Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Six Debates over Macroeconomic Policy 8823
20. Proponents of zero-inflation policies acknowledge that the public is unconcerned about the
inflation rate.
a. True
b. False
21. The cost of inflation reduction is a large, permanent increase in unemployment.
a. True
b. False
22. The cost of inflation reduction is less if people believe that the central bank will really reduce
inflation.
a. True
b. False
8824 Six Debates over Macroeconomic Policy
23. It is possible that the cost of inflation reduction might be quite large compared to the annual costs
of moderate inflation.
a. True
b. False
24. There are ways that policymakers could reduce the costs of inflation without reducing inflation.
a. True
b. False
25. Proponents of a balanced government budget acknowledge that running a budget deficit is
justifiable in time of war.
a. True
b. False
Six Debates over Macroeconomic Policy 8825
26. When the government has a deficit, a burden is necessarily imposed on future generations of
taxpayers.
a. True
b. False
27. The average U.S. citizens' share of the government debt represents less than 2 percent of a
person’s lifetime income.
a. True
b. False
28. Proponents and opponents of balanced-budget policies agree that the government debt cannot
continue to increase forever.
a. True
b. False
8826 Six Debates over Macroeconomic Policy
29. Social Security transfers wealth from younger generations to older generations.
a. True
b. False
30. A nation's saving rate is not a primary determinant of its long-run economic prosperity.
a. True
b. False
31. Once state and federal taxes are added together, a typical worker faces about a 40 percent
marginal tax-rate on interest income.
a. True
b. False
Six Debates over Macroeconomic Policy 8827
32. Tax laws do not give preferential treatment to some kinds of retirement saving.
a. True
b. False
33. In effect, a consumption tax would put all saving automatically into a tax-advantaged savings
account similar to an Individual Retirement Account (IRA).
a. True
b. False
34. Some studies have found that saving is not very sensitive to the rate of return on saving.
a. True
b. False
8828 Six Debates over Macroeconomic Policy
35. A reduction in the marginal tax-rate includes a substitution effect that tends to increase saving.
a. True
b. False
36. A reduction in the marginal tax-rate includes an income effect that tends to increase savings.
a. True
b. False
37. In essence, a consumption tax puts all saving into tax-advantaged savings accounts.
a. True
b. False
Six Debates over Macroeconomic Policy 8829
38. 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.
a. True
b. False
39. Forward-looking parents can reverse the adverse effects of government debt by saving more and
leaving a larger bequest to their children.
a. True
b. False
40. Explain the main arguments in favor of economic stabilization.
8830 Six Debates over Macroeconomic Policy
41. Explain why policy lags could make stabilization policies counterproductive.
42. Which kind of lag is important for monetary policy? Which kind of lag is important for fiscal
policy?
Six Debates over Macroeconomic Policy 8831
43. 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?
44. 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?
8832 Six Debates over Macroeconomic Policy
45. Carefully explain how monetary policy can be used to counter a recession. Explain what the
central bank does as well as how its actions affect the economy. Under what circumstances is
fiscal policy especially useful?
46. Why might government expenditures be more appropriate than tax cuts to counter recessions? Is
there any evidence for this thinking?
Six Debates over Macroeconomic Policy 8833
47. Why might tax cuts be more appropriate than increasing government expenditures to counter
recessions? Is there any evidence for this thinking?
48. What fiscal policies did the government implement in response to the 2008-2009 recession? Can
we be certain that these policies were effective? Explain.
8834 Six Debates over Macroeconomic Policy
49. What is the political business cycle and how does it relate to whether the central bank should have
discretion or use a rule?
50. Explain the time inconsistency of monetary policy.
Six Debates over Macroeconomic Policy 8835
51. Describe three costs of inflation.
52. 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?
8836 Six Debates over Macroeconomic Policy
53. What’s the basis for arguing that deficits are likely to lead to lower living standards in the future?
54. Suppose that the government goes into deficit in order to help local school districts build better
schools. Does this burden future generations?
55. Explain how it is possible for the government debt to grow forever.
Six Debates over Macroeconomic Policy 8837
56. Is it possible that deficits do not burden future generations?
57. Identify three government policies that discourage saving.
8838 Six Debates over Macroeconomic Policy
58. Means-tested government programs tend to reduce saving. What are means-tested programs and
how do they reduce saving?
59. Why do many economists advocate a consumption tax rather than an income tax?
Six Debates over Macroeconomic Policy 8839
60. Explain how a higher rate of return on saving could, at least in theory, lead to lower saving.
61. Explain how tax provisions to encourage private saving may reduce national saving.
