Exam 36: Five Debates Over Macroeconomic Policy

Citing an example, explain why the Reserve Bank of Australia (and its Governor) is independent of the government.

Fiscal policy works with a lag because of the long political process that governs changes in spending and tax

Although price stability may be desirable, the benefits of zero inflation compared with moderate inflation are small, whereas the costs of reaching zero inflation are large.

Which of the following is not the cost of inflation?

Policymakers trying to stabilise the economy may often do just the opposite.

The charter of the RBA gives the institution specific recommendations about what goals it should pursue; and the Act tells the RBA how to pursue whatever goals it might choose.

The Reserve Bank of New Zealand re-negotiated its inflation target band in 2003 from 0 per cent-3 per cent p.a. to 1 per cent-3 per cent p.a. Explain why this shift may have occurred.

As Japan shows, a disinflationary recession can potentially leave permanent scars on the economy.

A budget deficit can be justifiable:

The experience of the 1990 and 2000s shows that low inflation:

Proponents of the balanced government budget argue that:

Which of the following statements is correct?

Economies can be left to find their own solution.

What are the problems of discretionary monetary policy? How can we avoid these problems?

The budget deficit is a major piece of how the government chooses to raise and spend money.

Some economists believe that policymakers should not try to stabilise the economy. What is the reason?

It is reasonable to allow a budget deficit during a temporary downturn in economic activity.

Proponents of the tax reform targeted at increasing the saving rate believe that: