Question

1. Why should monetary policy be made by rule rather than discretion?

a.	because there is a clear consensus among economists about what a good monetary policy rule would be
b.	because rules would eliminate the political business cycle
c.	because rules respond to any random shocks in the economy
d.	because rules create time inconsistency

2. Why does Canadian public policy discourage saving?

a.	because, other things the same, taxes increase the return from savings
b.	because means-tested programs such as Old Age Security provide greater benefits to those who saved
c.	because some forms of capital income are not taxed
d.	because capital gains are taxed heavily

3.   Which of the following is an argument against a tax system that encourages savings?

a.	that individuals know better that the government how much to save
b.	that saving is not an important determinant of a nation's ability to produce output
c.	that rich people would bear the burden of such a tax system
d.	that such a tax system would increase inequality

Answer 1

Q1 option A is correct

Nnew classicals and real business cycle supports believe that discretionary monetary policy has no significant effect on output and employment which cannot be achieved by aggregate demand management .

Q2 option B

Q3 option B

Idle Savings acts as leakages in the economy which leads to lower production and output