Question 1

Which of the following is a problem associated with an active policy such as a stimulus package?

Accepted Answer

A)  Increase in the unemployment rate 
B)  Increase in inflationary pressure 
C)  Increase in the market interest rate 
D)  Decrease in the market interest rate 
E)  Decrease in money demand 
A)  Increase in the unemployment rate 
B)  Increase in inflationary pressure 
C)  Increase in the market interest rate 
D)  Decrease in the market interest rate 
E)  Decrease in money demand

Question 2

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 3

According to the rational expectations school, _____.

Accepted Answer

A)  on average people have very little idea of what to expect from government policy makers 
B)  people form expectations by focusing only on the private sector 
C)  changes in the expected price level shift the aggregate demand curve 
D)  people do not consider likely government policies when forming expectations, choosing to remain rationally ignorant 
E)  people form expectations, in part, by considering the probable future actions of government policy makers 
A)  on average people have very little idea of what to expect from government policy makers 
B)  people form expectations by focusing only on the private sector 
C)  changes in the expected price level shift the aggregate demand curve 
D)  people do not consider likely government policies when forming expectations, choosing to remain rationally ignorant 
E)  people form expectations, in part, by considering the probable future actions of government policy makers

Question 4

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

Question 5

When self-correction works to eliminate an expansionary gap, _____.

Accepted Answer

A)  both money wages and real wages increase 
B)  money wages increase while real wages decrease 
C)  both money wages and real wages decrease 
D)  money wages decrease while real wages increase 
E)  money wages remain unchanged 
A)  both money wages and real wages increase 
B)  money wages increase while real wages decrease 
C)  both money wages and real wages decrease 
D)  money wages decrease while real wages increase 
E)  money wages remain unchanged

Question 6

Which of the following is not assumed before the implementation of a policy?

Accepted Answer

A)  The appropriate policy is selected instantaneously. 
B)  The appropriate policy is implemented instantaneously. 
C)  Once implemented, the policy works as advertised. 
D)  The policy, once implemented, works in no time. 
E)  Lags that reduce the effectiveness of the policy are predictable. 
A)  The appropriate policy is selected instantaneously. 
B)  The appropriate policy is implemented instantaneously. 
C)  Once implemented, the policy works as advertised. 
D)  The policy, once implemented, works in no time. 
E)  Lags that reduce the effectiveness of the policy are predictable.

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

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 9

After the 1960s, the short-run Phillips curve based on U.S. economic data:

Accepted Answer

A)  began shifting inward. 
B)  began shifting outward. 
C)  did not shift at all. 
D)  became virtually horizontal. 
E)  became virtually vertical. 
A)  began shifting inward. 
B)  began shifting outward. 
C)  did not shift at all. 
D)  became virtually horizontal. 
E)  became virtually vertical.

Question 10

One way of expressing the concept of the short-run Phillips curve is to say that:

Accepted Answer

A)  the cost of reducing unemployment is higher inflation. 
B)  nothing but good comes from reducing unemployment. 
C)  the cost of reducing inflation is lower unemployment. 
D)  aggregate supply and aggregate demand will always be equal at the potential output level. 
E)  the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment. 
A)  the cost of reducing unemployment is higher inflation. 
B)  nothing but good comes from reducing unemployment. 
C)  the cost of reducing inflation is lower unemployment. 
D)  aggregate supply and aggregate demand will always be equal at the potential output level. 
E)  the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment.

Question 11

Which of the following lags reduces the effectiveness of active policy?

Accepted Answer

A)  Preliminary lag 
B)  Accounting lag 
C)  Self-correction lag 
D)  Recognition lag 
E)  Execution lag 
A)  Preliminary lag 
B)  Accounting lag 
C)  Self-correction lag 
D)  Recognition lag 
E)  Execution lag

Question 12

According to the rational expectations school, when the economy is operating at the potential output level, a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

Accepted Answer

A) True 
 B)False

Question 13

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 14

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

Accepted Answer

A) True 
 B)False

Question 15

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 16

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 17

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:

Accepted Answer

A)  the policy is anticipated by workers and firms. 
B)  it causes the aggregate supply curve to shift to the left. 
C)  the economy is operating at or above its potential output level. 
D)  policy makers follow through on their previously announced plans. 
E)  the policy is totally unexpected. 
A)  the policy is anticipated by workers and firms. 
B)  it causes the aggregate supply curve to shift to the left. 
C)  the economy is operating at or above its potential output level. 
D)  policy makers follow through on their previously announced plans. 
E)  the policy is totally unexpected.

Question 18

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then:

Accepted Answer

A)  real wages would fall. 
B)  output would decrease. 
C)  output would increase. 
D)  output would increase, but only if nominal wages were increased more rapidly than prices. 
E)  the expected inflation rate was less than the actual rate. 
A)  real wages would fall. 
B)  output would decrease. 
C)  output would increase. 
D)  output would increase, but only if nominal wages were increased more rapidly than prices. 
E)  the expected inflation rate was less than the actual rate.

Question 19

In general, the Fed has not embraced a fixed-growth-rate monetary policy because:

Accepted Answer

A)  its adoption would lead to a decrease in the employment rate in the U.S. economy. 
B)  no influential economists have come out in favor of it. 
C)  the Fed has to report to Congress, and Congress is not in favor of it. 
D)  the Fed prefers active fiscal policy. 
E)  they believe the economy is too complex to make such a policy work consistently. 
A)  its adoption would lead to a decrease in the employment rate in the U.S. economy. 
B)  no influential economists have come out in favor of it. 
C)  the Fed has to report to Congress, and Congress is not in favor of it. 
D)  the Fed prefers active fiscal policy. 
E)  they believe the economy is too complex to make such a policy work consistently.

Question 20

Some economists believe that in the long run, the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.

Accepted Answer

A) True 
 B)False

Which of the following is a problem associated with an active policy such as a stimulus package?

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in inflation and unemployment.

According to the rational expectations school, _____.

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

When self-correction works to eliminate an expansionary gap, _____.

Which of the following is not assumed before the implementation of a policy?

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 _____.

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

After the 1960s, the short-run Phillips curve based on U.S. economic data:

One way of expressing the concept of the short-run Phillips curve is to say that:

Which of the following lags reduces the effectiveness of active policy?

According to the rational expectations school, when the economy is operating at the potential output level, a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

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:

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

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_____.

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then:

In general, the Fed has not embraced a fixed-growth-rate monetary policy because:

Some economists believe that in the long run, the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.

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

Which of the following is a problem associated with an active policy such as a stimulus package?

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in inflation and unemployment.

According to the rational expectations school, _____.

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

When self-correction works to eliminate an expansionary gap, _____.

Which of the following is not assumed before the implementation of a policy?

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 _____.

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

After the 1960s, the short-run Phillips curve based on U.S. economic data:

One way of expressing the concept of the short-run Phillips curve is to say that:

Which of the following lags reduces the effectiveness of active policy?

According to the rational expectations school, when the economy is operating at the potential output level, a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

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:

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

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_____.

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then:

In general, the Fed has not embraced a fixed-growth-rate monetary policy because:

Some economists believe that in the long run, the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.

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