Question 1

Which of the following is true of the Fed?

Accepted Answer

A)  The law lets the Fed decide how best to promote full employment and output in the U.S. economy. 
B)  It relies heavily on Congressional appropriations. 
C)  The president sits on the Board of Governors. 
D)  Congress must approve any new monetary policy. 
E)  The president must approve any new monetary policy. 
A)  The law lets the Fed decide how best to promote full employment and output in the U.S. economy. 
B)  It relies heavily on Congressional appropriations. 
C)  The president sits on the Board of Governors. 
D)  Congress must approve any new monetary policy. 
E)  The president must approve any new monetary policy.

Question 2

After World War II the average U.S. recession has lasted:

Accepted Answer

A)  a few months. 
B)  about half a year. 
C)  a little less than a year. 
D)  about three weeks. 
E)  about two years. 
A)  a few months. 
B)  about half a year. 
C)  a little less than a year. 
D)  about three weeks. 
E)  about two years.

Question 3

Long time lags hamper the effectiveness of economic policy because:

Accepted Answer

A)  people don't want to wait for economic recovery. 
B)  the longer unemployment lasts, the more intense inflation becomes. 
C)  by the time the impact of a policy is felt, a new problem may have come along that requires a different policy, which may make the economic situation even worse. 
D)  if inflation is allowed to continue for too long, it becomes immune to policy interference. 
E)  if unemployment is allowed to continue for too long, it becomes immune to policy interference. 
A)  people don't want to wait for economic recovery. 
B)  the longer unemployment lasts, the more intense inflation becomes. 
C)  by the time the impact of a policy is felt, a new problem may have come along that requires a different policy, which may make the economic situation even worse. 
D)  if inflation is allowed to continue for too long, it becomes immune to policy interference. 
E)  if unemployment is allowed to continue for too long, it becomes immune to policy interference.

Question 4

Advocates of an active approach think that only when unemployment is high, the natural adjustments of wages and prices can be effective.

Accepted Answer

A) True 
 B)False

Question 5

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects:

Accepted Answer

A)  the level of real GDP. 
B)  t he level of real investment. 
C)  the price level. 
D)  the level of real consumption. 
E)  the level of exports. 
A)  the level of real GDP. 
B)  t he level of real investment. 
C)  the price level. 
D)  the level of real consumption. 
E)  the level of exports.

Question 6

An economy that self-corrects an expansionary gap will experience stagflation.

Accepted Answer

A) True 
 B)False

Question 7

Suppose policy makers are concerned about a shortage of long-term capital investment. To remedy the problem, various plans to cut capital gains taxes have been suggested. The delay in picking a plan is called 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 8

The _____ lag is typically longer for fiscal policy than monetary policy.

Accepted Answer

A)  supply 
B)  cyclical 
C)  effectiveness 
D)  implementation 
E)  recognition 
A)  supply 
B)  cyclical 
C)  effectiveness 
D)  implementation 
E)  recognition

Question 9

If the actual inflation rate exceeds the expected inflation rate, then:

Accepted Answer

A)  the economy is operating along the long-run Phillips curve. 
B)  unemployment exceeds the natural rate. 
C)  maintaining the existing unemployment rate will require increasing inflation in the long run. 
D)  the actual rate will tend to fall toward the expected rate. 
E)  unemployment will tend to decrease in the long run. 
A)  the economy is operating along the long-run Phillips curve. 
B)  unemployment exceeds the natural rate. 
C)  maintaining the existing unemployment rate will require increasing inflation in the long run. 
D)  the actual rate will tend to fall toward the expected rate. 
E)  unemployment will tend to decrease in the long run.

Question 10

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

Accepted Answer

A) True 
 B)False

Question 11

Inflation target refers to the commitment of central bankers to keep inflation below a certain rate for the next year or two.

Accepted Answer

A) True 
 B)False

Question 12

The short-run Phillips curve shows that as the unemployment rate goes down, _____.

Accepted Answer

A)  unemployment benefit payments go up 
B)  prices go down 
C)  the Phillips curve shifts outward 
D)  the inflation rate goes up 
E)  there is no change in the rate of inflation 
A)  unemployment benefit payments go up 
B)  prices go down 
C)  the Phillips curve shifts outward 
D)  the inflation rate goes up 
E)  there is no change in the rate of inflation

Question 13

The time required _____ is not a time lag associated with using discretionary policy to correct an economic problem.

Accepted Answer

A)  to recognize the problem 
B)  to decide how to handle the problem 
C)  to set a policy change in action 
D)  for a policy to affect economic variables 
E)  to observe public reaction after a policy announcement is made 
A)  to recognize the problem 
B)  to decide how to handle the problem 
C)  to set a policy change in action 
D)  for a policy to affect economic variables 
E)  to observe public reaction after a policy announcement is made

Question 14

The figure below shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor an active approach to policy, the economy will end up at _____when it attains the potential output level.

