Question 1

The time-inconsistency problem is likely to arise in Cadmia if _____.

Accepted Answer

A)  attempts are made to coordinate monetary policy with fiscal policy 
B)  there is a lag between the announcement of a monetary policy and its implementation 
C)  policy makers initially aim to keep the price level stable but do not follow through as promised 
D)  policy makers do not allow enough time for a new policy to take effect 
E)  there is a deep conflict among monetary policy makers 
A)  attempts are made to coordinate monetary policy with fiscal policy 
B)  there is a lag between the announcement of a monetary policy and its implementation 
C)  policy makers initially aim to keep the price level stable but do not follow through as promised 
D)  policy makers do not allow enough time for a new policy to take effect 
E)  there is a deep conflict among monetary policy makers

Question 2

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Accepted Answer

A) True 
 B)False

Question 3

Opponents of inflation targets believe that:

Accepted Answer

A)  such targets will encourage workers to shirk work. 
B)  such targets will lead to unsustainable economic growth. 
C)  such targets will lead the Fed to pay less attention to jobs and economic growth. 
D)  such targets will cause international competitiveness to be lost and the value of savings to be reduced. 
E)  such targets would prevent investors from investing in profitable ventures. 
A)  such targets will encourage workers to shirk work. 
B)  such targets will lead to unsustainable economic growth. 
C)  such targets will lead the Fed to pay less attention to jobs and economic growth. 
D)  such targets will cause international competitiveness to be lost and the value of savings to be reduced. 
E)  such targets would prevent investors from investing in profitable ventures.

Question 4

The short-run Phillips curve portrays a(n):

Accepted Answer

A)  direct relationship between total employment and the inflation rate. 
B)  inverse relationship between inflation and total employment. 
C)  direct relationship between the unemployment rate and the inflation rate. 
D)  inverse relationship between the unemployment rate and the inflation rate. 
E)  inverse relationship between the price level and the unemployment rate. 
A)  direct relationship between total employment and the inflation rate. 
B)  inverse relationship between inflation and total employment. 
C)  direct relationship between the unemployment rate and the inflation rate. 
D)  inverse relationship between the unemployment rate and the inflation rate. 
E)  inverse relationship between the price level and the unemployment rate.

Question 5

If the price level increases more rapidly than expected, _____.

Accepted Answer

A)  output will decrease 
B)  output will increase 
C)  output will not change 
D)  real wages will increase 
E)  unemployment will increase 
A)  output will decrease 
B)  output will increase 
C)  output will not change 
D)  real wages will increase 
E)  unemployment will increase

Question 6

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

Accepted Answer

A) True 
 B)False

Question 7

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Accepted Answer

A)  Cutting taxes 
B)  Increasing government spending 
C)  Reducing interest rates 
D)  Increasing the money supply 
E)  Doing nothing 
A)  Cutting taxes 
B)  Increasing government spending 
C)  Reducing interest rates 
D)  Increasing the money supply 
E)  Doing nothing

Question 8

Which of the following is an outcome of prolonged unemployment?

Accepted Answer

A)  An improvement in labor skills 
B)  An increase in the inflation rate 
C)  A rise in potential GDP 
D)  A fall in potential GDP 
E)  An increase in the size of the labor force 
A)  An improvement in labor skills 
B)  An increase in the inflation rate 
C)  A rise in potential GDP 
D)  A fall in potential GDP 
E)  An increase in the size of the labor force

Question 9

In its original form, the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

Accepted Answer

A) True 
 B)False

Question 10

The effectiveness lag for monetary policy is short.

Accepted Answer

A) True 
 B)False

Question 11

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 12

The initial Phillips curve relationship implied that the opportunity cost of _____ was higher _____.

Accepted Answer

A)  reducing unemployment; inflation 
B)  increasing unemployment; inflation 
C)  decreasing employment; interest rate 
D)  increasing employment; deflation 
E)  increasing employment; interest rate 
A)  reducing unemployment; inflation 
B)  increasing unemployment; inflation 
C)  decreasing employment; interest rate 
D)  increasing employment; deflation 
E)  increasing employment; interest rate

Question 13

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____.

