Chapter 36: Five debates over macroeconomic policy

Chapter 36 Five Debates Over Macroeconomic Policy

TRUE/FALSE

1. Many studies indicate changes in monetary policy have most of their effect on aggregate demand about six months after the change is made. 1 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Monetary policy ANS: T NAT: Analytic MSC: Interpretive

2. The laws that created the Fed give the institution only vague recommendations about what goals it should pursue, and they do not tell the Fed how to pursue whatever goals it might choose.

1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Monetary policy ANS: T NAT: Analytic MSC: Interpretive

3. The Federal Reserve operates under a rule that requires money supply growth by one percentage point for every percentage point that unemployment rises above its natural rate. 1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Monetary policy ANS: F NAT: Analytic MSC: Interpretive

4. Proponents of a balanced government budget acknowledge that running a budget deficit is justifiable in time of war.

1 REF: 364 DIF: LOC: Monetary and fiscal policy TOP: Government debt ANS: T NAT: Analytic MSC: Interpretive

5. In effect, a consumption tax would put all saving automatically into a taxadvantaged savings account similar to an Individual Retirement Account (IRA). 2 REF: 365 DIF: LOC: Monetary and fiscal policy TOP: Taxes, saving ANS: T NAT: Analytic MSC: Interpretive

6. One prominent debate over macroeconomic policy centers on the question of whether monetary and fiscal policy should be used to try to stabilize the economy.

1 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Stabilization policy ANS: T NAT: Analytic MSC: Interpretive

7. People’s skepticism about central bankers’ announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent. 2 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Monetary policy ANS: T NAT: Analytic MSC: Interpretive

8. Proponents of zeroinflation policies acknowledge that the public is unconcerned about the inflation rate. 1 REF: 363 DIF: LOC: Monetary and fiscal policy TOP: Inflation ANS: F NAT: Analytic MSC: Interpretive

9. Proponents and opponents of balancedbudget policies agree that the government debt cannot continue to increase forever.

1 REF: 364 DIF: LOC: Monetary and fiscal policy TOP: Government debt ANS: F NAT: Analytic MSC: Interpretive

66 Chapter 36/Five Debates Over Macroeconomic Policy

67 (cid:0) 10. A recession has no benefit to societyit represents a sheer waste of resources.

1 REF: 361 DIF: LOC: The study of economics and definitions in economics ANS: T NAT: Analytic TOP: Stabilization policy MSC: Definitional

11. A "lean against the wind" policy says the government should not use stabilization policy and simply let the economy "weather the storm."

1 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Stabilization policy ANS: F NAT: Analytic MSC: Definitional

12. Advocates of stabilization policy argue that when there is a recession, the government should increase the money supply and increase government expenditures. 1 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Stabilization policy ANS: T NAT: Analytic MSC: Applicative

13. Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

361 2 REF: DIF: LOC: Understanding and applying economic models ANS: F NAT: Analytic TOP: Stabilization policy | Economic forecasts MSC: Definitional

14. The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy. REF: 2 362 DIF: LOC: Monetary and fiscal policy ANS: F NAT: Analytic TOP: Monetary policy discretion versus rules MSC: Definitional

15. If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.

1 362 DIF: REF: LOC: Understanding and applying economic models ANS: T NAT: Analytic TOP: Political business cycle MSC: Definitional

16. If the Fed followed a rule for monetary policy, the time inconsistency problem would be eliminated.

362 1

ANS: T NAT: Analytic TOP: Time inconsistency REF: DIF: LOC: Understanding and applying economic models MSC: Interpretive

17. In practice, the problems created by time inconsistency and the political business cycle appear to be quite serious. 362 1 DIF: REF: LOC: Understanding and applying economic models ANS: F NAT: Analytic TOP: Time inconsistency | Political business cycle MSC: Definitional

18. Economists agree that if a monetary policy rule is to be used, the best one makes the growth rate of the money supply constant.

REF: 1 362 DIF: LOC: Monetary and fiscal policy ANS: F NAT: Analytic TOP: Monetary policy discretion versus rules MSC: Definitional

19. The cost of inflation reduction is a large, permanent increase in unemployment.

1 REF: 363 DIF: LOC: Monetary and fiscal policy TOP: Inflation reduction ANS: F NAT: Analytic MSC: Applicative

68 Chapter 36/Five Debates Over Macroeconomic Policy (cid:0) 20. The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

2 REF: 363 DIF: LOC: Monetary and fiscal policy TOP: Inflation reduction ANS: T NAT: Analytic MSC: Applicative

21. It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

1 REF: 363 DIF: LOC: Monetary and fiscal policy TOP: Inflation reduction ANS: T NAT: Analytic MSC: Applicative

22. There are ways that policymakers could reduce the costs of inflation without reducing inflation.

1 REF: 364 DIF: LOC: Monetary and fiscal policy TOP: Inflation costs ANS: T NAT: Analytic MSC: Applicative

23. When the government has a deficit, a burden is necessarily imposed on future generations of taxpayers.

REF: 364 1 DIF: LOC: Monetary and fiscal policy ANS: F NAT: Analytic TOP: Budget deficits | Generational effects of deficits MSC: Applicative

24. The average U.S. citizens' share of the government debt represents about 10 percent of her lifetime income.

1 REF: 364 DIF: LOC: Monetary and fiscal policy TOP: Burden of the debt ANS: F NAT: Analytic MSC: Definitional

25. Social Security transfers wealth from younger generations to older generations.

1 REF: DIF: 364 LOC: The role of government TOP: Burden of the debt ANS: T NAT: Analytic MSC: Applicative

26. The major driver of future federal spending is rising health care costs.

1 REF: 364 DIF: LOC: The role of government TOP: Burden of the debt ANS: T NAT: Analytic MSC: Applicative

27. The major driver of future federal spending is rising energy costs.

1 REF: DIF: 364 LOC: The role of government TOP: Burden of the debt ANS: F NAT: Analytic MSC: Applicative

28. A nation's saving rate is not a primary determinant of its longrun economic prosperity.

1 364

ANS: F NAT: Analytic TOP: Saving DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

29. Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal taxrate on interest income. 1 364 DIF: REF: LOC: Understanding and applying economic models ANS: T NAT: Analytic TOP: Saving incentives MSC: Definitional

30. Tax laws do not give preferential treatment to some kinds of retirement saving. 1 REF: 365 DIF: LOC: The study of economics and definitions in economics ANS: F NAT: Analytic TOP: Saving incentives MSC: Definitional

Chapter 36/Five Debates Over Macroeconomic Policy

Some studies have found that saving is not very sensitive to the rate of return on saving.

69 (cid:0) 31.

1 REF: 365 DIF: LOC: Monetary and fiscal policy TOP: Saving incentives ANS: T NAT: Analytic MSC: Definitional

32. A reduction in the marginal taxrate includes a substitution effect that tends to increase savings. 1 REF: 365 DIF: LOC: Monetary and fiscal policy Income and substitution effect | Saving incentives MSC: Applicative ANS: T NAT: Analytic TOP:

33. A reduction in the marginal taxrate includes an income effect that tends to increase savings. 1 REF: 365 DIF: LOC: Monetary and fiscal policy Income and substitution effect | Saving incentives MSC: Applicative ANS: F NAT: Analytic TOP:

34. In essence, a consumption tax puts all saving into taxadvantaged savings accounts. 1 REF: 365 DIF: LOC: Monetary and fiscal policy TOP: Saving incentives ANS: T NAT: Analytic MSC: Interpretive

35. If real output grows at 3 percent per year and the inflation rate is 3 percent per year then government debt can grow by 6 percent per year and not increase the ratio of debt to income.

365 1

ANS: T NAT: Analytic TOP: Debttoincome ratio DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

36. Forward looking parents can reverse the adverse effects of government debt by saving more and leaving a larger bequest to their children. 1 365

ANS: T NAT: Analytic TOP: Saving REF: DIF: LOC: Understanding and applying economic models MSC: Interpretive

SHORT ANSWER

1. Explain the main arguments in favor of economic stabilization.

ANS: Fluctuations in the economyrecessions and boomsare costly. Recessions in particular are a waste of resources, since people and machines are idle when they could be producing goods and services. Stabilization policies can help to eliminate this waste of resources.

