Question 1

Proponents of the monetary policy rule argue that discretionary monetary policy may lead to:

Accepted Answer

Proponents of the monetary policy rule argue that discretionary monetary policy can lead to incompetence and abuse of power, which can cause severe inflation. Therefore, all of the above options are the potential risks of discretionary monetary policy.

Question 2

Proponents of the tax reform targeted at increasing the saving rate believe that:

Accepted Answer

Proponents argue that high taxation on savings discourages people from saving, thus reducing the overall saving rate.

Question 3

Evaluate the following statement: 'Fiscal policy is a very precise tool for controlling aggregate demand. If the government wants to increase aggregate demand by $5 billion, all it has to do is to carry out exactly $5 billion worth of government spending.'

Accepted Answer

The answer of Evaluate the following statement: 'Fiscal policy is...

Question 4

Which of the following is not the cost of inflation?

Accepted Answer

All of the mentioned options are the costs of inflation, hence option D is not the correct answer.

Question 5

Proponents of the balanced government budget argue that:

Accepted Answer

All three arguments are commonly cited by proponents of balanced government budgets. They argue that if the government continues to borrow and accumulate debt, future generations will have to pay for it, leading to a decrease in their living standards. Additionally, budget deficits can lead to crowding out of private investment and higher interest rates, which can further damage the economy.

Question 6

Some economists believe that policymakers should not try to stabilise the economy. What is the reason?

Accepted Answer

Some economists argue that trying to stabilize the economy can actually lead to more volatility in the long run because economic conditions are constantly changing and attempting to stabilise can create unintended consequences. They believe that policymakers should focus on creating a stable framework for the economy to operate within and let market forces determine the outcome.

Question 7

Citing an example, explain why the Reserve Bank of Australia (and its Governor) is independent of the government.

Accepted Answer

The answer of Citing an example, explain why the Reserve...

Question 8

If the economy goes into a recession, then automatic stabilisers are likely to lead to an increase in the budget deficit. Why might such a deficit be beneficial?

Accepted Answer

The answer of If the economy goes into a recession,...

Question 9

Which of the following statements is correct?

Accepted Answer

Reducing inflation to zero can lead to permanent benefits such as price stability and increased economic predictability, while the costs, such as short-term unemployment or reduced output, are typically temporary.

Question 10

Your economics professor has probably told you that there will be a final exam in your economics class. The main reason for this final exam is to make sure that everyone has an incentive to work hard, come to class and read the textbook. When the day of the examination comes, however, it seems as if everyone would be better off if the professor cancelled the exam. You wouldn't have to take the exam, and your professor wouldn't have to mark it. Do you think your economics professor is likely to cancel the exam? Why not? What economic idea does this illustrate?

Accepted Answer

The answer of Your economics professor has probably told you...

Question 11

Since the GFC, the RBNZ has also been slow to raise its interest rates, even though the medium inflation in the 2010-2011 year was over 5 %. Why, in the light of this, may the Bank chosen to have avoided the automatic adjustment of the cash rate?

Accepted Answer

The answer of Since the GFC, the RBNZ has also...

Question 12

Advocates of governments' balanced budgets, believe that failure to do this will:

Accepted Answer

Advocates of governments' balanced budgets believe that failure to do so will lead to a shift of the burden of debt repayment to future generations, create possibly unsustainable levels of debt, and potentially lower the standard of living in the future. Therefore, all of the above are correct.

Question 13

What are the problems of discretionary monetary policy? How can we avoid these problems?

Accepted Answer

The answer of What are the problems of discretionary monetary...

Question 14

The Reserve Bank of New Zealand re-negotiated its inflation target band in 2003 from 0 per cent-3 per cent p.a. to 1 per cent-3 per cent p.a. Explain why this shift may have occurred.

Accepted Answer

The answer of The Reserve Bank of New Zealand re-negotiated...

Question 15

If the government's plan is credible, then:

Accepted Answer

The answer of If the government's plan is credible, then:
...

Question 16

What are the costs of inflation for society?

Accepted Answer

The answer of What are the costs of inflation for...

Question 17

In 1997, the newly elected Labour government in England decided to grant much more independence to the English Central Bank (the bank was previously largely under the control of the government). Why do you think they did this?

Accepted Answer

The answer of In 1997, the newly elected Labour government...

Question 18

Which of the following statements is correct?

Accepted Answer

If government debt grows more slowly than the economy's income, the debt-to-GDP ratio can stabilize or decrease, allowing deficits to be sustainable over time.

Quiz 36: Five Debates Over Macroeconomic Policy

Proponents of the monetary policy rule argue that discretionary monetary policy may lead to:

Proponents of the tax reform targeted at increasing the saving rate believe that:

Evaluate the following statement: 'Fiscal policy is a very precise tool for controlling aggregate demand. If the government wants to increase aggregate demand by $5 billion, all it has to do is to carry out exactly $5 billion worth of government spending.'

Which of the following is not the cost of inflation?

Proponents of the balanced government budget argue that:

Some economists believe that policymakers should not try to stabilise the economy. What is the reason?

Citing an example, explain why the Reserve Bank of Australia (and its Governor) is independent of the government.

If the economy goes into a recession, then automatic stabilisers are likely to lead to an increase in the budget deficit. Why might such a deficit be beneficial?

Which of the following statements is correct?

Since the GFC, the RBNZ has also been slow to raise its interest rates, even though the medium inflation in the 2010-2011 year was over 5 %. Why, in the light of this, may the Bank chosen to have avoided the automatic adjustment of the cash rate?

Advocates of governments' balanced budgets, believe that failure to do this will:

What are the problems of discretionary monetary policy? How can we avoid these problems?

The Reserve Bank of New Zealand re-negotiated its inflation target band in 2003 from 0 per cent-3 per cent p.a. to 1 per cent-3 per cent p.a. Explain why this shift may have occurred.

If the government's plan is credible, then:

What are the costs of inflation for society?

In 1997, the newly elected Labour government in England decided to grant much more independence to the English Central Bank (the bank was previously largely under the control of the government). Why do you think they did this?

Which of the following statements is correct?