Explain how credibility might affect the cost of reducing inflation

 Macroeconomics Questions

100 words per question

1. What causes the lags in the effect of monetary and fiscal policy on aggregate demand? What are the implications of these lags for the debate over active versus passive policy?

2. According to traditional Keynesian analysis, why does a tax cut have a smaller effect on GDP than a similarly sized increase in government spending? Why might the opposite be the case?

3. What might motivate a central banker to cause a political business cycle? What does the political business cycle imply for the debate over policy rules?

4. Explain how credibility might affect the cost of reducing inflation.

5. Why are some economists against a target of zero inflation?

6. Explain two ways in which a government budget deficit hurts a future worker.

7. What are two situations in which most economists view a budget deficit as justifiable?

8. Some economists say that the government can continue running a budget deficit forever. How is that possible?

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