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

The selection of a new policy takes place during a period of time 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 B

Question 3

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, the economy will in the long run:

Accepted Answer

A)  move toward point a 
B)  move toward point b 
C)  stay at point c 
D)  move toward point d 
E)  move toward point f 
A)  move toward point a 
B)  move toward point b 
C)  stay at point c 
D)  move toward point d 
E)  move toward point f A

Question 4

The country of Erbia has been experiencing high unemployment over a period of seven years. A likely outcome of such a situation is that potential GDP will fall.

Accepted Answer

A) True 
 B)False

Question 5

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following is consistent with an active approach to policy?

Accepted Answer

A)  The natural rate of unemployment being uncertain 
B)  Wages and prices being relatively quick to adjust 
C)  The short-run aggregate supply curve being slow to shift in the presence of a recessionary gap 
D)  The size of the multiplier being irrelevant 
E)  The aggregate demand curve being slow to shift in the presence of a recessionary gap 
A)  The natural rate of unemployment being uncertain 
B)  Wages and prices being relatively quick to adjust 
C)  The short-run aggregate supply curve being slow to shift in the presence of a recessionary gap 
D)  The size of the multiplier being irrelevant 
E)  The aggregate demand curve being slow to shift in the presence of a recessionary gap

Question 8

The time it takes to identify and examine the nature and seriousness of an economic problem is 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 9

_____, the time-inconsistency problem gets eliminated.

Accepted Answer

A)  When an inflation or a recession is correctly anticipated 
B)  When lags associated with monetary and fiscal policy are extremely short 
C)  When discretionary macro policy is replaced with fixed policy rules which are well publicized 
D)  When expectations about the economy adjust very slowly 
E)  When the price level in an economy adjusts over time with changes in aggregate demand 
A)  When an inflation or a recession is correctly anticipated 
B)  When lags associated with monetary and fiscal policy are extremely short 
C)  When discretionary macro policy is replaced with fixed policy rules which are well publicized 
D)  When expectations about the economy adjust very slowly 
E)  When the price level in an economy adjusts over time with changes in aggregate demand

Question 10

Policy makers may not know that the economy is in a recession until six months after the recession starts; this phenomenon is known as the _____.

Accepted Answer

A)  implementation lag 
B)  policy coordination problem 
C)  decision-making lag 
D)  recognition lag 
E)  effectiveness lag 
A)  implementation lag 
B)  policy coordination problem 
C)  decision-making lag 
D)  recognition lag 
E)  effectiveness lag

Question 11

The theorists of the rational expectations school:

Accepted Answer

A)  favor monetary rules because they believe individuals know too little about how the economy works. 
B)  favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed. 
C)  are those who favor an "active approach" to policy and reject monetary rules. 
D)  oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy. 
E)  do not believe in implementing discretionary policies. 
A)  favor monetary rules because they believe individuals know too little about how the economy works. 
B)  favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed. 
C)  are those who favor an "active approach" to policy and reject monetary rules. 
D)  oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy. 
E)  do not believe in implementing discretionary policies.

Question 12

A policy to increase aggregate demand to cure a recessionary gap may succeed; however, inflation is a likely result.

Accepted Answer

A) True 
 B)False

Question 13

According to the rational expectations approach , if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output, then people will not be able to anticipate the effects of this policy on the price level, unemployment, and the real output level.

Accepted Answer

A) True 
 B)False

Question 14

The short-run Phillips curve is based upon labor contracts that reflect a given expected _____.

Accepted Answer

A)  price level 
B)  unemployment level 
C)  money supply 
D)  aggregate demand 
E)  unemployment rate 
A)  price level 
B)  unemployment level 
C)  money supply 
D)  aggregate demand 
E)  unemployment rate

Question 15

The Phillips curve shows:

Accepted Answer

A)  the relationship between the interest rate and the inflation rate. 
B)  the relationship between the inflation rate and the rate of unemployment. 
C)  the relationship between the unemployment rate and the level of real GDP. 
D)  the relationship between the growth rate and the inflation rate. 
E)  the relationship between the rate of unemployment and the growth rate. 
A)  the relationship between the interest rate and the inflation rate. 
B)  the relationship between the inflation rate and the rate of unemployment. 
C)  the relationship between the unemployment rate and the level of real GDP. 
D)  the relationship between the growth rate and the inflation rate. 
E)  the relationship between the rate of unemployment and the growth rate.