Accepted Answer

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

Question 14

The inflation associated with the oil embargoes of the 1970s resulted in:

Accepted Answer

A)  reduced unemployment because aggregate demand increased. 
B)  reduced unemployment because aggregate demand fell. 
C)  increased unemployment because aggregate demand increased. 
D)  increased unemployment because aggregate demand fell. 
E)  increased unemployment because aggregate supply fell. 
A)  reduced unemployment because aggregate demand increased. 
B)  reduced unemployment because aggregate demand fell. 
C)  increased unemployment because aggregate demand increased. 
D)  increased unemployment because aggregate demand fell. 
E)  increased unemployment because aggregate supply fell.

Question 15

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

Accepted Answer

A) True 
 B)False

Question 16

As long as wage increases do not exceed labor productivity growth rates, a stable price level should be the result.

Accepted Answer

A) True 
 B)False

Question 17

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

Accepted Answer

A) True 
 B)False

Question 18

During inflation, the optimal discretionary fiscal policy would be _____.

Accepted Answer

A)  to decrease taxes 
B)  to increase government spending 
C)  to decrease the reserve ratio 
D)  to increase taxes 
E)  to decrease the market interest rate 
A)  to decrease taxes 
B)  to increase government spending 
C)  to decrease the reserve ratio 
D)  to increase taxes 
E)  to decrease the market interest rate

Question 19

Suppose we observe several years of falling inflation rates for an economy. Which of the following would best explain this phenomenon?

Accepted Answer

A)  Unemployment is probably at the natural rate. 
B)  The unemployment rate must be rising. 
C)  The unemployment rate must be below the natural rate. 
D)  The unemployment rate is probably above the natural rate. 
E)  Aggregate output must be increasing. 
A)  Unemployment is probably at the natural rate. 
B)  The unemployment rate must be rising. 
C)  The unemployment rate must be below the natural rate. 
D)  The unemployment rate is probably above the natural rate. 
E)  Aggregate output must be increasing.

Question 20

According to economists of the rational expectations school, _____.

Accepted Answer

A)  the passive approach must be adopted because they believe the economy is too complex 
B)  individual forecasts about policies can never be right 
C)  anticipated monetary policy can affect the output level 
D)  discretionary policy can stabilize the economy 
E)  discretionary policy should be completely avoided 
A)  the passive approach must be adopted because they believe the economy is too complex 
B)  individual forecasts about policies can never be right 
C)  anticipated monetary policy can affect the output level 
D)  discretionary policy can stabilize the economy 
E)  discretionary policy should be completely avoided

The time-inconsistency problem is likely to arise in Cadmia if _____.

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Opponents of inflation targets believe that:

The short-run Phillips curve portrays a(n):

If the price level increases more rapidly than expected, _____.

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Which of the following is an outcome of prolonged unemployment?

In its original form, the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

The effectiveness lag for monetary policy is short.

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

The initial Phillips curve relationship implied that the opportunity cost of _ was higher _.

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____.

The inflation associated with the oil embargoes of the 1970s resulted in:

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

As long as wage increases do not exceed labor productivity growth rates, a stable price level should be the result.

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

During inflation, the optimal discretionary fiscal policy would be _____.

Suppose we observe several years of falling inflation rates for an economy. Which of the following would best explain this phenomenon?

According to economists of the rational expectations school, _____.

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

The time-inconsistency problem is likely to arise in Cadmia if _____.

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Opponents of inflation targets believe that:

The short-run Phillips curve portrays a(n):

If the price level increases more rapidly than expected, _____.

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Which of the following is an outcome of prolonged unemployment?

In its original form, the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

The effectiveness lag for monetary policy is short.

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

The initial Phillips curve relationship implied that the opportunity cost of _____ was higher _____.

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____.

The inflation associated with the oil embargoes of the 1970s resulted in:

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

As long as wage increases do not exceed labor productivity growth rates, a stable price level should be the result.

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

During inflation, the optimal discretionary fiscal policy would be _____.

Suppose we observe several years of falling inflation rates for an economy. Which of the following would best explain this phenomenon?

According to economists of the rational expectations school, _____.

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 initial Phillips curve relationship implied that the opportunity cost of _ was higher _.