1.Under optimal monetary policy, the central bank adjusts its policy based on anticipated rather than current inflation and output gaps because:

It takes time for the central bank to implement its policy decisions.

Monetary policy has a long outside lag.

It wants to avoid time-inconsistency problems.

Forecast errors are often rather large.

2.Under optimal fiscal policy, changes in public debt at each time should strongly depend on:

The existing levels of debt

The average size of government

The average tax rate

All of the above

None of the above

3.When government expenditure is used for stabilization purposes, it makes the changes in public debt:

More countercyclical

Less countercyclical

More procyclical

Less procyclical

Acyclical

4.In oil exporting countries, where government budgets are significantly financed by oil revenues, the governments can often borrow easily during oil price booms and become credit rationed when oil prices drop very low. If the government does not have large savings, this phenomenon is likely to make its fiscal policy:

Acyclical

Countercyclical

Procyclical

5.Which one of the following is a reason why actual fiscal policies in many countries deviate from the patterns deemed optimal?

Fiscal policy may be used to buy political support of interest groups.

Fiscal policy may suffer from the "tragedy of the commons."

Both of the above

None of the above

6.From the point of view of macroeconomic policymaking, separation of powers:

Is undesirable because it always leads to a deadlock

Is always desirable because it increases flexibility

Faces a tradeoff because it may reduce flexibility

Is always desirable because it reduces embezzlement

7.Which one of the following is an example of a rule-based monetary policy?

Currency board with a fixed exchange rate

Determination of public debt by a non-political national debt board

Fiscal golden rule

Balanced budget laws

8. Under optimal fiscal policy, changes in public debt should be dependent on the existing levels of public debt and government size.

True

False

9.Which of the following statements is true about monetary and fiscal policies in developing countries?

Monetary policy is often procyclical while fiscal policy is often countercyclical.

Monetary policy is often countercyclical while fiscal policy is often procyclical.

Both monetary and fiscal policies are often countercyclical.

Both monetary and fiscal policies are often procyclical.

10. The presence of automatic stabilizers like income taxes in the policy framework can help reduce discretion while maintaining some policy responsiveness to economic fluctuations.

True

False