REF: 361 TOP: Stabilization policy DIF: MSC: 1 Interpretive

2. Explain why policy lags could make stabilization policies counterproductive.

ANS: As the textbook explains, it takes time to recognize an economic problem, to take action, and for that action to have its effect on the economy. By the time a policy is enacted and takes effect, the economy may have already recovered. So policy will end up being destabilizing; it may actually result in larger economic fluctuations.

REF: 361 TOP: Stabilization policy DIF: MSC: 1 Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

70

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

ANS: Both are prone to lags, but the lags are different for the two types of policy. Monetary policy can be enacted quickly, but because it works through changes in interest rates and investment, it may take a long time to have an impact. Fiscal policy works with a long lag due to the polictical process that must be followed, including congressional committees and the requirement of Presidential approval.

REF: 361 TOP: Policy lags DIF: MSC: 1 Interpretive

Suppose that changes in aggregate demand tended to be infrequent and that it takes a long time for the economy to return to longrun output. How would this affect the arguments of those who oppose using policy to stabilize output?

ANS: Those who oppose stabilization policy mostly argue that by the time policy can be put into action and affect aggregate demand, economic conditions may have changed so that the policy is no longer appropriate. If the economy tended to stay on one side of the natural rate of output for a long time, policymakers could worry less about lags.

REF: 361 TOP: Stabilization policy 3 DIF: MSC: Analytical

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

ANS: The political business cycle describes the idea that politicians may manipulate the economy to serve their own political ends. For example, the political party in power might want to generate an economic boom prior to an election, even if this policy is ultimately not in the best interest of the country. If the central bank had to follow a policy rule it would be unable to manipulate monetary policy for political gain.

REF: 362 TOP: Political business cycle DIF: 1 MSC: Analytical

6. Explain the time inconsistency of monetary policy.

ANS: Time inconsistency refers to the idea that policymakers may have an incentive to say one thing but do something different. For example, the Fed may wish to announce a tight monetary policy, in a bid to reduce expectations about inflation, but if inflation expectations fall, it may want to enact a loose monetary policy, in order to stimulate the economy. The result is likely to be a loss of the Fed's credibility and a higher expected inflation rate.

REF: 362 TOP: Time inconsistency DIF: 2 MSC: Analytical

7. Describe three costs of inflation.

ANS: There are several costs of inflation. Shoeleather costs are the resources people spend to economize on their money holdings when inflation is high. Menu costs are the costs created by changing price tags and prices in menus and catalogs. Increased relative price variability from higher inflation distorts signals provided by relative price changes and so misallocates resources. Distortions created by inflation in the tax code discourage saving and so may lower the standard of living. Unexpected inflation arbitrarily redistributes wealth. In general a changing value of the unit of account creates inconvenience.

1 REF: 363 TOP: Inflation costs DIF: MSC: Definitional

Chapter 36/Five Debates Over Macroeconomic Policy

71 (cid:0) 8.

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?

ANS: If inflation is usually about what people expect, the arbitrary redistribution of wealth associated with dollar denominated debts may be small. High and continuing inflation may lead people to develop ways to lessen the costs of inflation. Indexed bonds and checking accounts or government policy to reduce tax distortions created by the tax code are examples. The costs of inflation reduction may be high if people have become accustomed to inflation. When expected inflation is high, the tradeoff between inflation and unemployment is poor and even small reductions in inflation may require large increases in unemployment. Further, a country that has experienced high inflation for a long time is likely to be skeptical of the central bank's commitment to reduce inflation.

REF: 363 TOP: Inflation reduction DIF: 2 MSC: Analytical

9. What’s the basis for arguing that deficits are likely to lead to lower living standards in the future?

ANS: A government deficit means that the government is dissaving. Unless the government's failure to save is offset by increased private saving, a government deficit is likely to be associated with lower national saving. Lower national saving means a lower capital stock, and hence lower living standards in the future.

REF: 364 TOP: Burden of the debt DIF: 2 MSC: Analytical

10. Suppose that the government goes into deficit in order to help local school districts build better schools. Does this burden future generations?

ANS: The benefits of the project accrue not just to the current generation, but also to future generations. By running a deficit, the government spreads some of the cost to future generations as well.

REF: 364 TOP: Burden of the debt DIF: 1 MSC: Applicative

11. Explain how it is possible for the government debt to grow forever.

ANS: The debt can grow because the economy grows. If, for example, nominal GDP grows at 3 percent per year, and the debt also grows at 3 percent per year, then the debt will be a constant fraction of GDP. This is perfectly sustainable. Problems arise only if the debt grows faster than GDP. Such a situation cannot prevail forever, because that would imply that the debt would eventually be many times larger than GDP, and the government would no longer be able to pay the interest payments on its debt.

REF: 364 TOP: Debttoincome ratio DIF: 2 MSC: Analytical

12. Is it possible that deficits do not burden future generations?

ANS: Some programs, such as Social Security, tax younger generations to provide benefits for older generations. Some programs, such as education, have benefits primarily for younger generations.

Programs such as education may have greater benefits than costs for younger generations. Forward thinking parents can save in the face of government deficits. The increased saving can translate into a larger bequest for their children and offset the increased debt burden the future generation faces.

REF: 364 TOP: Burden of the debt DIF: 1 MSC: Applicative

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

72

13. Identify three government policies that discourage saving.

ANS: First, the returns to saving are heavily taxed (which is why some economists advocate a consumption tax). Second, there is double taxation of some forms of capital income. Third, bequests above some level are taxed, which limits parents' incentives to save for their children. Fourth, some government benefits are meanstested, so a household that saves is less likely to receive such benefits.

REF: 364 TOP: Saving incentives DIF: 2 MSC: Applicative

14. Meanstested government programs tend to reduce saving. What are meanstested programs and how do they reduce saving?

ANS: Meanstested benefits give assistance, or more assistance, to those who can show need by way of lack of income. Those who save accumulate wealth and so are less likely to qualify for assistance. Consequently, the programs discourage saving.

2 REF: 364 DIF: TOP: Saving incentives | Means tests MSC: Applicative

15. Why do many economists advocate a consumption tax rather than an income tax? ANS: The current income tax means that income is taxed at the same rate if it is used for current consumption or if it is saved. A consumption tax would encourage saving, because individuals would be taxed only when they spend. Income saved would be exempt from tax until it was ultimately used for consumption. Thus a consumption tax would encourage saving.

2 REF: 365 DIF: TOP: Saving incentives | Consumption tax MSC: Interpretive

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

ANS: A higher rate of return on saving means that savers obtain higher income. The associated income effect means that individuals have an incentive to consume more today, as well as in the future. If this is strong enough to outweigh the substitution effect (a higher rate of return on saving encourages more saving and less consumption), then the saving rate could go down. (Another way to say this is that, with a higher return on saving, you can enjoy the same level of consumption tomorrow even if you save less today.)

2 REF: 365 DIF: TOP: Saving incentives | Income and substitution effect MSC: Analytical

17. Explain how tax provisions to encourage private saving may reduce national saving.

ANS: Without careful planning it is possible that a reduction in taxation of capital income (for example) would reduce government revenue. If there is no offsetting reduction in government spending the result is a budget deficit. This is a decrease in public saving. If the increase in private saving resulting from the tax change is not greater than the decrease in public saving the result is a decline in national saving.

2 REF: 365 DIF: TOP: Saving incentives | Income and substitution effect MSC: Analytical

73 (cid:0)

Chapter 36/Five Debates Over Macroeconomic Policy

Sec 01Five debates over macroeconomic policy Should monetary policy be used to try to stabilize the economy?

MULTIPLE CHOICE

Fluctuations in employment and output result from changes in a. b. c. d. aggregate demand only. aggregate supply only. aggregate demand and aggregate supply. neither aggregate demand nor aggregate supply.

