Chapter 21, Problem 1QAP

a.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

Stating that there iscertainty about the effects of monetary policy and thus it would not be used is not true. The uncertainty in monetary policy is about the time period for which theimpact will be there.

b.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

If a model is used for a specific duration like one year, even a one percentage point reduction in the rate of interest can cause increase in the output growth. This also happens even when interest rate is reduced by little as 0.1 percentage points.

c.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

If a model is used for a specific duration like one year, even a one percentage point reduction in the rate of interest can cause increase in the output growth. This also happens even when interest rate is reduced by 2.1 percentage points.

d.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

If people want unemployment to be eradicated in a nation, they should elect that person as a president who is in favour of democratic nature.

e.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

There is not more evidence of political business cycles in the United States. The evidence of low unemployment during elections and high unemployment during the rest of time is not found.

f.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is uncertain.

Explanation of Solution

The fiscal spending rules are considered ineffective, but they are not as ineffective as it is understood by people. In long run, these rules become ineffective as policy makers break them.

g.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

The balanced budget rules in Europe have not been effective in constraining budget deficits. No penalties have been imposed by European Union for breaking the budget rules. In many countries, in situation of recession country has suffered deficits even in excess of 3% of GDP.

h.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

When the government announces policy that it would not negotiate with the hostage takers, hostage takers minimize the number of hostages. This also shows the credibility of government.

i.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

In case the government has announced a policy of no negotiation and hostages are taken, it is considered better not to negotiate with the hostage takers. Even if negotiating can save the hostages, it is a short-run policy but not a long-run policy. This can encourage hostage takers to pick more hostages in future.

j.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is true.

Explanation of Solution

This is found that countries that have a greater number of central banks working independently, have lower inflation. It can be seen in the OECD countries which have higher degree of independence to central banks, that they have lower rate of inflation.

k.

To determine

To find:Whether the given statement is true or false or uncertain and the reason for such.

Answer to Problem 1QAP

The statement is false.

Explanation of Solution

The policy called as “starve the beast” policy, does not cut spending before tax deductions. This policy rather cuts taxes to create deficit that can further limit the government spending.