Accepted Answer

A)  point A 
B)  point B 
C)  point C 
D)  a point between A and B 
E)  a point between A and C 
A)  point A 
B)  point B 
C)  point C 
D)  a point between A and B 
E)  a point between A and C

Question 15

The figure below shows the price level, real GDP, and the potential output for an economy. According to those who favor an active approach to policy, once the expansionary gap is eliminated, the economy can attain equilibrium at:

Accepted Answer

A)  point A. 
B)  point B. 
C)  point C. 
D)  a point above point A on the SRAS curve. 
E)  at a point below point C on the SRAS curve. 
A)  point A. 
B)  point B. 
C)  point C. 
D)  a point above point A on the SRAS curve. 
E)  at a point below point C on the SRAS curve.

Question 16

Adaptive expectations is a school of thought that argues people form expectations based on all available information, including the likely future actions of government policy makers.

Accepted Answer

A) True 
 B)False

Question 17

A credible policy designed to lower inflation is likely to push the economy into recession.

Accepted Answer

A) True 
 B)False

Question 18

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

Accepted Answer

A)  The recognition lag and the implementation lag 
B)  The effectiveness lag and the decision-making lag 
C)  The decision-making lag and the implementation lag 
D)  The implementation lag and the effectiveness lag 
E)  The recognition lag and the effectiveness lag 
A)  The recognition lag and the implementation lag 
B)  The effectiveness lag and the decision-making lag 
C)  The decision-making lag and the implementation lag 
D)  The implementation lag and the effectiveness lag 
E)  The recognition lag and the effectiveness lag

Question 20

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the trade-offs between:

Accepted Answer

A)  aggregate supply and aggregate demand. 
B)  interest rate and investment. 
C)  inflation and unemployment. 
D)  monetary and fiscal policy. 
E)  rule-making and discretionary policy. 
A)  aggregate supply and aggregate demand. 
B)  interest rate and investment. 
C)  inflation and unemployment. 
D)  monetary and fiscal policy. 
E)  rule-making and discretionary policy.

Which of the following is true of the Fed?

After World War II the average U.S. recession has lasted:

Long time lags hamper the effectiveness of economic policy because:

Advocates of an active approach think that only when unemployment is high, the natural adjustments of wages and prices can be effective.

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects:

An economy that self-corrects an expansionary gap will experience stagflation.

Suppose policy makers are concerned about a shortage of long-term capital investment. To remedy the problem, various plans to cut capital gains taxes have been suggested. The delay in picking a plan is called the _____.

The _____ lag is typically longer for fiscal policy than monetary policy.

If the actual inflation rate exceeds the expected inflation rate, then:

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

Inflation target refers to the commitment of central bankers to keep inflation below a certain rate for the next year or two.

The short-run Phillips curve shows that as the unemployment rate goes down, _____.

The time required _____ is not a time lag associated with using discretionary policy to correct an economic problem.

The figure below shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor an active approach to policy, the economy will end up at _____when it attains the potential output level.

The figure below shows the price level, real GDP, and the potential output for an economy. According to those who favor an active approach to policy, once the expansionary gap is eliminated, the economy can attain equilibrium at:

Adaptive expectations is a school of thought that argues people form expectations based on all available information, including the likely future actions of government policy makers.

A credible policy designed to lower inflation is likely to push the economy into recession.

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the trade-offs between:

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 true of the Fed?

After World War II the average U.S. recession has lasted:

Long time lags hamper the effectiveness of economic policy because:

Advocates of an active approach think that only when unemployment is high, the natural adjustments of wages and prices can be effective.

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects:

An economy that self-corrects an expansionary gap will experience stagflation.

Suppose policy makers are concerned about a shortage of long-term capital investment. To remedy the problem, various plans to cut capital gains taxes have been suggested. The delay in picking a plan is called the _____.

The _____ lag is typically longer for fiscal policy than monetary policy.

If the actual inflation rate exceeds the expected inflation rate, then:

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

Inflation target refers to the commitment of central bankers to keep inflation below a certain rate for the next year or two.

The short-run Phillips curve shows that as the unemployment rate goes down, _____.

The time required _____ is not a time lag associated with using discretionary policy to correct an economic problem.

The figure below shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor an active approach to policy, the economy will end up at _____when it attains the potential output level.

The figure below shows the price level, real GDP, and the potential output for an economy. According to those who favor an active approach to policy, once the expansionary gap is eliminated, the economy can attain equilibrium at:

Adaptive expectations is a school of thought that argues people form expectations based on all available information, including the likely future actions of government policy makers.

A credible policy designed to lower inflation is likely to push the economy into recession.

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the trade-offs between:

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