Question 16

According to the rational expectations school, people base their expectations about inflation on:

Accepted Answer

A)  the announcement of a change in policy. 
B)  weighted averages of previous inflation rates, with the most distant getting the heaviest weight. 
C)  all information available to them. 
D)  changes in monetary policy only. 
E)  changes in both monetary and fiscal policy. 
A)  the announcement of a change in policy. 
B)  weighted averages of previous inflation rates, with the most distant getting the heaviest weight. 
C)  all information available to them. 
D)  changes in monetary policy only. 
E)  changes in both monetary and fiscal policy.

Question 17

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 18

If we observe an economy adjusting to potential GDP as prices fall and real output increases, we can conclude that _____.

Accepted Answer

A)  the economy was experiencing an expansionary gap 
B)  there is a labor surplus 
C)  the economy was experiencing a recessionary gap 
D)  self-correction is not the process that is occurring 
E)  there are widespread labor shortages 
A)  the economy was experiencing an expansionary gap 
B)  there is a labor surplus 
C)  the economy was experiencing a recessionary gap 
D)  self-correction is not the process that is occurring 
E)  there are widespread labor shortages

Question 19

Which of the following is a difference between an active approach to close a recessionary gap and a passive approach to close a recessionary gap?

Accepted Answer

A)  The level of real GDP would be higher in the long run with the active approach, while it will be lower with the passive approach. 
B)  The level of real GDP would be lower in the long run with the active approach, while it will be higher with the passive approach. 
C)  The price level would be higher and the level of real GDP would be lower in the long run with the active approach, whereas the price level would be lower and real GDP level would be higher with the passive approach. 
D)  Only the price level would be lower in the long run with the active approach, whereas it would be higher with the passive approach. 
E)  Only the price level would be higher in the long run with the active approach, whereas it would be lower with the passive approach. 
A)  The level of real GDP would be higher in the long run with the active approach, while it will be lower with the passive approach. 
B)  The level of real GDP would be lower in the long run with the active approach, while it will be higher with the passive approach. 
C)  The price level would be higher and the level of real GDP would be lower in the long run with the active approach, whereas the price level would be lower and real GDP level would be higher with the passive approach. 
D)  Only the price level would be lower in the long run with the active approach, whereas it would be higher with the passive approach. 
E)  Only the price level would be higher in the long run with the active approach, whereas it would be lower with the passive approach.

Question 20

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

In general, the faster inflationary expectations adjust, the:

The selection of a new policy takes place during a period of time known as the _____.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, the economy will in the long run:

The country of Erbia has been experiencing high unemployment over a period of seven years. A likely outcome of such a situation is that potential GDP will fall.

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

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

Which of the following is consistent with an active approach to policy?

The time it takes to identify and examine the nature and seriousness of an economic problem is the _____.

_____, the time-inconsistency problem gets eliminated.

Policy makers may not know that the economy is in a recession until six months after the recession starts; this phenomenon is known as the _____.

The theorists of the rational expectations school:

A policy to increase aggregate demand to cure a recessionary gap may succeed; however, inflation is a likely result.

According to the rational expectations approach , if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output, then people will not be able to anticipate the effects of this policy on the price level, unemployment, and the real output level.

The short-run Phillips curve is based upon labor contracts that reflect a given expected _____.

The Phillips curve shows:

According to the rational expectations school, people base their expectations about inflation on:

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:

If we observe an economy adjusting to potential GDP as prices fall and real output increases, we can conclude that _____.

Which of the following is a difference between an active approach to close a recessionary gap and a passive approach to close a recessionary gap?

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

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:

The selection of a new policy takes place during a period of time known as the _____.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, the economy will in the long run:

The country of Erbia has been experiencing high unemployment over a period of seven years. A likely outcome of such a situation is that potential GDP will fall.

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

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

Which of the following is consistent with an active approach to policy?

The time it takes to identify and examine the nature and seriousness of an economic problem is the _____.

_____, the time-inconsistency problem gets eliminated.

Policy makers may not know that the economy is in a recession until six months after the recession starts; this phenomenon is known as the _____.

The theorists of the rational expectations school:

A policy to increase aggregate demand to cure a recessionary gap may succeed; however, inflation is a likely result.

According to the rational expectations approach , if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output, then people will not be able to anticipate the effects of this policy on the price level, unemployment, and the real output level.

The short-run Phillips curve is based upon labor contracts that reflect a given expected _____.

The Phillips curve shows:

According to the rational expectations school, people base their expectations about inflation on:

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:

If we observe an economy adjusting to potential GDP as prices fall and real output increases, we can conclude that _____.

Which of the following is a difference between an active approach to close a recessionary gap and a passive approach to close a recessionary gap?

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

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