Question 1

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.

Accepted Answer

reduces, income, reduce

Question 2

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

Accepted Answer

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.

Question 3

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?

Accepted Answer

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.

Question 4

Explain how tax cuts can increase aggregate supply.

Accepted Answer

The answer of Explain how tax cuts can increase aggregate...

Question 5

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

Accepted Answer

The answer of Economists believe that a little bit of...

Question 6

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?

Accepted Answer

The answer of While traditional Keynesian analysis indicates that increases...

Question 7

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

Accepted Answer

The answer of Explain what is meant by saying that...

Question 8

Identify three government policies that discourage saving.

Accepted Answer

The answer of Identify three government policies that discourage saving....

Question 9

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

Accepted Answer

The answer of During recessions,even with no changes in policy,the...

Question 10

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

Accepted Answer

The answer of Why is there a lag between the...

Question 11

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?

Accepted Answer

The answer of One concern of those who oppose the...

Question 12

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?

Accepted Answer

The answer of Carefully explain how monetary policy can be...

Question 13

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?

Accepted Answer

The answer of Suppose the nation's price level rises as...

Question 14

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?

Accepted Answer

The answer of Suppose that changes in aggregate demand tended...

Question 15

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

Accepted Answer

The answer of Which kind of lag is important for...

Question 16

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

Accepted Answer

The answer of Explain what is meant by the time...

Question 17

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?

Accepted Answer

The answer of According to political business cycle theory,if the...

Question 18

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

Accepted Answer

The answer of What fiscal policies did the government implement...

Question 19

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?

Accepted Answer

The answer of According to a 1977 amendment to the...

Question 20

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

Accepted Answer

The answer of Provide an example of how current expenditures...

Exam 23: Six Debates Over Macroeconomic Policy: Part A