Question 1

In general,the faster inflationary expectations adjust,the:

Accepted Answer

A) less macro policy can influence unemployment. 
B) better discretionary policy can be expected to work. 
C) slower the adjustment of the short-run Phillips curve. 
D) stronger the case for active policy. 
E) more effectively a policy can influence unemployment. 
A) less macro policy can influence unemployment. 
B) better discretionary policy can be expected to work. 
C) slower the adjustment of the short-run Phillips curve. 
D) stronger the case for active policy. 
E) more effectively a policy can influence unemployment. A

Question 2

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:

Accepted Answer

A) a short-run fall in output and employment. 
B) little or no increase in GDP. 
C) an increase in wages along with a dramatic fall in the price level. 
D) a rapidly expanding economy. 
E) a severe recession. 
A) a short-run fall in output and employment. 
B) little or no increase in GDP. 
C) an increase in wages along with a dramatic fall in the price level. 
D) a rapidly expanding economy. 
E) a severe recession. B

Question 3

If an economy's actual GDP exceeds its potential GDP,_____.

Accepted Answer

A) wages and prices must fall 
B) self-correcting forces will shift the SRAS curve to the left 
C) self-correcting forces will shift the AD curve to the left 
D) inflation will occur when AD shifts to the left 
E) unemployment is likely to be unusually high 
A) wages and prices must fall 
B) self-correcting forces will shift the SRAS curve to the left 
C) self-correcting forces will shift the AD curve to the left 
D) inflation will occur when AD shifts to the left 
E) unemployment is likely to be unusually high B

Question 4

Ms.Jones is a professor at a university.She strongly supports the rational expectations theory.She is likely to believe that the only time active policy has an impact on aggregate output is when:

Accepted Answer

A) an expansionary policy is implemented. 
B) a recessionary policy is implemented. 
C) policy changes are unannounced. 
D) the economy has a recessionary gap. 
E) the economy has an expansionary gap. 
A) an expansionary policy is implemented. 
B) a recessionary policy is implemented. 
C) policy changes are unannounced. 
D) the economy has a recessionary gap. 
E) the economy has an expansionary gap.

Question 5

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:

Accepted Answer

A) short-run aggregate supply curve before active policy shifts the aggregate demand curve. 
B) short-run aggregate supply curve only after active policy shifts the aggregate demand curve. 
C) short-run aggregate supply curve more than active policy shifts the aggregate demand curve. 
D) short-run aggregate supply curve less than active policy shifts the aggregate demand curve. 
E) short-run aggregate supply curve in a direction opposite the shift in the aggregate demand curve 
A) short-run aggregate supply curve before active policy shifts the aggregate demand curve. 
B) short-run aggregate supply curve only after active policy shifts the aggregate demand curve. 
C) short-run aggregate supply curve more than active policy shifts the aggregate demand curve. 
D) short-run aggregate supply curve less than active policy shifts the aggregate demand curve. 
E) short-run aggregate supply curve in a direction opposite the shift in the aggregate demand curve

Question 6

The figure below shows the relationship between an economy's potential output,price level,and real GDP.According to those who favor an active approach to policy,the economy will end up at _____when it attains the potential output level.

Accepted Answer

A) point A 
B) point B 
C) point C 
D) a point between A and B 
E) a point between A and C 
A) point A 
B) point B 
C) point C 
D) a point between A and B 
E) a point between A and C

Question 7

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.

Accepted Answer

A) point a 
B) point e 
C) point c​ 
D) point d 
E) a point to the right of point b 
A) point a 
B) point e 
C) point c​ 
D) point d 
E) a point to the right of point b

Question 8

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following would correspond to a movement downward along a short-run Phillips curve?

