Question 1

Which one of the following represents one of the basic problems illustrated by the Phillips curve?

Accepted Answer

A)  That the inflation rate tends to decrease as the economy moves closer to full employment
B)  That the inflation rate tends to increase as the economy moves closer to full employment
C)  That the unemployment rate tends to decrease as the economy moves toward price stability
D)  That high levels of unemployment tend to accompany high rates of inflationE) None of the above
F) A) and B)

Question 2

Under what circumstances will monetary policy be most effective?

Accepted Answer

A)  An economy closed to international trade.
B)  An open economy with a fixed exchange rate.
C)  An open economy with a flexible exchange rate.
D)  An open economy with a managed float.E) B) and D)
F) A) and B)

Question 3

All of the following,except one,were policies supported by the supply-siders.Which is the exception?

Accepted Answer

A)  Privatization of Canada's crown corporations
B)  Contracting out of government services
C)  Government closing down labour retraining centres
D)  Deregulation of government involvement in the economy
E)  Reducing taxesF) A) and C)
G) B) and C)

Question 4

Expansionary fiscal policy may crowd out both private investment and export spending.

Accepted Answer

A) True 
 B)False

Question 5

1 to AD2 and thereby to increase GDP from X to Z.In terms of graph B,which of the following might explain why GDP increases to Y rather than to Z? A) depreciation of the dollar. B) reduction in tariffs imposed by our trading partners. C) decrease in the saving schedule. D) crowding-out effect." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagrams.Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z.In terms of graph B,which of the following might explain why GDP increases to Y rather than to Z?

Accepted Answer

A)  depreciation of the dollar.
B)  reduction in tariffs imposed by our trading partners.
C)  decrease in the saving schedule.
D)  crowding-out effect.E) None of the above
F) A) and C)

Question 6

Graphically,what is necessary for an economy to escape the grips of stagflation?

Accepted Answer

A)  Shift the AD curve to the right
B)  Shift the AD curve to the left
C)  Shift the AS curve to the right
D)  Shift the AS curve to the leftE) None of the above
F) All of the above

Question 7

The financing of a government deficit increases interest rates and,as a result,reduces investment spending.This statement describes:

Accepted Answer

A)  the supply-side effects of fiscal policy.
B)  built-in stability.
C)  the crowding-out effect.
D)  the net export effect.E) B) and D)
F) A) and D)

Question 8

Suppose that government wishes to affect the level of aggregate demand in the economy.All of the following,except one,are consistent policy measures.Which is the exception?

Accepted Answer

A)  A tax increase and an increase in money supply
B)  A tax reduction and an increase in money supply
C)  An increase in government spending and an increase in money supply
D)  A decrease in government spending and a decrease in money supply.E) C) and D)
F) B) and D)

Question 9

Stagflation in North American economies during the 1970s was triggered by what event?

Accepted Answer

A)  OPEC-induced oil price increases
B)  A far too rapid increase in the money supply in both of the countries
C)  The Vietnam war
D)  Excessive government budget deficitsE) A) and D)
F) None of the above

Question 10

What effect does expansionary monetary policy have on the interest rate and the (flexible) exchange rate?

Accepted Answer

A)  The interest rate will fall,and exchange rate will rise.
B)  The interest rate will fall,and exchange rate will fall.
C)  The interest rate will rise,and exchange rate will rise.
D)  The interest rate will rise,and exchange rate will fall.E) B) and C)
F) C) and D)

Question 11

If counter-cyclical fiscal policy causes crowding-out,which of the following statements is correct?