1 REF: DIF: 361 LOC: The role of government TOP: Aggregate demand ANS: C NAT: Analytic MSC: Applicative

In the Summer of 2008, consumers indicated that they were less optimistic about the future of the economy. This change in sentiment would likely a. b. c. d. shift aggregate demand to the right. increase output. increase unemployment. increase prices.

1 REF: DIF: 361 LOC: The role of government TOP: Stabilization policy ANS: C NAT: Analytic MSC: Analytical

If aggregate demand shifts because of a wave irrational exuberance, those who favor a policy that “leans against the wind” would advocate the a. Federal Reserve increase the money supply or the government increase taxes. b. Federal Reserve increase the money supply or the government decrease taxes. c. Federal Reserve decrease the money supply or the government increase taxes. d. Federal Reserve decrease the money supply or the government decrease taxes.

2 REF: 361 DIF: LOC: The role of government TOP: Stabilization policy ANS: C NAT: Analytic MSC: Analytical

"Leaning against the wind" is exemplified by a a. b. c. d. tax cut when there is a recession. decrease in the money supply when there is a recession. decrease in government expenditures when there is a recession. increasing money supply when there is a boom.

1 REF: 361 DIF: LOC: The role of government TOP: Stabilization policy ANS: A NAT: Analytic MSC: Analytical

"Leaning against the wind" is exemplified by a tax increase when there is a recession. a. decrease in the money supply when there is an expansion. b. c. decrease in government expenditures when there is a recession. d. All of the above are correct.

DIF: 1 ANS: B TOP: Stabilization policy REF: MSC: 361 Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

74

President George W. Bush and congress cut taxes and raised government expenditures in 2003. According to the aggregate supply and aggregate demand model a. b. c. d. both the tax cut and the increase in government expenditures would tend to increase output. only the tax cut would tend to increase output. only the increase in government expenditures would tend to increase output. neither the tax cut nor the increase in government expenditures would tend to increase output.

361 2 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Stabilization policy | Aggregate demand MSC: Applicative

Policymakers following a "lean against the wind" policy would a. b. c. d. increase government expenditures when output is low and decrease them when output is high. increase government expenditures when output is low and do nothing when output is high. decrease government expenditures when output is low and increase them when output is high. decrease government expenditures when output is high and do nothing when output is low.

REF: 1 361 DIF: LOC: The role of government ANS: A NAT: Analytic TOP: Stabilization policy | Policy lags MSC: Definitional

If the unemployment rate rises, which policies would be appropriate to reduce it? a. b. c. d. increase the money supply, increase taxes increase the money supply, cut taxes decrease the money supply, increase taxes decrease the money supply, cut taxes

2 361 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Stabilization policy MSC: Applicative

The Federal Reserve will tend to tighten monetary policy when a. b. c. d. interest rates are rising too rapidly. it thinks the unemployment rate is too high. the growth rate of real GDP is quite sluggish. it thinks inflation is too high today, or will become too high in the future.

2 361 DIF: REF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Monetary policy MSC: Analytical

10.

If firms were faced with greater uncertainty because of concern that oil prices might rise, they might decrease expenditures on capital. In response to this change, someone who advocated "lean against the wind" policies might advocate a. b. c. d. decreasing the money supply. increasing taxes. increasing government expenditures. decreasing government expenditures.

2 REF: DIF: 361 LOC: The role of government TOP: Stabilization policy ANS: C NAT: Analytic MSC: Analytical

11. Those who desire that policymakers stabilize the economy would advocate which of the following when

aggregate demand is insufficient to ensure full employment? a. Decrease the money supply. b. Decrease taxes. c. Decrease government expenditures. d. Do nothing and let markets correct themselves.

1 361 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Stabilization policy MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy

75 (cid:0) 12.

Suppose aggregate demand fell. In order to stabilize the economy, the government might a. b. c. d. increase the money supply. decrease government expenditures. increase taxes. do nothing.

1 361 REF: DIF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Stabilization policy MSC: Applicative

13. The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

a. b. c. d. increased the money supply because it was concerned about unemployment. increased the money supply because it was concerned about inflation. decreased the money supply because it was concerned about unemployment. decreased the money supply because it was concerned about inflation.

2 361 REF: DIF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Stabilization policy MSC: Analytical

14. The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed

2 361 DIF: REF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Stabilization policy MSC: Analytical

15. The effects of a decline in the value of financial assets, such as stocks, on consumption and the economy

might be offset by a. b. c. d. increasing government spending. decreasing the money supply. increasing taxes. undertaking no policy action.

2 361 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Stabilization policy MSC: Applicative

16. The economy goes into recession. Which of the following lists contains things policymakers could do to try to

end the recession? a. b. c. d. increase the money supply, increase taxes, increase government spending increase the money supply, increase taxes, decrease government spending increase the money supply, decrease taxes, increase government spending decrease the money supply, increase taxes, decrease government spending

2 361 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Stabilization policy MSC: Applicative

17.

Studies have shown significant spending changes arise from interest rate changes only after a. b. c. d. a few days. a few weeks. a few months. a few years.

2 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Policy lags ANS: C NAT: Analytic MSC: Definitional

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

76

18.

both fiscal and monetary policy is the time it takes to change policy. both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. In general, the longest lag for a. b. c. monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the

d. time it takes for policy to affect aggregate demand. fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

REF: 1 361 DIF: LOC: Monetary and fiscal policy ANS: D NAT: Analytic TOP: Balanced budget | Policy lags MSC: Definitional

19. The principal lag for monetary policy

a. b. c.

d. and fiscal policy is the time it takes to implement policy. and fiscal policy is the time it takes for policy to change spending. is the time it takes to implement policy. The principal lag for fiscal policy is the time it takes for policy to change spending. is the time it takes for policy to change spending. The principal lag for fiscal policy is the time it takes to implement it.

2 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Policy lags ANS: D NAT: Analytic MSC: Definitional

20. The principal reason that monetary policy has lags is that it takes a long time for

a. b. c. d. changes in the interest rate to change aggregate demand. changes in the money supply to change interest rates. the Fed to make changes in policy. the federal government to change the tax code.

1 REF: 361 DIF: LOC: Monetary and fiscal policy TOP: Policy lags ANS: A NAT: Analytic MSC: Definitional

21. Opponents of using policy to stabilize the economy generally believe that

a. b. c. d. neither fiscal nor monetary policy have much impact on aggregate demand. attempts to stabilize the economy decrease the magnitude of economic fluctuations. unemployment and inflation are not cause for much concern. economic coditions can easily change between the start of policy action and when it takes effect.

361 1

ANS: D NAT: Analytic TOP: Stabilization policy DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

22. Which of the following is correct? a. Economic forecasts are precise and aggregate spending responds almost immediately to interest rate changes.

b. Economic forecast are precise and aggregate spending responds to interest rate changes with a lag. c. Economic forecasts are imprecise and aggregate spending responds almost immediately to interest rate changes. d. Economic forecast are imprecise and aggregate spending responds to interest rate changes with a lag.

2 361 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Policy lags | Economic forecasts MSC: Definitional

Chapter 36/Five Debates Over Macroeconomic Policy

77 (cid:0) 23. Which of the following is an argument against trying to use policy to stabilize the economy?

a. Recessions represent a waste of resources. b. Pessimism on the part of households and firms may become a selffulfilling prophecy. c. "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms. d. Macroeconomic forecasting is not developed sufficiently to allow policymakers to change aggregate demand at the proper time.

361 2

ANS: D NAT: Analytic TOP: Stabilization policy DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

24. All of the following are arguments against stabilization policy except

a. Economic forecasting is highly imprecise. b. Long lags may cause stabilization policies to in fact destabilize the economy. c. Monetary policy affects aggregate demand by changing interest rates. d. Fiscal policy must go through a long political process.

