Question 1

If a passive approach is followed in closing an expansionary gap, _____.

Accepted Answer

A)  restrictive fiscal policy would be used 
B)  restrictive monetary policy would be used 
C)  the short-run aggregate supply curve would shift to the right 
D)  the price level would decrease in the long run 
E)  an economy would experience inflationary pressure 
A)  restrictive fiscal policy would be used 
B)  restrictive monetary policy would be used 
C)  the short-run aggregate supply curve would shift to the right 
D)  the price level would decrease in the long run 
E)  an economy would experience inflationary pressure

Question 2

The reason why self-correction works to close a recessionary gap is because:

Accepted Answer

A)  a labor shortage causes wages to increase. 
B)  a labor surplus causes wages to increase. 
C)  a labor shortage causes wages to fall. 
D)  a labor surplus causes wages to fall. 
E)  a labor surplus causes price to fall. 
A)  a labor shortage causes wages to increase. 
B)  a labor surplus causes wages to increase. 
C)  a labor shortage causes wages to fall. 
D)  a labor surplus causes wages to fall. 
E)  a labor surplus causes price to fall.

Question 3

Suppose the Fed announced a policy of rapid growth in the money supply in 2004, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, it is most likely that:

Accepted Answer

A)  people will believe in the announcement since the conditions that created a need for the expansion are probably still in effect. 
B)  people will believe in the announcement since they consider that having failed to implement the expansion previously, the Fed still plans to do so. 
C)  people will not believe in the announcement since they consider that the conditions that created a need for the expansion must have changed in the meantime. 
D)  people will not believe in the announcement since they consider that having failed to implement the expansion previously, the Fed will probably fail again 
E)  there will be further uncertainty about the Fed following through on the policies it announces. 
A)  people will believe in the announcement since the conditions that created a need for the expansion are probably still in effect. 
B)  people will believe in the announcement since they consider that having failed to implement the expansion previously, the Fed still plans to do so. 
C)  people will not believe in the announcement since they consider that the conditions that created a need for the expansion must have changed in the meantime. 
D)  people will not believe in the announcement since they consider that having failed to implement the expansion previously, the Fed will probably fail again 
E)  there will be further uncertainty about the Fed following through on the policies it announces.

Question 4

Some economists believe that when workers and firms expect a recessionary monetary policy, _____.

Accepted Answer

A)  they act so as to prevent the price level from increasing 
B)  their actions lead to a further increase in output 
C)  they are likely to negotiate for relatively lower wages. 
D)  the monetary authority is forced to cancel its planned recessionary policy 
E)  both output and employment increase even more than was originally planned 
A)  they act so as to prevent the price level from increasing 
B)  their actions lead to a further increase in output 
C)  they are likely to negotiate for relatively lower wages. 
D)  the monetary authority is forced to cancel its planned recessionary policy 
E)  both output and employment increase even more than was originally planned

Question 5

Discretionary policy advocates believe:

Accepted Answer

A)  that there is a high cost associated with the use of a discretionary policy. 
B)  that self-corrective forces in an economy work slowly. 
C)  that natural adjustments of wages and prices can help attain potential output. 
D)  in rational expectations. 
E)  that an active stabilization policy imposes troubling fluctuations in the price level and real GDP. 
A)  that there is a high cost associated with the use of a discretionary policy. 
B)  that self-corrective forces in an economy work slowly. 
C)  that natural adjustments of wages and prices can help attain potential output. 
D)  in rational expectations. 
E)  that an active stabilization policy imposes troubling fluctuations in the price level and real GDP.

Question 6

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

Accepted Answer

A) True 
 B)False

Question 7

Opponents of inflation targets say that:

Accepted Answer

A)  such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases. 
B)  the Fed pays less attention to jobs and economic growth when it sets such targets. 
C)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases. 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases. 
E)  the Fed pays more attention to jobs and economic growth when it sets such targets. 
A)  such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases. 
B)  the Fed pays less attention to jobs and economic growth when it sets such targets. 
C)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases. 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases. 
E)  the Fed pays more attention to jobs and economic growth when it sets such targets.

Question 8

If inflationary expectations increase, we can infer that:

Accepted Answer

A)  unemployment is above the natural rate. 
B)  the economy is not on the long-run Phillips curve. 
C)  the short-run Phillips curve is shifting to the left. 
D)  output is below potential GDP. 
E)  the unemployment rate is at the natural rate. 
A)  unemployment is above the natural rate. 
B)  the economy is not on the long-run Phillips curve. 
C)  the short-run Phillips curve is shifting to the left. 
D)  output is below potential GDP. 
E)  the unemployment rate is at the natural rate.

Question 9

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following macroeconomic variables is most dependent on whether the government pursues an active approach to policy or a passive approach to policy?

Accepted Answer

A)  Aggregate supply 
B)  Aggregate demand 
C)  Money demand 
D)  Money supply 
E)  Interest rate 
A)  Aggregate supply 
B)  Aggregate demand 
C)  Money demand 
D)  Money supply 
E)  Interest rate

Question 11

Which of the following statements supports the passive approach to close a recessionary gap?

Accepted Answer

A)  It is likely that policies will be subject to time lags. 
B)  Prolonged unemployment may cause the economy's potential real GDP to fall. 
C)  Workers' skills may grow rusty during a prolonged recession. 
D)  It is likely that unemployed workers will drop out of the labor force. 
E)  Firms may neglect their capital stock during a prolonged recession. 
A)  It is likely that policies will be subject to time lags. 
B)  Prolonged unemployment may cause the economy's potential real GDP to fall. 
C)  Workers' skills may grow rusty during a prolonged recession. 
D)  It is likely that unemployed workers will drop out of the labor force. 
E)  Firms may neglect their capital stock during a prolonged recession.

