Exam 23: Six Debates Over Macroeconomic Policy

Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do when higher inflation becomes a concern?

A permanent reduction in inflation would

Using typical estimates of the sacrifice ratio, how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?

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

In addition to the tax code, other policies reduce the incentives for people to save Provide an example.

Which of the following is not correct?

Eliminating means requirements for government benefits would

Which of the following is a cost of inflation?

If inflation falls,

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation, it is likely that

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

Between 1980 and 1995 government debt as a percentage of GDP

Paul Volcker, former chair of the Fed, implemented

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, the central bank must

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to-income ratio constant?

List two of the three types of fiscal programs that the President and Congress emphasized in response to the 2008- 2009 recession.

In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious.

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year. Then the government can have a deficit of about

A year ago a country reduced the tax rate on all interest income from 40% to 10%. During the year private saving was $600 billion as compared to $500 billion the year before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in government revenues or spending which of the following is correct?