2 361 DIF: REF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Stabilization policy MSC: Definitional

25. Which of the following likely occurs when households and firms are pessimistic?

Increased spending. Increased aggregate demand.

a. b. c. Real GDP rises. d. The unemployment rate increases.

1 361 DIF: REF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Stabilization policy MSC: Definitional

26. Which of the following likely occurs when households and firms are pessimistic?

a. Increased spending, increases aggregate demand, rising real GDP and a falling unemployment rate. b. Decreased spending, increases aggregate demand, rising real GDP and a falling unemployment rate. c. Decreased spending, decreased aggregate demand, falling real GDP and a falling unemployment rate. d. Decreased spending, decreased aggregate demand, falling real GDP and a rising unemployment rate.

2 361 DIF: REF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Stabilization policy MSC: Definitional

27. A policymaker in favor of stabilizing the economy would be likely to believe

a. b. c. d. recessions are a waste of resources. economies must suffer through the booms and busts of the business cycle. the long policy lags make implementing policy changes in response to recession too risky. policy exacerbates the magnitude of economic fluctuations.

2 REF: DIF: 361 LOC: The role of government TOP: Stabilization policy ANS: A NAT: Analytic MSC: Definitional

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

78

28. A policymaker against stabilizing the economy would be likely to believe

a. b. c.

d. policymakers should “do no harm”. there are no obstacles to to the practical application of policy in real life. policy lags are short enough that implementing policy changes in response to recession is not too risky. policy mitigates the magnitude of economic fluctuations.

2 REF: DIF: 361 LOC: The role of government TOP: Stabilization policy ANS: A NAT: Analytic MSC: Definitional

29.

Part of the lag in monetary policy effects is due to a. b. c. d. the long political process of monetary policy decisions. precise economic forecasts. the time required for firms and households to alter their spending plans. changes in the unemployment rate.

2 REF: DIF: 361 LOC: The role of government TOP: Stabilization policy ANS: C NAT: Analytic MSC: Definitional

Sec 02Five debates over macroeconomic policy Should monetary policy be made by rule rather than by discretion?

MULTIPLE CHOICE

The Federal Open Market Committee a. b. c. d. operates with almost complete discretion over monetary policy. is required to increase the money supply by a given growth rate each year. is required to keep the interest rate within a range set by Congress. is required by its charter to change the money supply using a complex formula that concerns the tradeoff between inflation and unemployment.

REF: 1 362 DIF: LOC: Monetary and fiscal policy ANS: A NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Definitional

2. The political business cycle refers to a.

the fact that about every four years some politician advocates greater government control of the Fed. the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get reelected. the part of the business cycle caused by the reluctance of politicians to smooth the business cycle. changes in output created by the monetary rule the Fed must follow. c. d.

1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Political business cycle ANS: B NAT: Analytic MSC: Definitional

If there is a political business cycle and the Federal Reserve supports the incumbent, then we should expect that prior to elections a. b. c. d. interest rates and output would rise. interest rates would rise and output would fall. interest rates would fall and output would rise. interest rates and output would fall.

1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Political business cycle ANS: C NAT: Analytic MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy

79 (cid:0) 4.

According to the political business cycle theory, if the Fed wanted to see a President reelected, prior to the election it might a. b. c. d. lower the discount rate and sell bonds. lower the discount rate and buy bonds. raise the discount rate and sell bonds. raise the discount rate and buy bonds.

1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Political business cycle ANS: B NAT: Analytic MSC: Analytical

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004. One of their contributions was to argue that if a central bank could convince people to expect zero inflation, then the Fed would be tempted to raise output by increasing inflation. This possibility is known as a. b. c. d. inflation targeting. the monetary policy reaction lag. the time inconsistency of policy. the sacrifice ratio dilemma.

2 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Time inconsistency ANS: C NAT: Analytic MSC: Definitional

6. The time inconsistency of policy implies that a. what policymakers say they will do is generally what they will do, but people don't believe them because of current policy. b. when people expect that inflation will be low, it is harder for the Fed to increase output by

increasing the money supply. people will believe Fed policy will be more inflationary than the Fed claims. c. d. what policymakers say they will do is usually not what they do, but people believe them anyway.

1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Time inconsistency ANS: C NAT: Analytic MSC: Interpretive

7. The time inconsistency of monetary policy means that a.

b. once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment. at some times central banks think it is more important to keep unemployment low; at other times, they think it is more important to keep inflation low.

c. monetary policy is not consistent across time because it is influenced by politics. d. monetary policy is not consistent across time because policymakers are incompetent.

1 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Time inconsistency ANS: A NAT: Analytic MSC: Interpretive

Time inconsistency will cause the a. b. c. d. shortrun Phillips curve to be higher than otherwise. shortrun Phillips curve to be lower the otherwise. longrun Phillips curve to be farther to the right than otherwise. longrun Phillips curve to be farther left than otherwise.

2 REF: 362 DIF: LOC: Monetary and fiscal policy TOP: Time inconsistency ANS: A NAT: Analytic MSC: Applicative

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

80

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then a. b. c. d. the longrun Phillips curve would shift right. the longrun Phillips curve would shift left. the shortrun Phillips curve would shift up. the shortrun Phillips curve would shift down.

REF: 362 2 DIF: LOC: Monetary and fiscal policy ANS: D NAT: Analytic TOP: Time inconsistency | Shortrun Phillips curve MSC: Analytical

10.

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the shortrun Phillips curve will remain far to the left, and the sacrifice ratio will be low. a. left, and the sacrifice ratio will be high. b. right, and the sacrifice ratio will be low. c. right, and the sacrifice ratio will be high. d.

REF: 3 362 DIF: LOC: Monetary and fiscal policy ANS: D NAT: Analytic TOP: Time inconsistency | Sacrifice ratio MSC: Applicative

11.

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low, a. b. c. d. the shortrun Phillips curve would shift up. the shortrun Phillips curve would shift down. the longrun Phillips curve would shift right. the longrun Phillips curve would shift left.

REF: 3 362 DIF: LOC: Monetary and fiscal policy ANS: B NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Analytical

12. A law that requires the money supply to grow by a fixed percentage each year would eliminate

a. b. c. d. the time inconsistency problem, but not political business cycles. the political business cycle, but not the time inconsistency problem. both the time inconsistency problem and political business cycles. neither the time inconsistency problem nor political business cycles.

REF: 362 2 DIF: LOC: Monetary and fiscal policy ANS: C NAT: Analytic TOP: Political business cycle | Time inconsistency MSC: Analytical

13.

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 longrun equilibrium and aggregate demand shifts right, the central bank must a. b. c. d. decrease the money supply, which will move output back towards its longrun level. decrease the money supply, which will move output farther from its longrun level. increase the money supply, which will move output back towards its longrun level. increase the money supply, which will move output farther from its longrun level.

362 3 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy

81 (cid:0) 14.

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 longrun equilibrium and aggregate supply shifts left, the central bank must a. b. c. d. decrease the money supply, which will move output back towards its longrun level. decrease the money supply, which will move output farther from its longrun level. increase the money supply, which will move output back towards its longrun level. increase the money supply, which will move output farther from its longrun level.

362 3 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Analytical

15. Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price

level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then a. b. c. d. the central bank would have to decrease the money supply which would decrease output. the central bank would have to decrease the money supply which would increase output. the central bank would have to increase the money supply which would decrease output. the central bank would have to increase the money supply which would increase output.

3 362 REF: DIF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Monetary policy rules MSC: Analytical

16.

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at longrun equilibrium and then aggregate supply shifts right the central bank would have to increase the money supply, which causes output to move closer to its longrun equilibrium. a. increase the money supply, which causes output to move farther from longrun equilibrium. b. decrease the money supply, which causes output to move closer to its longrun equilibrium. c. decrease the money supply, which causes output to move farther from longrun equilibrium. d.

