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Exam 36: Six Debates Over Macroeconomic Policy

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Question 71

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If net exports fall, what actions could a central bank take to stabilize the economy?

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Increase the money s...

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Question 72

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Some economists argue that policymakers can use monetary and fiscal policy to reduce the severity of economic fluctuations. What are some things policymakers can do to boost the economy when aggregate demand is inadequate to ensure full employment?

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Policymakers can increase gove...

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Question 73

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One concern of those who oppose the central bank targeting inflation at zero is that reducing inflation is costly. What is the cost of reducing the inflation rate?

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

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

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

Why might tax cuts be more appropriate than increasing government expenditures to counter recessions? Is there any evidence for this thinking?

Describe three costs of inflation.

President Barack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand model, which of these policies would tend to reduce unemployment?

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

A recession has no benefit to society-it represents a sheer waste of resources.

Which of the following likely occurs when households and firms become more pessimistic?

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

Tax cuts affect only aggregate demand not aggregate supply.

The Federal Reserve will tend to tighten monetary policy with the goal is to stabilize the economy when

A reduction in the marginal tax-rate includes an income effect that tends to increase savings.

Some economists believe that there are positives from a little inflation and that it may "grease the wheels" in the

Once state and federal taxes are added together, a typical worker faces about a 40 percent marginal tax-rate on interest income.

Means-tested government programs tend to reduce saving. What are means-tested programs and how do they reduce saving?

Identify three government policies that discourage saving.