Exam 16: The Policy Debate: Active or Passive

Brandon, an economist, is a believer of the rational expectations school. According to him, which of the following is likely to affect the levels of output and employment in an economy?

If the short-run equilibrium output of the United States exceeds the potential output, the Fed:

Only long-run changes in output can be brought about by unexpected change in policy.

Those who favor a passive approach to policy believe that:

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

Which of the following is not a valid criticism of discretionary fiscal policy?

An implementation lag is the time it takes:

According to the rational expectations school, when monetary policy makers do exactly what is expected of them, their efforts to stimulate the economy will have no effect on employment.

The rational expectations school advocates the passive rule of a fixed-growth rate monetary policy because:

Which of the following is not consistent with a self-correcting economy?