362 3 DIF: REF: LOC: Understanding and applying economic models MSC:

(cid:0) ANS: B NAT: Analytic TOP: Monetary policy rules versus discretion 17. Consider the following rule for monetary policy: r = 2 percent + (cid:0) Analytical + 1/2(y y*)/y* + 1/2((cid:0) (cid:0) *), where r is is the inflation rate,

the nominal interest rate, y is real GDP, y* is an estimate of the natural rate of output, (cid:0) and (cid:0) * is the inflation target. Which of the following statements is not correct? a.

d. If aggregate demand shifts right from longrun equilibrium, this rule unambiguously implies that the Fed increases the nominal interest rate. If aggregate supply shifts right from longrun equilibrium at the inflation target, we cannot tell without more information whether the Fed should increase or decrease the nominal interest rate. If output is at its natural level, but inflation is above its target, the Fed must increase the nominal interest rate. If inflation is at its targeted level, but output is above its natural rate, the Fed must decrease the federal funds rate.

362 3 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Analytical

18.

Stephen Cecchetti argues that the Fed should a. b. c. d. follow a precise mechanical rule. follow a rule that could vary some based on the economic forecasts of a forecasting model. be allowed discretion but announce a numerical target for inflation. have complete discretion without a rule and without needing to announce targets.

REF: 2 362 DIF: LOC: Monetary and fiscal policy ANS: C NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Definitional

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

82

19.

Stephen Cecchetti argues that inflation targeting enhances longterm economic performance because a. b. c. d. it focuses the policy committee’s debate. discourages communication with politicians and the public at large. it creates an environment where people believe inflation will be allowed to fluctuate. it ignores fluctuations in employment.

REF: 2 362 DIF: LOC: Monetary and fiscal policy ANS: A NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Applicative

20. Which country does not use inflation targeting in its monetary policy process?

a. United States. b. New Zealand. c. Mexico. d. Australia.

REF: 1 362 DIF: LOC: Monetary and fiscal policy ANS: A NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Definitional

21. An opponent of monetary policy decisions by rule would point to which of the following as support of his

case? a. b. c. d. time inconsistency of policy flexibility to confront unforseen circumstances political business cycle the ability to craft rules that account for all possible contingencies in advance

REF: 2 362 DIF: LOC: Monetary and fiscal policy ANS: B NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Applicative

22. The Federal Open Market Committee meets about

a. b. c. d. every six days. every six weeks. every six months. every sixteen months.

REF: 1 362 DIF: LOC: Monetary and fiscal policy ANS: B NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Definitional

23. Which of the following expressions best sums up the mandate of members of the Federal Open Market

Committee? a. b. c. d. “Do the right thing”. “Do no harm”. “A penny saved is a penny earned”. “A rising tide lifts all boats”.

REF: 2 362 DIF: LOC: Monetary and fiscal policy ANS: B NAT: Analytic TOP: Monetary policy rules versus discretion MSC: Applicative

83 (cid:0)

Chapter 36/Five Debates Over Macroeconomic Policy

Sec 03Five debates over macroeconomic policy Should the central bank aim for zero inflation?

MULTIPLE CHOICE

1. Inflation a.

d. causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. causes people to spend more time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders. causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from lenders to borrowers. causes people to spend less time reducing money balances. When inflation is unexpectedly high it redistributes wealth from borrowers to lenders.

2 REF: DIF: 363 LOC: The role of government TOP: Cost of inflation ANS: A NAT: Analytic MSC: Definitional

2. Which of the following is a cost of inflation? shoeleather costs

a. b. menu costs c. relative price variability d. All of the above are correct.

1 REF: 363 DIF: LOC: The study of economics and definitions in economics ANS: D NAT: Analytic TOP: Inflation costs MSC: Interpretive

3. If inflation falls it a.

d. causes people to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. causes people to put in more effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders. causes people to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from lenders to borrowers. causes people to put in less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

2 REF: 363 DIF: LOC: The study of economics and definitions in economics ANS: D NAT: Analytic TOP: Inflation costs MSC: Definitional

Proponents of zero inflation argue that a successful program to reduce inflation a. b. c. d. eventually reduces inflation expectations. eventually raises real interest rates. permanently decreases output. permanently raises unemployment.

1 363

ANS: A NAT: Analytic TOP: Inflation reduction DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

84

Proponents of zero inflation argue that reducing inflation has a. b. c. d. permanent costs and temporary benefits. temporary costs and permanent benefits. permanent costs and benefits. temporary costs and benefits.

1 363

ANS: B NAT: Analytic TOP: Inflation reduction REF: DIF: LOC: Understanding and applying economic models MSC: Interpretive

A permanent reduction in inflation would a. b. c. d. permanently reduce menu costs and permanently lower unemployment. permanently reduce menu costs and temporarily raise unemployment. temporarily reduce menu costs and temporarily lower unemployment. temporarily reduce menu costs and temporarily raise unemployment.

REF: DIF: 1 Inflation 363 ANS: B LOC: Understanding and applying economic models TOP: MSC: Applicative

A permanent reduction in inflation would a. b. c. d. permanently reduce shoeleather costs and permanently lower unemployment permanently reduce shoeleather costs and temporarily raise unemployment temporarily reduce shoeleather costs and temporarily lower unemployment temporarily reduce shoeleather costs and temporarily raise unemployment

2 363 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Inflation costs MSC: Applicative

failed to reduce inflation. failed to reduce expected inflation. resulted in the highest unemployment rate since the Great Depression. Paul Volcker's inflation reduction efforts a. b. c. d. make hime reviled by central bankers.

1 REF: DIF: 363 LOC: The role of government TOP: Inflation reduction ANS: C NAT: Analytic MSC: Definitional

Inflation reduction has the lowest cost when the efforts are a. b. c. d. credible so that the sacrifice ratio is low. credible so that the sacrifice ratio is high. unexpected so that the sacrifice ratio is high. unexpected so that the sacrifice ratio is low.

2 363 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Inflation | Sacrifice ratioMSC: Applicative

Chapter 36/Five Debates Over Macroeconomic Policy

85 (cid:0) 10.

If a central bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank a. would have to increase the money supply. This would move unemployment closer to the natural rate. b. would have to increase the money supply. This would move unemployment further from the natural rate. c. would have to decrease the money supply. This would move unemployment closer to the natural rate. d. would have to decrease the money supply. This would move unemployment further from the natural rate.

3 363 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Inflation reduction MSC: Analytical

11.

If a central bank were required to target inflation at zero, then when there was an unanticipated increase in aggregate supply the central bank a. would have to increase the money supply. This would move unemployment closer to the natural rate. b. would have to increase the money supply. This would move unemployment further from the natural rate. c. would have to decrease the money supply. This would move unemployment closer to the natural rate. d. would have to decrease the money supply. This would move unemployment further from the natural rate.

3 363 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Inflation reduction MSC: Analytical

12. Which of the following could the government do to decrease the costs of inflation without lowering the

inflation rate? a. Avoid unexpected changes in the inflation rate. b. Rewrite the tax laws so that nominal gains were taxed instead of real gains. c. Make policy that would discourage firms from issuing indexed bonds. d. All of the above are correct.

2 363

ANS: A NAT: Analytic TOP: Inflation costs DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

13. Which inflation costs could the government take actions to reduce without reducing inflation? shoeleather and menu costs

unintended changes in tax liabilities and arbitrary redistributions of wealth a. b. menu costs and relative price variability c. d. None of the above is correct.

1 363 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Inflation costs MSC: Applicative

14. An individual would suffer lower losses from an unexpectedly higher inflation rate if

a. b. c. d. she held much currency and owned few bonds. she held much currency and owned many bonds. she held little currency and owned few bonds. she held little currency and owned many bonds.

1 363

ANS: C NAT: Analytic TOP: Inflation costs REF: DIF: LOC: Understanding and applying economic models MSC: Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

86

15. An individual would suffer higher losses by an unexpectedly higher inflation rate if

a. b. c. d. she held much currency and owned few bonds. she held much currency and owned many bonds. she held little currency and owned few bonds. she held little currency and owned many bonds.

1 363

ANS: B NAT: Analytic TOP: Inflation costs REF: DIF: LOC: Understanding and applying economic models MSC: Interpretive

16.

