Question 1

An economist would be more likely to argue against reducing inflation if she thought that

Accepted Answer

If the central bank lacks credibility, reducing inflation may not be effective as market expectations of future inflation may remain high, leading to persistent inflationary pressures. Moreover, if bonds are not indexed for inflation, reducing inflation can be costly to investors who may need to sell their bonds at a discount. Therefore, an economist would be more likely to argue against reducing inflation if the central bank lacks credibility and bonds are usually not indexed for inflation.

Question 2

Which costs of inflation could the government take action to reduce without reducing inflation?

Accepted Answer

The government can adjust tax brackets and deductions to reduce unintended changes in tax liabilities caused by inflation. However, shoe leather costs and menu costs are direct consequences of inflation and cannot be reduced without reducing inflation itself.

Question 3

Inflation reduction has the highest cost when the efforts are

Accepted Answer

When inflation reduction efforts are unexpected, it tends to result in a higher sacrifice ratio, meaning the cost in terms of lost output or increased unemployment is higher.

Question 4

If the public correctly perceives that the central bank will reduce inflation,then

Accepted Answer

When the public correctly perceives that the central bank will reduce inflation, they will adjust their expectations and anticipate lower inflation in the future. This will shift the short-run Phillips curve to the left, meaning that at any given level of expected inflation, there will be a lower level of unemployment. Therefore, unemployment will rise by less than otherwise.

Question 5

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Accepted Answer

The sacrifice ratio represents the cost in terms of output loss that must be incurred to achieve a given reduction in inflation. A low sacrifice ratio means that the reduction in inflation can be achieved at a low cost, whereas a high sacrifice ratio means that the cost is high. If the reduction in inflation is expected, it is easier to coordinate expectations and the sacrifice ratio tends to be lower. Therefore, a program to reduce inflation is likely to have lower costs if the sacrifice ratio is low and the reduction is expected, which corresponds to answer choice D.

Question 6

Inflation reduction has the lowest cost when the efforts are

Accepted Answer

When inflation reduction efforts are credible, people and businesses adjust their expectations accordingly, leading to a lower sacrifice ratio, which means less economic output is lost in the process of reducing inflation.

Question 7

If the public correctly perceives that the central bank will reduce inflation,then

Accepted Answer

If the public correctly perceives that the central bank will reduce inflation, it will lead to a shift in the short-run Phillips curve to the left, indicating that lower unemployment can be achieved at a lower sacrifice ratio. This is because if the public expects the central bank to reduce inflation, they will anticipate a decrease in prices and adjust their behavior accordingly, leading to lower inflation expectations and cost-push pressures. As a result, the central bank can pursue a more expansionary monetary policy with lower sacrifice ratios.

Question 8

Inflation

Accepted Answer

Inflation leads people to use more resources to reduce money holdings, which can increase the velocity of money in circulation and stimulate economic activity. This increased economic activity can lead to a tighter labor market, with more jobs available and higher wages. Therefore, inflation can make labor markets work more efficiently.

Question 9

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation,it is likely that

Accepted Answer

If lawmakers pass a law requiring the central bank to maintain a low level of inflation, it would imply a lower inflation target, causing the central bank to pursue a more contractionary monetary policy. This would lead to the short-run Phillips curve shifting left, resulting in lower inflation in the short run at a lower cost of disinflation.

Question 10

Which of the following things can a government do to lower the costs of inflation?

Accepted Answer

Selling inflation-indexed bonds helps to lower the costs of inflation by providing a way for investors to protect themselves against the effects of inflation. By rewriting tax laws so that real gains are taxed instead of nominal gains, the government can reduce the incentives for people to invest in assets that are likely to lose value due to inflation, which can help to reduce inflationary pressures. Combining these two measures can be an effective way for the government to lower the costs of inflation. Therefore, Choice A is the best option.

Question 11

An economist would be more likely to argue for reducing inflation if she thought that

Accepted Answer

The answer of An economist would be more likely to...

Question 12

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

Accepted Answer

Avoiding unexpected changes in the inflation rate can help reduce the costs associated with inflation, such as uncertainty and planning difficulties, without necessarily lowering the inflation rate itself.

Question 13

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

Accepted Answer

People in high inflation countries may have found ways to limit the costs of inflation, such as inflation-indexed contracts or holding assets that appreciate faster than inflation. This means that there may be less pressure on policymakers to reduce inflation, as the costs are perceived to be lower.

Question 14

An economist advising a central bank intending to reduce the inflation rate would likely point out that

Accepted Answer

Reducing inflation often involves temporary costs, such as reduced output and higher unemployment. However, if the public lowers its inflation expectations, these costs can be minimized, as expectations play a crucial role in economic behavior and policy effectiveness.

Question 15

If inflation were reduced,then it is

Accepted Answer

The answer of If inflation were reduced,then it is
...

Question 16

Using the typical estimate of the sacrifice ratio,how much output would be lost in reducing inflation from 3% to 1%?

Accepted Answer

The typical estimate of the sacrifice ratio is about 5%, meaning that for each 1% reduction in inflation, 5% of one year's GDP is lost. Reducing inflation by 2% (from 3% to 1%) would therefore result in a 10% loss of output.

Question 17

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Accepted Answer

The sacrifice ratio measures the output loss that an economy must endure in order to reduce inflation by a certain amount. The higher the sacrifice ratio, the greater the cost of reducing inflation. If the reduction in inflation is unexpected, the costs are likely to be higher, as markets will have less time to adjust and the adjustment process will be more abrupt. Therefore, if the sacrifice ratio is high, as in option A, and the reduction is unexpected, the costs of the program are likely to be higher.

Question 18

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

Arbitrary redistributions of wealth are not a necessary cost of inflation and can be reduced without reducing inflation.

Question 19

Which costs of inflation could the government reduce without reducing inflation?

Accepted Answer

The government can adjust tax policies to prevent unintended changes in tax liabilities and address arbitrary redistributions of wealth without directly reducing inflation itself.

Question 20

If a central bank were required to target inflation at zero,then when there was an unanticipated decrease in aggregate demand the central bank

Accepted Answer

To counteract a decrease in aggregate demand and maintain zero inflation, the central bank would increase the money supply, which would help reduce unemployment towards the natural rate by stimulating economic activity.

Quiz 23: Six Debates Over Macroeconomic Policy: Should the Central Bank Aim for Zero Inflation

An economist would be more likely to argue against reducing inflation if she thought that

Which costs of inflation could the government take action to reduce without reducing inflation?

Inflation reduction has the highest cost when the efforts are

If the public correctly perceives that the central bank will reduce inflation,then

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is

Inflation reduction has the lowest cost when the efforts are

If the public correctly perceives that the central bank will reduce inflation,then

Inflation

If inflation were high in some country and lawmakers in that country passed a law requiring the central bank to maintain a low level of inflation,it is likely that

Which of the following things can a government do to lower the costs of inflation?

An economist would be more likely to argue for reducing inflation if she thought that

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

Some countries have had high inflation for a long time.Others have had low or moderate inflation for a long time.Which of the following,at least in theory,could explain why some countries would continue to have high inflation?

An economist advising a central bank intending to reduce the inflation rate would likely point out that

If inflation were reduced,then it is

Using the typical estimate of the sacrifice ratio,how much output would be lost in reducing inflation from 3% to 1%?

A program to reduce inflation is likely to have higher costs if the sacrifice ratio is

Which costs of inflation could the government reduce without reducing inflation?

Which costs of inflation could the government reduce without reducing inflation?

If a central bank were required to target inflation at zero,then when there was an unanticipated decrease in aggregate demand the central bank