Apply the concept of tax smoothing to the debate over tax-based versus spending-based fiscal stimulus
What will be an ideal response?
Tax smoothing implies that changing tax rates ought not to be considered as a tool for short-run economic stabilization. Fluctuations of government spending and the government budget are far less distortionary.
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Time inconsistency is a problem when policymakers
a. have no flexibility in setting policy. b. follow inflexible rules. c. have discretion in their policy responses to changes in economic conditions. d. does not follow the Taylor rule. e. none of the above.
Fiscal policy involves discretionary changes in
A) interest rates. B) exchange rates. C) income tax rates. D) the rate of growth of the quantity of money in circulation.
Refer to Exhibit 6-1. Prices rose by __________ percent from Year 1 to Year 2.
a. 1.38 b. 0.14 c. 1.29 d. 1.94 e. 3.00
When a negative externality is present in a market, the government should:
A. intervene if the benefit of doing so exceeds the cost. B. always intervene. C. intervene it if the public supports doing so. D. never intervene.