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation? a. High inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation. Inflation reduction works best when it is unexpected, and people in high inflation countries would b. quickly anticipate any change in monetary policy. In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs. In a country where inflation has been high for a long time, there are no costs to the inflation. d.

3 363

ANS: C NAT: Analytic Inflation TOP: REF: DIF: LOC: Understanding and applying economic models MSC: Applicative

17. A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

a. b. c. d. high, and the reduction is unexpected. high, and the reduction is expected. low, and the reduction is unexpected. low, and the reduction is expected.

2 363 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Inflation reduction MSC: Analytical

18. A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

a. b. c. d. high, and the reduction is unexpected. high, and the reduction is expected. low, and the reduction is unexpected. low, and the reduction is expected.

2 363 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Inflation reduction MSC: Analytical

19. An economist would be more likely to argue against reducing inflation if she thought that the central bank lacked credibility and if bonds were usually not indexed for inflation. the central bank lacked credibility and if bonds were usually indexed for inflation. the central bank had credibility and if bonds were usually not indexed for inflation. the central bank had credibility and if bonds were usually indexed for inflation. a. b. c. d.

2 363 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Inflation costs MSC: Applicative

20. Zero inflation

a. might be dangerous because it could lead to rapidly increasing prices. b. would limit the flexibility of the labor market and so could at times raise unemployment. c. would make it easy for the Central bank to create negative real interest rates. d. is impossible to achieve in the real world.

2 363 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Inflation reduction MSC: Applicative

Chapter 36/Five Debates Over Macroeconomic Policy

87 (cid:0) 21. Alan Blinder believes

a. we must attain zero percent inflation. b. c. d. the sacrifice for zero inflation is small. the costs from low inflation are modest. balanced budgets are essential to inflation targetting.

3 363 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Inflation reduction MSC: Applicative

22.

Some economists beleive that there are positives from a little inflation and that it may “grease the wheels” a. b. c. d. in the stock market. in the foreign exchange market. in the bond market. in the labor market.

2 363 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Inflation reduction MSC: Applicative

23. An added benefit of low levels of inflation is that it allows for the possibility of

a. menu costs. b. c. d. aggregate supply shocks. negative real interest rates. recessions.

2 363 DIF: REF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Inflation reduction MSC: Applicative

Sec04Five debates over macroeconomic policy Should the government balance its budget?

MULTIPLE CHOICE

The national debt a. b. c. d. exists because of past government budget deficits. is the difference between the government's spending and revenue in a given year. is the amount households owe on credit cards, mortgages and other loans. is the same as the government's budget deficit.

1 REF: 364

ANS: A NAT: Analytic TOP: Budget deficits DIF: LOC: The study of economics and definitions in economics Definitional MSC:

Part of the argument against deficits is that they increase interest rates and investment. a. increase interest rates and decrease investment. b. decrease interest rates and investment. c. decrease interest rates and increase investment. d.

1 364 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Budget deficits MSC: Applicative

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

88

If the budget deficit were reduced a. b. c. d. interest rates and investment would increase. interest rates would increase and investment would decrease. interest rates and investment would decrease. interest rates would decrease and investment would increase.

1 364 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Budget deficits MSC: Applicative

Over time continued budget deficits lead to a. b. c. d. a higher capital stock and higher real wages. a higher capital stock and lower real wages. a lower capital stock and higher real wages. a lower capital stock and lower real wages.

2 364 REF: DIF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Budget deficits MSC: Applicative

In fiscal year 2001, the U.S. government ran a surplus of about $127 billion. In fiscal year 2002, the government ran a deficit of $159 billion. This change would be expected to have a. b. c. d. decreased interest rates and investment. decreased interest rates and increased investment. increased interest rates and investment. increased interest rates and decreased investment.

2 364 DIF: REF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Budget deficits MSC: Applicative

6. Which of the following is not correct? a. A potential cost of deficits is that they reduce national saving, thereby reducing growth of the capital stock and output growth. b. Deficits give people the opportunity to consume at the expense of their children, but they do not require them to do so.

c. The U.S. debt perperson is large compared with average lifetime income. d. In 2005, the U.S. government ran a deficit.

2 364 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Budget deficits MSC: Interpretive

7. Which of the following is correct?

a. Deficits always require people to consume at the expense of their children. b.

If the government uses funds to pay for investment programs, on net the debt need not burden future generations. c. If the government is indebt it must be running a deficit currently. d. The current government debt is a large share of lifetime income.

2 364 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Budget deficits MSC: Interpretive

8. Which of the programs below would not transfer wealth between young and old generations?

a. Taxes are raised to provide better education. b. Taxes are raised to improve government infrastructure such as roads and bridges. c. Taxes are raised to provide more generous Social Security benefits. d. Taxes are raised to provide more generous Medicare benefits.

1 364 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Budget deficits MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy

89 (cid:0) 9. Which of the programs below would transfer wealth from the young to the old?

a. Taxes are raised to provide better education. b. Taxes are raised to improve government infrastructure such as roads and bridges. c. Taxes are raised to provide more generous Social Security benefits. d. None of the above transfer wealth form the young to the old.

1 364 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Budget deficits MSC: Analytical

10. Which of the following would transfer wealth from old to young? Increases in the budget deficit.

a. b. Decreased building of highways and bridges. c. More generous education subsidies. d. Indexation of Social Security benefits to inflation.

1 364 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Budget deficits MSC: Analytical

11. Which of the following is not correct?

a. Government debt can continue to rise forever. b. If the government uses funds to pay for investment programs, on net the debt need not burden future generations.

c. Social Security does not transfer wealth from younger generations to older generations. d. The average U.S. citizens' share of the government debt represents about 1 percent of her lifetime income.

1 364 DIF: REF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Budget deficits MSC: Definitional

12. The average person's share of the U.S. government debt as a percentage of lifetime income is

a. b. c. d. less than 2 percent. about 5 percent. about 10 percent. over 12 percent.

1 REF: 364

ANS: A NAT: Analytic TOP: Debt DIF: LOC: The study of economics and definitions in economics MSC: Definitional

13.

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is a. b. c. d. sustainable, but the future burden on your children cannot be offset. sustainable, and the future burden on your children can be offset if you save for them. not sustainable, and the future burden on your children cannot be offset. not sustainable, but the future burden on your children can be offset if you save for them.

3 364 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Budget deficits substanability MSC: Analytical

14.

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 3 percent per year. Then the government can have a deficit of about 6 percent of GDP without raising the debttoincome ratio. a. 5 percent of GDP without raising the debttoincome ratio. b. 1.5 percent of GDP without raising the debttoincome ratio. c. 1 percent of GDP without raising the debttoincome ratio. d.

2 364 DIF: REF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Debttoincome ratio MSC: Applicative

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

90

15.

Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 1 percent per year. Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency. Which of the following government spending and taxation figures will not raise the debttoincome ratio? a. b. c. d. government spending equal to 20 billion units and tax collections equal to 16 billion units government spending equal to 20 billion units and tax collections equal to 14 billion units government spending equal to 20 billion units and tax collections equal to 10 billion units government spending equal to 20 billion units and tax collections equal to 8 billion units

3 364 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Debttoincome ratio MSC: Applicative

16.

Suppose that the country of Aquilonia has an inflation rate of about 5 percent per year and a real growth rate of about 5 percent per year. Suppose also that it has nominal GDP of about 200 billion units of currency and current nominal national debt of 150 billion units of domestic currency. Which of the following government spending and taxation figures will not raise the debttoincome ratio? a. b. c. d. government spending equal to 50 billion units and tax collections equal to 76 billion units government spending equal to 50 billion units and tax collections equal to 14 billion units government spending equal to 50 billion units and tax collections equal to 10 billion units government spending equal to 50 billion units and tax collections equal to 8 billion units

3 364 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Debttoincome ratio MSC: Applicative

17.

