Exam 23: Six Debates Over Macroeconomic Policy: Part A

What is the benefit of a high saving rate?

Why is it desirable,if possible,to use policy to offset the effects of a decrease in aggregate demand?

Approximately how often does the Federal Open Market Committee meet?

Which part of the Federal Reserve determines monetary policy? How often does it meet? What does it set a target for?

If net exports fall,what actions could a central bank take to stabilize the economy?

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

Monetary policy affects aggregate demand with a lag.Approximately how long does it take for monetary policy actions to affect aggregate demand?

What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?

What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?

Suppose a country has a real growth rate of 3%.Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency.The current national debt is 300 billion units of currency.At what inflation rate will its debt-to-income ratio remain unchanged?

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year.How large of a deficit can the government run (as a percentage of GDP)without raising the debt-to-income ratio?

Explain why policy lags could make stabilization policies counterproductive.

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?

Using typical estimates of the sacrifice ratio,how much output would likely be sacrificed to reduce inflation by 3 percent?

Explain why fiscal policy actions typically work with a lag.

Why might policymakers attempts to stabilize the economy do more harm than good?

Explain the time inconsistency of monetary policy.

Means-tested government programs tend to reduce saving.What are means-tested programs and how do they reduce saving?

Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?

Suppose tax policies are changed to encourage saving.Explain how the income effect and substitution effect influence the amount saved.