Exam 16: The Policy Debate: Active or Passive

For those who favor an active approach, public policy changes are necessary to cure a recessionary gap because:

For an economy to eliminate inflation once people have begun to anticipate it, _____.

If the price level increases by more than expected, output can be expected to decrease as a result.

The rational expectations school advocates:

The country of Glassen has experienced an expansionary gap for the last three years. The advocates of passive policy are likely to suggest a policy which causes _____.

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

An anti-inflation policy that involves announcing and executing tough measures to stop inflation is called _____.

The long-run Phillips curve is located at the natural rate of unemployment.

Suppose a recession surprises economic forecasters who did not see it coming. This is an example of a _____.

According to the rational expectations school, if the Fed announces a policy of rapid growth in the money supply, but then puts the brakes on money expansion without any announcement, which of the following is likely to be the short-run result?

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP, then:

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

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

Economists of the rational expectations school:

If rational expectations cause people's price expectations to be generally correct, active policy will influence the price level but not output.

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

Economist Alban William Phillips believed that:

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

The immediate effects of a discretionary increase in government spending are represented by a:

According to the active policy approach, the elimination of a recessionary policy _____.