From the end of 2003 to the end of 2004, the United States ran a deficit of about $121 billion. The debt at the start of this period was about $3,924 billion. Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit and kept the ratio of real GDP to the deficit about the same? a. b. c. d. about 1% inflation and about 1% real GDP growth about 1% inflation and about 3% real GDP growth about 2% inflation and about 1% real GDP growth about 2% inflation and about 2% real GDP growth

3 364 DIF: REF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Burden of the debt MSC: Analytical

18. At the end of 2003, the government had a debt of about $3,924 billion. During 2004, real GDP grew by about

4.2 percent and inflation was about 2.6 percent. About what is the largest deficit the government could have run without raising the debttoGDP ratio? a. About $63 billion. b. About $165 billion. c. About $267 billion. d. About $429 billion.

3 364 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Burden of the debt MSC: Analytical

19.

If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if a. b. c. d. real GDP rose and the inflation rate were positive. real GDP rose and the inflation rate were negative. real GDP fell and the inflation rate were positive. real GDP fell and the inflation rate were negative.

2 364 DIF: REF: LOC: Understanding and applying economic models ANS: D NAT: Analytic TOP: Burden of the debt MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy

91 (cid:0) 20. Which of the following is not correct?

a. Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.

b. Deficits and surpluses could be used to avoid fluctuations in the tax rate. c. The only times deficits have increased have been during times of war or economic downturns. d. Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.

2 364 DIF: REF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Budget deficits MSC: Definitional

21. Which of the following is not an argument in favor of requiring the government to balance its budget?

a. Government debt imposes higher taxes or more borrowing on future generations. b. A balanced budget will smooth the business cycle. c. Deficits lower national saving. d. Recent history shows that Congress will run deficits even when deficits are not justified by war or recession.

2 364

ANS: B NAT: Analytic TOP: Balanced budget DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

22. Which of the following is not an argument against requiring the government to balance its budget?

a. Some economists believe that rules are better than discretion. b. Percapita debt is small relative to lifetime income. c. The effect of deficit spending on future generations depends in part on what the government buys. d. Other government policies also redistribute income across generations.

2 364

ANS: A NAT: Analytic TOP: Balanced budget DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

23. A balanced budget would require that when real GDP was growing rapidly, a.

d. the government raise taxes or cut expenditures. This would increase the magnitude of economic fluctuations. the government raise taxes or cut expenditures. This would decrease the magnitude of economic fluctuations. the government cut taxes or raise expenditures. This would increase the magnitude of economic fluctuations. the government cut taxes or raise expenditures. This would decrease the magnitude of economic fluctuations.

2 364 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Balanced budget MSC: Analytical

24.

In 2008 the federal debt was a. b. c. d. $17 billion. $710 billion. $5.2 trillion. $52 trillion.

1 REF: 364

ANS: C NAT: Analytic TOP: Debt DIF: LOC: The study of economics and definitions in economics MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

92

25. Which of the following statements is not true?

a. All budget deficits can be justified as being due to war or recession. b. The U.S. federal debt in 2008 was $5.2 trillion. c. Government debt represets about 1 percent of a typical worker’s lifetime resources. d. Forward looking parents can reverse adverse effects of government debt.

2 364 REF: DIF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Balanced budget MSC: Analytical

26.

Social Security and government healthinsurance programs account for a. b. c. d. less than 2% of the federal spending. 5.2% of federal spending. 42% of federal spending. 52% of federal spending.

2 REF: 364 DIF: LOC: The study of economics and definitions in economics ANS: C NAT: Analytic TOP: Balanced budget MSC: Definitional

27. The major driver of future federal spending is

interest on the federal debt. a. b. Social Security obligations. rising health care costs. c. energy prices. d.

2 REF: 364 DIF: LOC: The study of economics and definitions in economics ANS: C NAT: Analytic TOP: Balanced budget MSC: Definitional

28. What grade did David Wessel give to the budget policy “wonks”?

a. b. c. d. ‘A’ for effort, ‘A’ for results. ‘A’ for effort, ‘C’ for results. ‘C’ for effort, ‘A’ for results. ‘D’ for effort, ‘F’ for results.

2 REF: 364 DIF: LOC: The study of economics and definitions in economics ANS: B NAT: Analytic TOP: Balanced budget MSC: Definitional

Sec 05Five debats over macroeconomic policy Should the tax laws be reformed to encourage saving?

MULTIPLE CHOICE

1. Which of the following is correct?

a. No forms of capital income are taxed twice. b. The tax code cannot be rewritten to provide greater incentive to save. c. Meanstested benefits increase the incentive to save. d. There is a correlation between national savings rates and measures of economic wellbeing.

1 365 DIF: REF: LOC: The role of incentives TOP: Saving incentives ANS: D NAT: Analytic MSC: Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy

93 (cid:0) 2.

other things the same, taxes increase the return from savings.

U.S. public policy discourages saving because a. b. means tested programs such as Medicaid provide lower benefits to those who did not save. c. d. none of parents’ bequest to their children is taxed. some forms of capital income are taxed twice.

1 365 REF: DIF: LOC: The role of incentives TOP: Saving incentives ANS: D NAT: Analytic MSC: Definitional

Double taxation means that both a. wage income and interest income are taxed, which is currently the case in the United States. b. wage income and interest income are taxed, which is not currently the case in the United States. c.

d. the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States. the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States.

1 REF: 365

ANS: D NAT: Analytic TOP: Double taxation DIF: LOC: The study of economics and definitions in economics Definitional MSC:

4. Meanstested programs tend to favor

a. b. c. d. those with high income as would a consumption tax. those with high income while a consumption tax would favor those with low income. those with low income as would a consumption tax. those with low income while a consumption tax would favor those with high income.

365 2

ANS: D NAT: Analytic TOP: Meanstested programs | Consumption tax DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

Proponents of taxlaw changes to encourage saving would argue that corporate tax rates should be increased. a. eliminate or reduce the meanstests for government benefits. b. argue that state sales tax should be replaced with state income tax. c. favor none of the above programs. d.

365 1

ANS: D NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

Of means tested programs and IRA’s, which lower the rate of return on saving? a. Both meanstested programs and IRA's. b. Meanstested programs, but not IRA's. c. IRA's but not meanstested programs. d. Neither meanstested program, or IRA's.

2 365 REF: DIF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: IRA's | Meanstested programs MSC: Definitional

7. Which of the following would likely increase private saving?

a. Both expansion of IRA type accounts and a consumption tax. b. Expansion of IRA type accounts, but not a consumption tax. c. A consumption tax, but not expansion of IRA type accounts. d. Neither expansion of IRA type accounts nor a consumption tax.

1 365 REF: DIF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: IRA's | Consumption tax MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

94

impose added taxes on those who save. place no limits on the amount people can deposit into these programs. impose penalties for withdrawals except under certain circumstances. IRA, 401(k), 403(b), and Keogh plans a. b. c. d. None of the above is correct.

1 365 REF: DIF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Saving incentives MSC: Definitional

Assuming that the substitution effect is large relative to the income effect, tax reform designed to increase saving a. b. c. d. increases the interest rate and decreases spending on capital goods. increases the interest rate and increases spending on capital goods. decreases the interest rate and increases spending on capital goods. decreases the interest rate and decreases spending on capital goods.

1 365 DIF: REF: LOC: Understanding and applying economic models ANS: C NAT: Analytic TOP: Substitution and income effect MSC: Applicative

10. Which of the following is not an argument by those who oppose taxlaw changes to encourage saving?

a. Saving is not very responsive to changes in the tax rate. b. Saving is not an important determinant of a nation's ability to produce output. c. Reducing the budget deficit instead of changing the tax laws could raise saving. d. Changes in the tax laws to induce saving would distribute the tax burden less fairly.

365 1

ANS: B NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

11. A higher rate of return on saving has

a. b. c. d. an income effect that discourages saving and a substitution effect that encourages saving. an income effect that encourages saving and a substitution effect that discourages saving. income and substitution effects that both decrease saving. income and substitution effects that both increase saving.

2 365 DIF: REF: LOC: Understanding and applying economic models Income and substitution effects MSC: Applicative ANS: A NAT: Analytic TOP:

12.

