Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The Bank of Canada decreased interest rates in 2008 and again in 2009. By doing this, what did the Bank of Canada do to the money supply and why?

Accepted Answer

A)   It increased the money supply because it was concerned about unemployment.
B)   It increased the money supply because it was concerned about inflation.
C)   It decreased the money supply because it was concerned about unemployment.
D)   It decreased the money supply because it was concerned about inflation.E) B) and C)
F) A) and D)

Question 3

Proponents of zero inflation argue that reducing inflation involves which of the following?

Accepted Answer

A)   permanent costs and temporary benefits
B)   temporary costs and permanent benefits
C)   permanent costs and benefits
D)   temporary costs and benefitsE) B) and C)
F) A) and B)

Question 4

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

Accepted Answer

Both are prone to lags, but the lags are...

Question 5

In which of the following situations does the government NOT need to balance its budget?

Accepted Answer

A)   if nominal GDP grows faster than the growth in debt
B)   if nominal GDP grows slower than the growth in debt
C)   if inflation is zero
D)   if inflation is higher than the growth in debtE) A) and B)
F) None of the above

Question 6

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion)  important?

Accepted Answer

A)   Monetary policy has a large and lasting influence on aggregate demand and therefore on employment and income.
B)   Elected policymakers can benefit from manipulating monetary policy.
C)   Monetary policy announcements will be more credible.
D)   Countries with the most independent central banks tend to have the highest rates of inflation.E) A) and B)
F) B) and C)

Question 7

Tax laws do not give preferential treatment to some kinds of retirement saving.

Accepted Answer

A) True 
 B)False

Question 8

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue, so it has little discretion in making policy.

Accepted Answer

A) True 
 B)False

Question 9

During the financial year 2017-2018, the government of Canada ran a deficit of $19 billion, increasing the government's public debt to $671.3 billion. (The debt-to-GDP ratio was 31.3 percent, which was down from the preceding year. Source: Government of Canada, Annual Financial report, HYPERLINK "https://www.fin.gc.ca/afr-rfa/2018/report-rapport-eng.asp" https://www.fin.gc.ca/afr-rfa/2018/report-rapport-eng.asp). Assuming an inflation rate of 2 percent, what real GDP growth rate would have allowed the government to run a deficit this large without raising the debt-to-income ratio?

Accepted Answer

The percentage change in the Debt to (no...

Question 10

In which situation is a program to reduce inflation likely to have the highest costs?

Accepted Answer

A)   if the sacrifice ratio is high and the reduction is unexpected
B)   if the sacrifice ratio is high and the reduction is expected
C)   if the sacrifice ratio is low and the reduction is unexpected
D)   if the sacrifice ratio is low and the reduction is expectedE) B) and D)
F) A) and C)

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

If inflation is usually about what peopl...

Question 13

In general, what is the longest lag for fiscal and monetary policy?

Accepted Answer

A)   For both fiscal and monetary policy, it is the time it takes to change policy.
B)   For both fiscal and monetary policy, it is the time it takes for policy to affect aggregate demand.
C)   For monetary policy, it is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand.
D)   For fiscal policy, it 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.E) B) and C)
F) A) and C)

Question 14

Why should monetary policy be made by rule rather than discretion?

Accepted Answer

A)   There is a clear consensus among economists about what a good monetary policy rule would be.
B)   Rules would eliminate the political business cycle.
C)   Rules respond to any random shock in the economy.
D)   Rules create time inconsistency.E) A) and B)
F) A) and C)

Question 15

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, what must the central bank do, and what will happen to output?

Accepted Answer

A)   The central bank must decrease the money supply, which will move output back toward its long-run level.
B)   The central bank must decrease the money supply, which will move output farther from its long-run level.
C)   The central bank must increase the money supply, which will move output back toward its long-run level.
D)   The central bank must increase the money supply, which will move output farther from its long-run level.E) A) and D)
F) B) and C)

Question 16

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

Accepted Answer

The political business cycle describes t...

Question 17

Why should the tax laws to encourage saving remain as they are?

Accepted Answer

A)   because a decrease in taxes would primarily benefit the wealthy
B)   because tax rates on savings are relatively low
C)   because people would probably save more than if taxes were lowered
D)   because tax cuts might cause a budget deficitE) C) and D)
F) B) and C)

Question 18

If firms were faced with greater uncertainty because of concerns that the U.S. will place tariffs on Canadian-made goods, they may start to decrease their purchases of new machinery. What response might someone who advocated for "lean against the wind" policies support?

