Question 1

During the financial year 2008-2009,the government of Canada ran a deficit of $5.8 billion,bringing the government's public debt to $463.7 billion.(The debt-to-GDP ratio was 29 percent,still down from the preceding year.Source: Government of Canada,Annual Financial report,http://www.fin.gc.ca/afr-rfa/2009/afr-rfa09-eng.pdf).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 2

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year.How are the debt and the burden on future generations created by these continuing deficits?

Accepted Answer

A)  The debt is sustainable, but the future burden on your children cannot be offset.
B)  The debt is not sustainable, and the future burden on your children cannot be offset.
C)  The debt is sustainable, and the future burden on your children can be offset if you save for them.
D)  The debt is not sustainable, but the future burden on your children can be offset if you save for them.E) B) and C)
F) A) and B)

Question 3

Suppose that at the start of fiscal year 2013 the government had a debt of $6126.5 billion.Suppose that during the same fiscal year,real GDP grew by about 3 percent and inflation was about 1 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Accepted Answer

A)  about $122 billion
B)  about $184 billion
C)  about $245 billion
D)  about $375 billionE) A) and D)
F) C) and D)

Question 4

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Accepted Answer

A) True 
 B)False

Question 5

Let d be the percentage change in government debt,g the rate of growth in real GDP,RGDP the real GDP,NGDP the nominal GDP,P the price level,and p the inflation rate.Let G[X] denote the growth rate in variable X,which is the same thing as the percentage change in X;thus,G[X] = (X2 - X1)/X1 ×100% for small changes in X.Here are two properties of the growth rate operator G: (i)G[X×Y] = G[X] + G[Y],and (ii)G[X/Y] = G[X] - G[Y].
a.Show that the growth rate in NGDP is equal to g + p, where g is the real GDP growth rate and p is the inflation rate.
b.Show that d is equal to (Deficit/Debt) × 100%.
c.Show that the percentage change in the Debt/NGDP ratio is equal to d - (g + p).
d.Show that the condition for the Debt to NGDP ratio not to increase is d = g + p.

Accepted Answer

a.Using the growth rate operator G,the g...

Question 6

How is "leaning against the wind" exemplified?

Accepted Answer

A)  by a tax cut when there is an expansion
B)  by a decrease in the money supply when there is a recession
C)  by an increase in government expenditures when there is a recession
D)  by an increase in government spending when there is an expansionE) B) and C)
F) B) and D)

Question 7

Which of the following best describes RRSP plans?

Accepted Answer

A)  They impose added taxes on those who save.
B)  They are taxed twice.
C)  They postpone income taxes.
D)  They are taxed more than other forms of savings.E) A) and B)
F) All of the above

Question 8

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) All of the above
F) B) and D)

Question 9

What effects does a higher rate of return have on saving?

Accepted Answer

A)  A higher rate of return has an income effect that discourages saving and a substitution effect that encourages saving.
B)  A higher rate of return has an income effect that encourages saving and a substitution effect that discourages saving.
C)  A higher rate of return has income and substitution effects that both decrease saving.
D)  A higher rate of return has income and substitution effects that both increase saving.E) All of the above
F) A) and D)

Question 10

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.How are the debt and the burden on future generations created by these continuing deficits?

Accepted Answer

A)  The debt is sustainable, but the future burden on your children cannot be offset.
B)  The debt is sustainable, and the future burden on your children can be offset if you save for them.
C)  The debt is not sustainable, and the future burden on your children cannot be offset.
D)  The debt is not sustainable, but the future burden on your children can be offset if you save for them.E) A) and D)
F) None of the above

Question 11

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

Accepted Answer

A) True 
 B)False

Question 12

In which of the following situations is a program to reduce inflation likely to have the lowest 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) None of the above
F) A) and B)

Question 13

How would a permanent reduction in inflation impact menu costs and unemployment?

Accepted Answer

A)  It would permanently reduce menu costs and permanently lower unemployment.
B)  It would permanently reduce menu costs and temporarily raise unemployment.
C)  It would temporarily reduce menu costs and temporarily lower unemployment.
D)  It would temporarily reduce menu costs and temporarily raise unemployment.E) B) and C)
F) B) and D)

Question 14

Which of the following do opponents of using policy to stabilize the economy generally believe?

Accepted Answer

A)  that neither fiscal nor monetary policy have much impact on aggregate demand
B)  that attempts to stabilize the economy can increase the magnitude of economic fluctuations
C)  that unemployment and inflation are not cause for much concern
D)  that unemployment is a cause for concern, but inflation is notE) C) and D)
F) B) and C)

Question 15

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 income 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 C)
F) All of the above

Question 16

How would a permanent reduction in inflation impact shoeleather costs and unemployment?