Question 12

According to the passive approach, discretionary fiscal or monetary policy can reduce the costs of an unstable economy.

Accepted Answer

A) True 
 B)False

Question 13

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 14

The government of Montesia had announced that it would keep its money supply unchanged in 2010. However, in 2011, the money supply increased, thereby ruining public expectations. This led to:

Accepted Answer

A)  no problem; this is normal behavior. 
B)  policy credibility. 
C)  a time-inconsistency problem. 
D)  the development of rational expectations. 
E)  an anticipation about the monetary policy. 
A)  no problem; this is normal behavior. 
B)  policy credibility. 
C)  a time-inconsistency problem. 
D)  the development of rational expectations. 
E)  an anticipation about the monetary policy.

Question 15

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.

Question 16

An economy experiencing an expansionary gap:

Accepted Answer

A)  operates in an environment in which labor shortages drive up money wages, real wages, and prices. 
B)  has an excess supply of labor due to rising money wages and prices. 
C)  will self-correct as rising money wages decrease faster than rising prices. 
D)  will experience rising money wages and prices but falling real wages. 
E)  will have excessive involuntary unemployment. 
A)  operates in an environment in which labor shortages drive up money wages, real wages, and prices. 
B)  has an excess supply of labor due to rising money wages and prices. 
C)  will self-correct as rising money wages decrease faster than rising prices. 
D)  will experience rising money wages and prices but falling real wages. 
E)  will have excessive involuntary unemployment.

Question 17

The unemployment rate can remain below the natural rate, but only _____.

Accepted Answer

A)  in the long run 
B)  with continuous deflation 
C)  with a continuously increasing inflation rate 
D)  with a series of adverse supply shocks 
E)  if the money supply is constant 
A)  in the long run 
B)  with continuous deflation 
C)  with a continuously increasing inflation rate 
D)  with a series of adverse supply shocks 
E)  if the money supply is constant

Question 18

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

Accepted Answer

A) True 
 B)False

Question 19

The short-run Phillips curve shows that:

Accepted Answer

A)  the economy can have low inflation and low unemployment simultaneously. 
B)  the economy can have high per-capita income and high interest rate simultaneously. 
C)  a reduction in per-capita income comes at the expense of lower inflation. 
D)  a reduction in unemployment comes at the expense of higher inflation. 
E)  a reduction in inflation comes at the expense of lower exchange rate. 
A)  the economy can have low inflation and low unemployment simultaneously. 
B)  the economy can have high per-capita income and high interest rate simultaneously. 
C)  a reduction in per-capita income comes at the expense of lower inflation. 
D)  a reduction in unemployment comes at the expense of higher inflation. 
E)  a reduction in inflation comes at the expense of lower exchange rate.

Question 20

During the period _____, the short-run Phillips curve for the United States was farthest from the origin.

Accepted Answer

A)  1960 to 1964 
B)  1964 to 1969 
C)  1970 to 1973 
D)  1974 to 1983 
E)  1984 to 1989 
A)  1960 to 1964 
B)  1964 to 1969 
C)  1970 to 1973 
D)  1974 to 1983 
E)  1984 to 1989

If a passive approach is followed in closing an expansionary gap, _____.

The reason why self-correction works to close a recessionary gap is because:

Suppose the Fed announced a policy of rapid growth in the money supply in 2004, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, it is most likely that:

Some economists believe that when workers and firms expect a recessionary monetary policy, _____.

Discretionary policy advocates believe:

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

Opponents of inflation targets say that:

If inflationary expectations increase, we can infer that:

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

Which of the following macroeconomic variables is most dependent on whether the government pursues an active approach to policy or a passive approach to policy?

Which of the following statements supports the passive approach to close a recessionary gap?

According to the passive approach, discretionary fiscal or monetary policy can reduce the costs of an unstable economy.

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

The government of Montesia had announced that it would keep its money supply unchanged in 2010. However, in 2011, the money supply increased, thereby ruining public expectations. This led to:

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

An economy experiencing an expansionary gap:

The unemployment rate can remain below the natural rate, but only _____.

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

The short-run Phillips curve shows that:

During the period _____, the short-run Phillips curve for the United States was farthest from the origin.

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

If a passive approach is followed in closing an expansionary gap, _____.

The reason why self-correction works to close a recessionary gap is because:

Suppose the Fed announced a policy of rapid growth in the money supply in 2004, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, it is most likely that:

Some economists believe that when workers and firms expect a recessionary monetary policy, _____.

Discretionary policy advocates believe:

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

Opponents of inflation targets say that:

If inflationary expectations increase, we can infer that:

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

Which of the following macroeconomic variables is most dependent on whether the government pursues an active approach to policy or a passive approach to policy?

Which of the following statements supports the passive approach to close a recessionary gap?

According to the passive approach, discretionary fiscal or monetary policy can reduce the costs of an unstable economy.

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

The government of Montesia had announced that it would keep its money supply unchanged in 2010. However, in 2011, the money supply increased, thereby ruining public expectations. This led to:

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

An economy experiencing an expansionary gap:

The unemployment rate can remain below the natural rate, but only _____.

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

The short-run Phillips curve shows that:

During the period _____, the short-run Phillips curve for the United States was farthest from the origin.

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