Accepted Answer

A) The aggregate demand curve shifts rightward,moving up along a short-run aggregate supply curve. 
B) The aggregate demand curve shifts leftward,moving down along a short-run aggregate supply curve. 
C) The short-run aggregate supply curve shifts leftward,moving up along the aggregate demand curve. 
D) The money supply curve shifts rightward for a given money demand curve. 
E) Both the money demand and the money supply curves shift leftward. 
A) The aggregate demand curve shifts rightward,moving up along a short-run aggregate supply curve. 
B) The aggregate demand curve shifts leftward,moving down along a short-run aggregate supply curve. 
C) The short-run aggregate supply curve shifts leftward,moving up along the aggregate demand curve. 
D) The money supply curve shifts rightward for a given money demand curve. 
E) Both the money demand and the money supply curves shift leftward.

Question 10

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at:
​

Accepted Answer

A) point A. 
B) point B. 
C) point C. 
D) a point above point A on the SRAS curve. 
E) at a point below point C on the SRAS curve. 
A) point A. 
B) point B. 
C) point C. 
D) a point above point A on the SRAS curve. 
E) at a point below point C on the SRAS curve.

Question 11

The time it takes for a new policy to register its full impact on the economy after it has been put in force is known as the_____.

Accepted Answer

A) activity lag 
B) decision-making lag 
C) effectiveness lag 
D) implementation lag 
E) recognition lag 
A) activity lag 
B) decision-making lag 
C) effectiveness lag 
D) implementation lag 
E) recognition lag

Question 12

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is:

Accepted Answer

A) 2 percent. 
B) 1 percent. 
C) 4 percent. 
D) 8 percent. 
E) 10 percent. 
A) 2 percent. 
B) 1 percent. 
C) 4 percent. 
D) 8 percent. 
E) 10 percent.

Question 13

Which of the following is likely to dampen economic fluctuations in a country?

Accepted Answer

A) A regressive income tax 
B) An increase in tax rates 
C) A decrease in tax rates 
D) An increase in money supply 
E) Unemployment insurance 
A) A regressive income tax 
B) An increase in tax rates 
C) A decrease in tax rates 
D) An increase in money supply 
E) Unemployment insurance

Question 14

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

Accepted Answer

A) The will to reject sound policy if it gets in the way of political considerations 
B) The ability to estimate the economy's potential level of output 
C) The ability to predict what would happen without intervention 
D) An assortment of effective tools of discretionary policy 
E) The ability to achieve effective cooperation between fiscal and monetary policy makers 
A) The will to reject sound policy if it gets in the way of political considerations 
B) The ability to estimate the economy's potential level of output 
C) The ability to predict what would happen without intervention 
D) An assortment of effective tools of discretionary policy 
E) The ability to achieve effective cooperation between fiscal and monetary policy makers

Question 15

Only long-run changes in output can be brought about by unexpected change in policy.

Accepted Answer

A) True 
 B)False

Question 16

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:

Accepted Answer

A) increase prices and real output. 
B) increase real output only in the short run. 
C) have no effect on prices or real output. 
D) decrease prices and real output. 
E) lead only to a higher price level. 
A) increase prices and real output. 
B) increase real output only in the short run. 
C) have no effect on prices or real output. 
D) decrease prices and real output. 
E) lead only to a higher price level.

Question 17

Passive policy advocates rely on the economy's natural ability to correct itself in case of unemployment because of:

Accepted Answer

A) the lack of any real concern for those who have no jobs. 
B) the conviction that unemployment is relatively harmless. 
C) the belief that active economic policy is likely to be either ineffective or harmful. 
D) the desire to await further economic data before intervening. 
E) the belief in the law of diminishing returns. 
A) the lack of any real concern for those who have no jobs. 
B) the conviction that unemployment is relatively harmless. 
C) the belief that active economic policy is likely to be either ineffective or harmful. 
D) the desire to await further economic data before intervening. 
E) the belief in the law of diminishing returns.

