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If we calculate the amount of debt,measured in real dollars,what was owed by each Canadian in 2015?


A) $130
B) $1306
C) $13,062
D) $130,620

E) A) and B)
F) B) and C)

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Identify three government policies that discourage saving.

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First,the returns to saving are heavily ...

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A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.

A) True
B) False

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The cost of inflation reduction is a small but permanent increase in unemployment.

A) True
B) False

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Why should policymakers NOT try to stabilize the economy?


A) Recessions represent a waste of resources.
B) Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C) "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D) Economic conditions can easily change between the time when a policy action begins and when it takes effect.

E) C) and D)
F) B) and C)

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What will time inconsistency cause?


A) It will cause the short-run Phillips curve to be higher than it otherwise would.
B) It will cause the short-run Phillips curve to be lower than it otherwise would.
C) It will cause the long-run Phillips curve to be farther to the right than it otherwise would.
D) It will cause the long-run Phillips curve to be farther to the left than it otherwise would.

E) All of the above
F) A) and C)

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Suppose the economy goes into recession.Which of the following is a list of things policymakers could do to try to end the recession?


A) increase the money supply,increase taxes,and increase government spending
B) increase the money supply,increase taxes,and decrease government spending
C) increase the money supply,decrease taxes,and increase government spending
D) decrease the money supply,increase taxes,and decrease government spending

E) A) and D)
F) B) and C)

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What would proponents of tax-law changes to encourage saving most likely do?


A) They would argue that corporate tax rates should be increased.
B) They would argue in favour of eliminating or reducing the means tests for government benefits.
C) They would argue that provincial sales tax should be replaced with provincial income tax.
D) They would argue in favour of raising taxes for the wealthy.

E) A) and B)
F) A) and C)

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Which of the following best defines the political business cycle?


A) the fact that about every four years some politician advocates greater government control of the Bank of Canada
B) the potential for a central bank to use monetary policy to stimulate the economy and help the incumbent get re-elected
C) the part of the business cycle that reflects reluctance by politicians to smooth out the business cycle
D) the changes in output created by the monetary rule the Bank of Canada must follow

E) A) and D)
F) All of the above

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Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 percent per year.How are the debt and the burden on future generations created by these continuing deficits?


A) The debt is sustainable,but the future burden on your children cannot be offset.
B) The debt is not sustainable,and the future burden on your children cannot be offset.
C) The debt is sustainable,and the future burden on your children can be offset if you save for them.
D) The debt is not sustainable,but the future burden on your children can be offset if you save for them.

E) B) and D)
F) A) and C)

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What does the time inconsistency of monetary policy mean?


A) It means that once people have formed expectations of low inflation,based on a promise by the central bank,policymakers are tempted to raise inflation in order to lower unemployment and gain favour with voters.
B) It means that sometimes central banks think it is more important to keep unemployment low; at other times,they think it is more important to keep inflation low.
C) It means that monetary policy is not consistent across time because it is influenced by politics.
D) It means that monetary policy cannot be consistent across time because the rate of inflation is fluctuating.

E) A) and B)
F) C) and D)

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Why do the five debates over macroeconomic policy exist?


A) mostly because economists disagree over basic issues such as the importance of saving for economic growth
B) mostly because there are tradeoffs and people disagree about the best way to deal with them
C) mostly because economic policies have conflicting effects on various groups of people
D) mostly because people fail to clearly see the benefits or the costs of most changes

E) B) and C)
F) A) and B)

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Tax laws do not give preferential treatment to some kinds of retirement saving.

A) True
B) False

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Suppose that a country has an inflation rate of about 5 percent per year and a real GDP growth rate of about 2 percent per year.What is the highest deficit the government can afford without raising the debt-to-income ratio?


A) about 2 percent of GDP
B) about 7 percent of GDP
C) about 9 percent of GDP
D) about 12 percent of GDP

E) A) and D)
F) C) and D)

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What do opponents of using policy to stabilize the economy generally believe?


A) that neither fiscal nor monetary policy have much impact on aggregate demand
B) that attempts to stabilize the economy can increase the magnitude of economic fluctuations
C) that unemployment and inflation are not cause for much concern
D) that unemployment is a cause for concern,but inflation is not

E) A) and C)
F) None of the above

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During the financial year 2014-2015,the government of Canada ran a surplus of $1.9 billion,bringing the government's public debt to $612.3 billion.(The debt-to-GDP ratio was 31 percent,still down from the preceding year.Source: Government of Canada,Annual Financial report,http: / / www.fin.gc.ca / afr-rfa / 2015 / report-rapport-eng.asp).Assuming an inflation rate of 2 percent,what real GDP growth rate would have allowed the government to run a deficit this large without raising the debt-to-income ratio?

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The percentage change in the Debt to (no...

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Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.

A) True
B) False

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Suppose that changes in aggregate demand tended to be infrequent and that it took 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?

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Those who oppose stabilization policy mo...

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What does the time inconsistency of policy imply?


A) It implies that what policymakers say they will do is generally what they will do,but people don't believe them because of current policy.
B) It implies that when people expect that inflation will be low,it is harder for the Bank of Canada to increase output by increasing the money supply.
C) It implies people always expect more inflation than policymakers claim they are trying to achieve.
D) It implies that the Bank of Canada coordinates its actions with elected officials.

E) C) and D)
F) All of the above

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