlling aggregate demand. If the government wants to increase aggregate demand by $5 billion, all it has to do is to carry out exactly $5 billion worth of government spending.'

Accepted Answer

This statement is incorrect because it n

Question 18

There are some situations in which running a budget deficit is justifiable.

Accepted Answer

A) True 
 B)False

Question 19

Proponents of the monetary policy rule argue that discretionary monetary policy may lead to:

Accepted Answer

A)  incompetence 
B)  abuse of power 
C)  severe inflation than is desirable 
D)  all of the above 
A)  incompetence 
B)  abuse of power 
C)  severe inflation than is desirable 
D)  all of the above

Question 20

Which of the following is not the cost of reducing inflation to zero?

Accepted Answer

A)  Preventing arbitrary redistributions of wealth associated with dollar-denominated debts 
B)  Reducing the variability of relative prices 
C)  Eliminating the confusion and inconvenience resulting from a changing unit of account 
D)  The high unemployment and low output needed to reduce inflation 
A)  Preventing arbitrary redistributions of wealth associated with dollar-denominated debts 
B)  Reducing the variability of relative prices 
C)  Eliminating the confusion and inconvenience resulting from a changing unit of account 
D)  The high unemployment and low output needed to reduce inflation

Exam 36: Five Debates Over Macroeconomic Policy

Inflation confers benefit to society, and it imposes very few real costs.

A nation's saving rate is a key determinant of its long-run economic prosperity.

In 1997, the newly elected Labour government in England decided to grant much more independence to the English Central Bank (the bank was previously largely under the control of the government). Why do you think they did this?

Discretion in the conduct of monetary policy does not limit incompetence and abuse of power.

Reducing inflation is a policy with temporary costs and permanent benefits.

Which of the following statements is correct?

In the 1970s, the Australian government decided to charge fees for university education.

What are the costs of inflation for society?

Advocates of governments' balanced budgets, believe that failure to do this will:

Which of the following statements is correct?

The collapse of Lehman Brothers Investment Bank in the US and a worldwide recession showed that a policy rule could not possibly consider all the contingencies and specify in advance the correct policy response.

Since the GFC, the RBNZ has also been slow to raise its interest rates, even though the medium inflation in the 2010-2011 year was over 5 %. Why, in the light of this, may the Bank chosen to have avoided the automatic adjustment of the cash rate?

Which of the following is the benefit of reducing inflation to zero?

If the economy goes into a recession, then automatic stabilisers are likely to lead to an increase in the budget deficit. Why might such a deficit be beneficial?

If the government's plan is credible, then:

Evaluate the following statement: 'Fiscal policy is a very precise tool for controlling aggregate demand. If the government wants to increase aggregate demand by $5 billion, all it has to do is to carry out exactly $5 billion worth of government spending.'

There are some situations in which running a budget deficit is justifiable.

Proponents of the monetary policy rule argue that discretionary monetary policy may lead to:

Which of the following is not the cost of reducing inflation to zero?

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

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