Chapter 36. Six debates over Macroeconomic Policy. Exercises 5-8.
Principles of Economics. Chapter 36. Six debates over Macroeconomic Policy. Exercises 5-8. Gregory Mankiw. 8th edition.
5. Why are the benefits of reducing inflation permanent and the costs temporary? Why are the costs of increasing inflation permanent and the benefits temporary? Use Phillips-curve diagrams in your answer.
6. Suppose the federal government cuts taxes and increases spending, raising the budget deficit to 12 percent of GDP. If nominal GDP is rising 5 percent per year, are such budget deficits sustainable forever? Explain. If budget deficits of this size are maintained for 20 years, what is likely to happen to your taxes and your children’s taxes in the future? Can you personally do something today to offset this future effect?
7. Explain how each of the following policies redistributes income across generations. Is the redistribution from young to old or from old to young?
a. an increase in the budget deficit.
b. more generous subsidies for education loans.
c. greater investments in highways and bridges
d. an increase in Social Security benefits
8. What is the fundamental trade-off that society faces if it chooses to save more? How might the government increase national saving?