Suppose the tax rate on interest income from saving were reduced. a. The income effect, but not the substitution effect, would tend to reduce private saving. b. The substitution effect, but not the income effect, would tend to reduce private saving. c. Both the income and substitution effect would tend to reduce private saving. d. Neither the income nor the substitution effect would tend to reduce private saving.

2 365 DIF: REF: LOC: Understanding and applying economic models ANS: A NAT: Analytic TOP: Income and substitution effects MSC: Analytical

Chapter 36/Five Debates Over Macroeconomic Policy

95 (cid:0) 13. A decrease in the tax rate is more likely to increase national saving if

d. the income effect of a change in the interest rate is small and an increase in private saving tends to have a small impact on the capital stock. the income effect of a change in the interest rate is small and an increase in private saving tends to have a large impact on the capital stock. the income effect of a change in the interest rate is large and an increase in private saving tends to have a small impact on the capital stock. the income effect of a change in the interest rate is large and an increase in private saving tends to have a large impact on the capital stock.

2 365

ANS: B NAT: Analytic TOP: Saving DIF: REF: LOC: Understanding and applying economic models MSC: Analytical

14. A reduction in the tax rate on income from saving would a. most directly benefit the poor in the short run. b. c. d. increase real wages over time. decrease the capital stock over time. decrease productivity over time.

1 365 REF: DIF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Saving incentives MSC: Applicative

15. Which of the following is not an argument in favor of reforming the tax laws to encourage saving?

a. Saving is a key determinant of longrun prosperity. b. Current tax laws discourage saving for the purpose of leaving a large bequest. c. The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving. d. The tax code currently taxes some forms of capital income twice.

365 2

ANS: C NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

16. Which of the following is not an argument against reforming the tax laws to encourage saving?

a. A public budget surplus can raise national saving. b. The substitution effect of a higher return to saving may be about equal to the income effect of a higher return to saving.

c. Lowincome households save a larger fraction of their income than highincome households. d. Tax cuts might cause a budget deficit.

365 2

ANS: C NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

17. Accumulated over a long span of time, the tax rate on interest income

a. b. c. d. removes all benefits from saving. reduces the benefits from saving by a small amount. reduces the benefits from saving by a large amount. does nor reduce any of the benefits from saving.

365 2

ANS: C NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

96

18. Other policies that reduce the incentive for households to save include

a. meanstesting. b. College and univeristy financial aid administration. c. inheritance taxes. d. All of the above.

365 1

ANS: D NAT: Analytic TOP: Saving incentives REF: DIF: LOC: Understanding and applying economic models MSC: Interpretive

19.

income effect equaled the substitution effect. income effect outweighed the substitution effect. the substitution effect outweighed the income effect. If a reduction in taxes on savings reduced the amount of saving, then the a. b. c. d. None of the above.

2 365 REF: DIF: LOC: Understanding and applying economic models ANS: B NAT: Analytic TOP: Saving incentives MSC: Analytical

20. Tax policy changes that favor people who save will

a. b. c. d. favor lowincome households. favor people with high income. create a more egalitarian society. unambicuously increase national saving.

365 2

ANS: B NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

21. Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from

Chapter 1? a. The cost of something is what you give up to get it (Principle 2). b. Trade can make everyone better off (Principle 5). c. Markets are usually a good way to organize economic activity (Principle 6). d. A country’s standard of living depends on its ability to produce goods and services (Principle 8).

365 2

ANS: D NAT: Analytic TOP: Saving incentives DIF: REF: LOC: Understanding and applying economic models MSC: Interpretive

Sec 06Five Debates over macroeconomic policy Conclusion

MULTIPLE CHOICE

The five debates over macroeconomic policy exist mostly because a. b. c. d. economists disagree over basic issues such as the importance of saving for economic growth. there are tradeoffs and people disagree about the best way to deal with them. politicians offer misleading information. people fail to clearly see the benefits or the costs of most changes.

REF: 366 1 DIF: LOC: The study of economics and definitions in economics ANS: B NAT: Analytic TOP: Five debates over macroeconomic policy MSC: Interpretive

Chapter 36/Five Debates Over Macroeconomic Policy

97 (cid:0) 2.

The discussion in this chapter should a. make you a better participant in our national debates. b. make it easy to choose between policy alternatives. c. mislead you into political discussions. d. show you the benefits but not the costs of policy options.

DIF: 1 REF: 366 ANS: A TOP: Five debates over macroeconomic policy MSC: Interpretive

Chapter 36: Five debates over macroeconomic policy

Chapter 36 Five Debates Over Macroeconomic Policy

66

Chapter 36/Five Debates Over Macroeconomic Policy

67 (cid:0) 10. A recession has no benefit to society­it represents a sheer waste of resources.

68

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0) 20. The cost of inflation reduction is less if people believe that the central bank will really reduce inflation.

Chapter 36/Five Debates Over Macroeconomic Policy

69 (cid:0) 31.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

70

Chapter 36/Five Debates Over Macroeconomic Policy

71 (cid:0) 8.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

72

73 (cid:0)

Chapter 36/Five Debates Over Macroeconomic Policy

Sec 01­­Five debates over macroeconomic policy Should monetary policy be used to try to stabilize the economy?

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

74

Chapter 36/Five Debates Over Macroeconomic Policy

75 (cid:0) 12.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

76

Chapter 36/Five Debates Over Macroeconomic Policy

77 (cid:0) 23. Which of the following is an argument against trying to use policy to stabilize the economy?

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

78

Sec 02­­Five debates over macroeconomic policy Should monetary policy be made by rule rather than by discretion?

Chapter 36/Five Debates Over Macroeconomic Policy

79 (cid:0) 4.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

80

Chapter 36/Five Debates Over Macroeconomic Policy

81 (cid:0) 14.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

82

83 (cid:0)

Chapter 36/Five Debates Over Macroeconomic Policy

Sec 03­­Five debates over macroeconomic policy Should the central bank aim for zero inflation?

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

84

Chapter 36/Five Debates Over Macroeconomic Policy

85 (cid:0) 10.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

86

Chapter 36/Five Debates Over Macroeconomic Policy

87 (cid:0) 21. Alan Blinder believes

Sec04­­Five debates over macroeconomic policy Should the government balance its budget?

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

88

Chapter 36/Five Debates Over Macroeconomic Policy

89 (cid:0) 9. Which of the programs below would transfer wealth from the young to the old?

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

90

Chapter 36/Five Debates Over Macroeconomic Policy

91 (cid:0) 20. Which of the following is not correct?

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

92

Sec 05­­Five debats over macroeconomic policy Should the tax laws be reformed to encourage saving?

Chapter 36/Five Debates Over Macroeconomic Policy

93 (cid:0) 2.

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

94

Chapter 36/Five Debates Over Macroeconomic Policy

95 (cid:0) 13. A decrease in the tax rate is more likely to increase national saving if

Chapter 36/Five Debates Over Macroeconomic Policy (cid:0)

96

Sec 06­­Five Debates over macroeconomic policy Conclusion

Chapter 36/Five Debates Over Macroeconomic Policy

97 (cid:0) 2.

Có thể bạn quan tâm

Tài liêu mới

AI tóm tắt

Giới thiệu tài liệu

Đối tượng sử dụng

Từ khoá chính

Nội dung tóm tắt

Giới thiệu

Về chúng tôi

67 (cid:0) 10. A recession has no benefit to societyit represents a sheer waste of resources.

Sec 01Five debates over macroeconomic policy Should monetary policy be used to try to stabilize the economy?

Sec 02Five debates over macroeconomic policy Should monetary policy be made by rule rather than by discretion?

Sec 03Five debates over macroeconomic policy Should the central bank aim for zero inflation?

Sec04Five debates over macroeconomic policy Should the government balance its budget?

Sec 05Five debats over macroeconomic policy Should the tax laws be reformed to encourage saving?

Sec 06Five Debates over macroeconomic policy Conclusion