Exam 23: Six Debates Over Macroeconomic Policy: Part A

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A higher return on saving ------ the amount a household needs to save to achieve any target level of future consumption.This effect on saving is called the ------- effect.If the income effect is large enough,then a reduction in taxes on saving might ------ tax revenues.

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Question 1

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reduces, income, reduce

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

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Reducing inflation leads to a temporary recession. However, during the recession firms will accumulate less capital and workers will lose job skills. These changes make the standard of living less than it would be otherwise.

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?

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In the absence of taxes, the bond will accumulate to $51,428.59. With a marginal tax rate of 30% on her interest income, the bond will accumulate to $25,922.61.

Explain how tax cuts can increase aggregate supply.

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Question 4

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

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Question 5

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy,what are some of the reasons why tax cuts might be preferred to increased government spending?

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Question 6

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

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Question 7

Identify three government policies that discourage saving.

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Question 8

During recessions,even with no changes in policy,the deficit tends to ------ because -------------.

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Question 9

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

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Question 10

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

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Question 11

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?

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Question 12

Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged.If the Fed is required to follow a rule that stabilizes the price level,what will the Fed do to the money supply and what impact will this have on total output in the economy?

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Question 13

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?

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Question 14

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

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Question 15

Explain what is meant by the time inconsistency of monetary policy.

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Question 16

According to political business cycle theory,if the Fed wanted to increase the chances of a President's re-election,what specific actions might it take?

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Question 17

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

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Question 18

According to a 1977 amendment to the Federal Reserve Act of 1913,what weights should the Fed put on the goals of maximum employment,stable prices,and moderate long-term interest rates?

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Question 19

Provide an example of how current expenditures might benefit future generations.

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Question 20

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Exam 23: Six Debates Over Macroeconomic Policy: Part A

A higher return on saving ------ the amount a household needs to save to achieve any target level of future consumption.This effect on saving is called the ------- effect.If the income effect is large enough,then a reduction in taxes on saving might ------ tax revenues.

Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.

Explain how tax cuts can increase aggregate supply.

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

While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy,what are some of the reasons why tax cuts might be preferred to increased government spending?

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

Identify three government policies that discourage saving.

During recessions,even with no changes in policy,the deficit tends to ------ because -------------.

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

One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly.What is the cost of reducing the inflation rate?

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?

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?

Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal policy?

Explain what is meant by the time inconsistency of monetary policy.

According to political business cycle theory,if the Fed wanted to increase the chances of a President's re-election,what specific actions might it take?

What fiscal policies did the government implement in response to the 2008-2009 recession? Can we be certain that these policies were effective? Explain.

According to a 1977 amendment to the Federal Reserve Act of 1913,what weights should the Fed put on the goals of maximum employment,stable prices,and moderate long-term interest rates?

Provide an example of how current expenditures might benefit future generations.

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B