Question 18

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when:

Accepted Answer

A) the SRAS curve will shift to the left. 
B) the SRAS curve will shift to the right. 
C) either the money supply or government spending is increased. 
D) the money supply is decreased. 
E) aggregate demand will decrease. 
A) the SRAS curve will shift to the left. 
B) the SRAS curve will shift to the right. 
C) either the money supply or government spending is increased. 
D) the money supply is decreased. 
E) aggregate demand will decrease.

Question 19

Which of the following is not a valid criticism of discretionary fiscal policy?

Accepted Answer

A) The implementation of fiscal policy is sometimes difficult. 
B) Time lags in fiscal policy are long. 
C) Fiscal policy works only during periods of stagflation. 
D) Fiscal policy often affects only current income,but many economic decisions are made on the basis of permanent income. 
E) Fiscal policy might have undesirable long-term effects on aggregate supply. 
A) The implementation of fiscal policy is sometimes difficult. 
B) Time lags in fiscal policy are long. 
C) Fiscal policy works only during periods of stagflation. 
D) Fiscal policy often affects only current income,but many economic decisions are made on the basis of permanent income. 
E) Fiscal policy might have undesirable long-term effects on aggregate supply.

Question 20

Given the expected price level,policies for reaching potential GDP will work best if the money supply is:

Accepted Answer

A) large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment. 
B) large enough,so that prices at potential GDP are above expectations and firms can afford to hire workers. 
C) small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment. 
D) small,so that prices at potential GDP are above expectations and firms can afford to hire the workers. 
E) exactly the size that makes prices equal to the prices people expected to prevail. 
A) large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment. 
B) large enough,so that prices at potential GDP are above expectations and firms can afford to hire workers. 
C) small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment. 
D) small,so that prices at potential GDP are above expectations and firms can afford to hire the workers. 
E) exactly the size that makes prices equal to the prices people expected to prevail.

In general,the faster inflationary expectations adjust,the:

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:

If an economy's actual GDP exceeds its potential GDP,_____.

Ms.Jones is a professor at a university.She strongly supports the rational expectations theory.She is likely to believe that the only time active policy has an impact on aggregate output is when:

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:

The figure below shows the relationship between an economy's potential output,price level,and real GDP.According to those who favor an active approach to policy,the economy will end up at _____when it attains the potential output level.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Which of the following would correspond to a movement downward along a short-run Phillips curve?

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at:

The time it takes for a new policy to register its full impact on the economy after it has been put in force is known as the_____.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is:

Which of the following is likely to dampen economic fluctuations in a country?

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

Only long-run changes in output can be brought about by unexpected change in policy.

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:

Passive policy advocates rely on the economy's natural ability to correct itself in case of unemployment because of:

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when:

Which of the following is not a valid criticism of discretionary fiscal policy?

Given the expected price level,policies for reaching potential GDP will work best if the money supply is:

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

International Trade

International Finance

Economic Development

Filters

Exam 16: The Policy Debate: Active or Passive

In general,the faster inflationary expectations adjust,the:

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:

If an economy's actual GDP exceeds its potential GDP,_____.

Ms.Jones is a professor at a university.She strongly supports the rational expectations theory.She is likely to believe that the only time active policy has an impact on aggregate output is when:

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:

The figure below shows the relationship between an economy's potential output,price level,and real GDP.According to those who favor an active approach to policy,the economy will end up at _____when it attains the potential output level.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Which of the following would correspond to a movement downward along a short-run Phillips curve?

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at: ​

The time it takes for a new policy to register its full impact on the economy after it has been put in force is known as the_____.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is:

Which of the following is likely to dampen economic fluctuations in a country?

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

Only long-run changes in output can be brought about by unexpected change in policy.

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:

Passive policy advocates rely on the economy's natural ability to correct itself in case of unemployment because of:

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when:

Which of the following is not a valid criticism of discretionary fiscal policy?

Given the expected price level,policies for reaching potential GDP will work best if the money supply is:

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

International Trade

International Finance

Economic Development

Filters

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at: