Question 1

If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low, how would the Phillips curve shift?

Accepted Answer

A)   The short-run Phillips curve would shift up.
B)   The short-run Phillips curve would shift down.
C)   The long-run Phillips curve would shift right.
D)   The long-run Phillips curve would shift left.E) A) and B)
F) B) and C)

Question 2

Which statement is consistent with the political business cycle theory?

Accepted Answer

A)   The economy expands after the elections.
B)   The economy contracts after the elections.
C)   The economy expands before the elections.
D)   The economy contracts before the elections.E) A) and D)
F) A) and B)

Question 3

What does the time inconsistency of monetary policy mean?

Accepted Answer

A)   It means that once people have formed expectations of low inflation, based on a promise by the central bank, policymakers are tempted to raise inflation in order to lower unemployment and gain favour with voters.
B)   It means that sometimes 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)   It means that monetary policy is not consistent across time because it is influenced by politics.
D)   It means that monetary policy cannot be consistent across time because the rate of inflation is fluctuating.E) B) and C)
F) All of the above

Question 4

Advocates of stabilization policy argue that when there is a recession, the government should decrease the money supply and increase government expenditures.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following phrases best describes people's opposition to having an independent central bank?

Accepted Answer

A)   "show me the money"
B)   "garbage in, garbage out"
C)   "money doesn't grow on trees"
D)   "taxation without representation"E) None of the above
F) B) and C)

Question 6

Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation. What will happen to the short-run Phillips curve and the sacrifice ratio?

Accepted Answer

A)   The short-run Phillips curve remains to the left, and the sacrifice ratio will be low.
B)   The short-run Phillips curve remains to the left, and the sacrifice ratio will be high.
C)   The short-run Phillips curve remains to the right, and the sacrifice ratio will be low.
D)   The short-run Phillips curve remains to the right, and the sacrifice ratio will be high.E) None of the above
F) All of the above

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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)   pass legislation to discourage inflation-adjusted work contractsE) C) and D)
F) A) and B)

Question 9

Why do many economists advocate a consumption tax rather than an income tax?

Accepted Answer

The current income tax means that income...

Question 10

What happens to economies when they are left alone?

Accepted Answer

A)   they fluctuate
B)   they tend to grow at a faster rate
C)   they tend to grow at a slower rate
D)   they usually crash every eight to ten yearsE) All of the above
F) A) and B)

Question 11

If the Canadian government went from a budget deficit to a budget surplus, what would we expect to happen to interest rates and investment?

Accepted Answer

A)   an increase in interest rates and an increase in investment
B)   an increase in interest rates and a decrease in investment
C)   a decrease in interest rates and a decrease in investment
D)   a decrease in interest rates and an increase in investmentE) C) and D)
F) All of the above

Question 12

Which of the following is a part of the argument against deficits?

Accepted Answer

A)   They increase interest rates and investment.
B)   They increase interest rates and decrease investment.
C)   They decrease interest rates and investment.
D)   They decrease interest rates and increase investment.E) A) and B)
F) B) and D)

Question 13

Would economists say that, in general, the Canadian tax system encourages saving?

Accepted Answer

A)   Yes, because the taxes on capital gains are low.
B)   No, because consumption taxes are generally high.
C)   Yes, because some forms of capital gains are not taxed.
D)   No, because the taxes on capital gains are high.E) B) and D)
F) None of the above

Question 14

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

Accepted Answer

The benefits of the project ac...

Question 15

Deficits do not necessarily burden future generations. Discuss and provide some examples.

Accepted Answer

Some programs tax younger generations to...

Question 16

Suppose aggregate demand fell. In order to stabilize the economy, what might the government do?

Accepted Answer

A)   increase the interest rate
B)   decrease the money supply
C)   increase government spending
D)   decrease the government expendituresE) B) and D)
F) A) and B)

Question 17

A reduction in the tax rate on income from saving would do which of the following?

Accepted Answer

A)   It would most directly benefit the poor in the short run.
B)   It would increase labour productivity over time.
C)   It would decrease the capital stock over time.
D)   It would decrease real wages over time.E) A) and B)
F) A) and C)

Question 18

Suppose that at the start of fiscal year 2019 the government had a debt of $6300 billion. Suppose that during fiscal year 2019, real GDP grew by about 5 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)   about $126 billion
B)   about $315 billion
C)   about $441 billion
D)   about $630 billionE) A) and D)
F) B) and C)

Question 19

What does double taxation mean?

Accepted Answer

A)   Both wage income and interest income are taxed, which is currently the case in Canada.
B)   Both wage income and interest income are taxed, which is no longer the case in Canada.
C)   Both the profits of corporations and the dividends shareholders receive are taxed, which is no longer the case in Canada.
D)   Both the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in Canada.E) A) and B)
F) None of the above

Question 20

Some social programs transfer wealth from younger generations to older generations.

Accepted Answer

A) True 
 B)False

Exam 18: Five Debates Over Macroeconomic Policy

A reduction in the tax rate on income from saving would do which of the following?

Correct AnswerverifiedShow Answer

Deficits do not necessarily burden future generations. Discuss and provide some examples.

Correct AnswerverifiedSome programs tax younger generations to...View AnswerShow Answer

Suppose that at the start of fiscal year 2019 the government had a debt of $6300 billion. Suppose that during fiscal year 2019, real GDP grew by about 5 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

Why do many economists advocate a consumption tax rather than an income tax?

Correct AnswerverifiedThe current income tax means that income...View AnswerShow Answer

Which of the following phrases best describes people's opposition to having an independent central bank?

Correct AnswerverifiedShow Answer

Would economists say that, in general, the Canadian tax system encourages saving?

Correct AnswerverifiedShow Answer

Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation. What will happen to the short-run Phillips curve and the sacrifice ratio?

Correct AnswerverifiedShow Answer

If the Canadian government went from a budget deficit to a budget surplus, what would we expect to happen to interest rates and investment?

Correct AnswerverifiedShow Answer

If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low, how would the Phillips curve shift?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which statement is consistent with the political business cycle theory?

Correct AnswerverifiedShow Answer

Some social programs transfer wealth from younger generations to older generations.

Correct AnswerverifiedShow Answer

Advocates of stabilization policy argue that when there is a recession, the government should decrease the money supply and increase government expenditures.

Correct AnswerverifiedShow Answer

Which of the following is a part of the argument against deficits?

Correct AnswerverifiedShow Answer

What does double taxation mean?

Correct AnswerverifiedShow Answer

What does the time inconsistency of monetary policy mean?

Correct AnswerverifiedShow Answer

Suppose aggregate demand fell. In order to stabilize the economy, what might the government do?

Correct AnswerverifiedShow Answer

What happens to economies when they are left alone?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe benefits of the project ac...View AnswerShow Answer

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Some programs tax younger generations to...
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The current income tax means that income...
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The benefits of the project ac...
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