Accepted Answer

A)   decrease the money supply
B)   increase taxes
C)   decrease government expenditures
D)   decrease interest ratesE) A) and C)
F) None of the above

Question 19

Suppose that in fiscal year 2019 the government ran a deficit of about $249 billion. The debt at the start of this period was about $5971 billion. Which of the following combinations of inflation and real GDP would have allowed the government to run a deficit this large without raising the debt-to-income ratio?

Accepted Answer

A)   inflation = 2 percent; real GDP growth = 3 percent
B)   inflation = 3 percent; real GDP growth = -1.5 percent
C)   inflation = 3 percent; real GDP growth = 1 percent
D)   inflation = 1.5 percent; real GDP growth = 1 percentE) B) and D)
F) B) and C)

Question 20

The theory of a flat short-run aggregate-supply curve implies that an increase in money supply should increase output and employment, while the price level should increase at a slow pace.
a. Why does output increase sometimes much slowly than this theory might predict?
b. How would low inflation hinder economic growth?

Accepted Answer

a. The theory's prediction is based on t...

Exam 18: Five Debates Over Macroeconomic Policy

The Bank of Canada decreased interest rates in 2008 and again in 2009. By doing this, what did the Bank of Canada do to the money supply and why?

Correct Answer
verified

Correct Answer
verified
The percentage change in the Debt to (no...
View Answer

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

Correct Answer
verified
The political business cycle describes t...
View Answer

In general, what is the longest lag for fiscal and monetary policy?

Correct Answer
verified

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

Correct Answer
verified
Both are prone to lags, but the lags are...
View Answer

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.

Correct Answer
verified

Correct Answer
verified

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion) important?

Correct Answer
verified

In which of the following situations does the government NOT need to balance its budget?

Correct Answer
verified

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct Answer
verified

Why should the tax laws to encourage saving remain as they are?

Correct Answer
verified

Why should monetary policy be made by rule rather than discretion?

Correct Answer
verified

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

Correct Answer
verified

In which situation is a program to reduce inflation likely to have the highest costs?

Correct Answer
verified

Correct Answer
verified

If firms were faced with greater uncertainty because of concerns that the U.S. will place tariffs on Canadian-made goods, they may start to decrease their purchases of new machinery. What response might someone who advocated for "lean against the wind" policies support?

Correct Answer
verified

Correct Answer
verified
a. The theory's prediction is based on t...
View Answer

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue, so it has little discretion in making policy.

Correct Answer
verified

Proponents of zero inflation argue that reducing inflation involves which of the following?

Correct Answer
verified

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?

Correct Answer
verified
If inflation is usually about what peopl...
View Answer

Exam 18: Five Debates Over Macroeconomic Policy

The Bank of Canada decreased interest rates in 2008 and again in 2009. By doing this, what did the Bank of Canada do to the money supply and why?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe percentage change in the Debt to (no...View AnswerShow Answer

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

Correct AnswerverifiedThe political business cycle describes t...View AnswerShow Answer

In general, what is the longest lag for fiscal and monetary policy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedBoth are prone to lags, but the lags are...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why is accountability for monetary policy choices (as opposed to giving policymakers undisciplined discretion) important?

Correct AnswerverifiedShow Answer

In which of the following situations does the government NOT need to balance its budget?

Correct AnswerverifiedShow Answer

Tax laws do not give preferential treatment to some kinds of retirement saving.

Correct AnswerverifiedShow Answer

Why should the tax laws to encourage saving remain as they are?

Correct AnswerverifiedShow Answer

Why should monetary policy be made by rule rather than discretion?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which situation is a program to reduce inflation likely to have the highest costs?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If firms were faced with greater uncertainty because of concerns that the U.S. will place tariffs on Canadian-made goods, they may start to decrease their purchases of new machinery. What response might someone who advocated for "lean against the wind" policies support?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The theory's prediction is based on t...View AnswerShow Answer

The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue, so it has little discretion in making policy.

Correct AnswerverifiedShow Answer

Proponents of zero inflation argue that reducing inflation involves which of the following?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedIf inflation is usually about what peopl...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified
The percentage change in the Debt to (no...
View Answer

Correct Answer
verified
The political business cycle describes t...
View Answer

Correct Answer
verified

Correct Answer
verified
Both are prone to lags, but the lags are...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. The theory's prediction is based on t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If inflation is usually about what peopl...
View Answer