Accepted Answer

A)  Crowding-out increases the effectiveness of fiscal policy by pushing up interest rates and reducing investment spending.
B)  Crowding-out reduces the effectiveness of fiscal policy by pushing up interest rates and reducing investment spending.
C)  Crowding-out reduces the effectiveness of fiscal policy by lowering interest rates and reducing investment spending.
D)  Crowding-out enhances the effectiveness of fiscal policy by lowering interest rates and increasing investment spending.
E)  Crowding-out reduces money demand and thereby reduces the effectiveness of fiscal policy.F) All of the above
G) A) and D)

Question 12

Deflation is a problem for all of the following reasons except it:

Accepted Answer

A)  is often associated with large falls in asset prices.
B)  may prevent a central bank from lowering the real interest rate as much as it would like.
C)  can undermine a country's financial system.
D)  can lead to excessive increases in aggregate demand.E) All of the above
F) C) and D)

Question 13

-Refer to the above information to answer this question.What would be the name of the curve illustrating the relationship between these two rates?

Accepted Answer

A)  The Phillips Curve.
B)  The aggregate supply curve.
C)  The Laffer Curve.
D)  The production possibilities curve.
E)  The wage rate-inflation curve.F) All of the above
G) C) and E)

Question 14

What does "monetizing the debt" involve?

Accepted Answer

A)  Government selling bonds to the general public
B)  Government selling bonds to the Bank of Canada
C)  The Bank of Canada selling bonds to government
D)  The Bank of Canada selling bonds to the general publicE) A) and D)
F) All of the above

Question 15

Aggregate demand policies are effective in curing the problems of stagflation.

Accepted Answer

A) True 
 B)False

Question 16

The Phillips curve is based on the relationship between tax rates and the amount of tax revenue.

Accepted Answer

A) True 
 B)False

Question 17

The most common way for government to fund expansionary fiscal policy is by borrowing from the general public.

Accepted Answer

A) True 
 B)False

Question 18

Deflation is:

Accepted Answer

A)  a fall in overall prices.
B)  the same thing as a devaluation of the Hong Kong dollar.
C)  the same thing as a depreciation of the Hong Kong dollar.
D)  a change in the price structure.E) A) and B)
F) A) and C)

Question 19

The rise of supply-side economics is rooted in the stagflation of the 1970s.

Accepted Answer

A) True 
 B)False

Question 20

Prominent supply-side economist Arthur Laffer has argued that:

Accepted Answer

A)  there is no empirically proven relationship between tax rates and incentives.
B)  large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.
C)  the only way to eliminate stagflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations.
D)  large cuts in personal and corporate income taxes will increase aggregate demand more than aggregate supply.E) C) and D)
F) B) and D)

Exam 12: Macroeconomic Policy Revisited

What does "monetizing the debt" involve?

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Under what circumstances will monetary policy be most effective?

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Which one of the following represents one of the basic problems illustrated by the Phillips curve?

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What effect does expansionary monetary policy have on the interest rate and the (flexible) exchange rate?

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Graphically,what is necessary for an economy to escape the grips of stagflation?

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The rise of supply-side economics is rooted in the stagflation of the 1970s.

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-Refer to the above information to answer this question.What would be the name of the curve illustrating the relationship between these two rates?

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Suppose that government wishes to affect the level of aggregate demand in the economy.All of the following,except one,are consistent policy measures.Which is the exception?

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If counter-cyclical fiscal policy causes crowding-out,which of the following statements is correct?

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The most common way for government to fund expansionary fiscal policy is by borrowing from the general public.

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-Refer to the above diagrams.Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z.In terms of graph B,which of the following might explain why GDP increases to Y rather than to Z?

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Stagflation in North American economies during the 1970s was triggered by what event?

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The Phillips curve is based on the relationship between tax rates and the amount of tax revenue.

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Expansionary fiscal policy may crowd out both private investment and export spending.

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All of the following,except one,were policies supported by the supply-siders.Which is the exception?

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Deflation is:

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Deflation is a problem for all of the following reasons except it:

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Aggregate demand policies are effective in curing the problems of stagflation.

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Prominent supply-side economist Arthur Laffer has argued that:

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The financing of a government deficit increases interest rates and,as a result,reduces investment spending.This statement describes:

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-Refer to the above diagrams.Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD₁ to AD₂ and thereby to increase GDP from X to Z.In terms of graph B,which of the following might explain why GDP increases to Y rather than to Z?

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