Accepted Answer

A)  It would permanently reduce shoeleather costs and permanently lower unemployment.
B)  It would permanently reduce shoeleather costs and temporarily raise unemployment.
C)  It would temporarily reduce shoeleather costs and temporarily lower unemployment.
D)  It would temporarily reduce shoeleather costs and permanently raise unemployment.E) A) and B)
F) None of the above

Question 17

The cost of inflation reduction is a small but permanent increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency.What is the highest possible deficit it can have without raising the debt-to-income ratio?

Accepted Answer

A)  just under 18 billion units
B)  just under 12 billion units
C)  just under 9 billion units
D)  just under 1 billion unitsE) All of the above
F) None of the above

Question 19

Suppose the budget deficit is rising 6 percent per year and nominal GDP is rising 10 percent per year.Which of the following best describes the debt created by these deficits?

Accepted Answer

A)  sustainable, but the future burden on your children cannot be offset
B)  not sustainable, and the future burden on your children cannot be offset
C)  not sustainable, but the future burden on your children can be offset if you save for them
D)  sustainable, and the future burden on your children can be offset if you save for themE) None of the above
F) A) and B)

Question 20

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

Accepted Answer

A higher rate of return on saving means ...

Exam 17: Five Debates over Macroeconomic Policy

In which of the following situations is a program to reduce inflation likely to have the lowest costs?

Correct Answer
verified

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct Answer
verified

Suppose the budget deficit is rising 6 percent per year and nominal GDP is rising 10 percent per year.Which of the following best describes the debt created by these deficits?

Correct Answer
verified

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

Correct Answer
verified

Which of the following do opponents of using policy to stabilize the economy generally believe?

Correct Answer
verified

The cost of inflation reduction is a small but permanent increase in unemployment.

Correct Answer
verified

Which of the following best describes RRSP plans?

Correct Answer
verified

How would a permanent reduction in inflation impact shoeleather costs and unemployment?

Correct Answer
verified

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

How would a permanent reduction in inflation impact menu costs and unemployment?

Correct Answer
verified

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

Correct Answer
verified

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

Correct Answer
verified

What effects does a higher rate of return have on saving?

Correct Answer
verified

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

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency.What is the highest possible deficit it can have without raising the debt-to-income ratio?

Correct Answer
verified

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year.How are the debt and the burden on future generations created by these continuing deficits?

Correct Answer
verified

Suppose that at the start of fiscal year 2013 the government had a debt of $6126.5 billion.Suppose that during the same fiscal year,real GDP grew by about 3 percent and inflation was about 1 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct Answer
verified

How is "leaning against the wind" exemplified?

Correct Answer
verified

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.How are the debt and the burden on future generations created by these continuing deficits?

Correct Answer
verified

Correct Answer
verified
a.Using the growth rate operator G,the g...
View Answer

Exam 17: Five Debates over Macroeconomic Policy

In which of the following situations is a program to reduce inflation likely to have the lowest costs?

Correct AnswerverifiedShow Answer

In practice,the problems created by time inconsistency and the political business cycle appear to be quite serious.

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 6 percent per year and nominal GDP is rising 10 percent per year.Which of the following best describes the debt created by these deficits?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following do opponents of using policy to stabilize the economy generally believe?

Correct AnswerverifiedShow Answer

The cost of inflation reduction is a small but permanent increase in unemployment.

Correct AnswerverifiedShow Answer

Which of the following best describes RRSP plans?

Correct AnswerverifiedShow Answer

How would a permanent reduction in inflation impact shoeleather costs and unemployment?

Correct AnswerverifiedShow Answer

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

How would a permanent reduction in inflation impact menu costs and unemployment?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the government has a deficit,it necessarily imposes a burden on future generations of taxpayers.

Correct AnswerverifiedShow Answer

What effects does a higher rate of return have on saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA higher rate of return on saving means ...View AnswerShow Answer

Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 6 percent per year.Suppose also that it has nominal GDP of about 200 billion units of currency.What is the highest possible deficit it can have without raising the debt-to-income ratio?

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year.How are the debt and the burden on future generations created by these continuing deficits?

Correct AnswerverifiedShow Answer

Suppose that at the start of fiscal year 2013 the government had a debt of $6126.5 billion.Suppose that during the same fiscal year,real GDP grew by about 3 percent and inflation was about 1 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?

Correct AnswerverifiedShow Answer

How is "leaning against the wind" exemplified?

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.How are the debt and the burden on future generations created by these continuing deficits?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Using the growth rate operator G,the g...View AnswerShow Answer

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A higher rate of return on saving means ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
a.Using the growth rate operator G,the g...
View Answer