1. Which of the following is NOT an argument for maintaining a positive rate of inflation?

A) It permits real interest rates to be negative.

B) It allows real wages to fall without cuts in nominal wages.

C) It increases the variability of relative prices.

D) It would be costly to reduce inflation to zero.

2. Throughout U.S. history, what has been the most common cause of substantial increases in government debt?

A) recessions

B) wars

C) financial crises

D) tax cuts

3. Advocates of taxing consumption rather than income argue that

A) a consumption tax is a better automatic stabilizer.

B) taxing consumption does not cause any deadweight losses.

C) the rich consume a higher fraction of income than the poor.

D) the current tax code discourages people from saving.