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Principles of Macroeconomics Study Set 8
Quiz 23: Six Debates Over Macroeconomic Policy: Part A
Path 4
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Question 21
Essay
List two costs of inflation.
Question 22
Short Answer
During recessions,even with no changes in policy,the deficit tends to ------ because -------------.
Question 23
Essay
What is meant by the political business cycle?
Question 24
Essay
Provide an example of how current expenditures might benefit future generations.
Question 25
Short Answer
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?
Question 26
Essay
By law what goals are the Federal Reserve to pursue? What,if any,specific weights are given for these goals?
Question 27
Essay
Using typical estimates of the sacrifice ratio,how much output would likely be sacrificed to reduce inflation by 3 percent?
Question 28
Essay
Suppose a country has a real growth rate of 3%.Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency.The current national debt is 300 billion units of currency.At what inflation rate will its debt-to-income ratio remain unchanged?
Question 29
Essay
According to a 1977 amendment to the Federal Reserve Act of 1913,what weights should the Fed put on the goals of maximum employment,stable prices,and moderate long-term interest rates?
Question 30
Essay
Provide two specific ways in which reducing inflation might leave "permanent scars" on the economy.
Question 31
Essay
Are there any situations in which running a budget deficit is justified? Explain.
Question 32
Essay
Explain what is meant by the time inconsistency of monetary policy.
Question 33
Essay
Using typical estimates of the sacrifice ratio,how much output would likely be sacrificed to reduce inflation from 4 percent to 2 percent?
Question 34
Essay
Suppose the nation's price level rises as a result of an increase in aggregate demand and a decrease in aggregate supply which leaves output unchanged.If the Fed is required to follow a rule that stabilizes the price level,what will the Fed do to the money supply and what impact will this have on total output in the economy?
Question 35
Essay
According to political business cycle theory,if the Fed wanted to increase the chances of a President's re-election,what specific actions might it take?
Question 36
Essay
Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year.How large of a deficit can the government run (as a percentage of GDP)without raising the debt-to-income ratio?
Question 37
Essay
What did the actions of the Federal Reserve during the 1990's demonstrate about monetary policy and rules?
Question 38
Essay
Those who believe the central bank should aim for zero inflation argue that reducing inflation is a policy with temporary costs and permanent benefits.What are the primary costs and benefits they are referring to?