Question 1

The selection of a new policy takes place during a period of time known as the _____

Accepted Answer

A)  activity lag. 
B)  decision-making lag. 
C)  effectiveness lag. 
D)  implementation lag. 
E)  recognition lag. 
A)  activity lag. 
B)  decision-making lag. 
C)  effectiveness lag. 
D)  implementation lag. 
E)  recognition lag. B

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A)  a passive policy approach must be followed. 
B)  the monetary authorities must announce their decisions. 
C)  actual inflation must be greater than anticipated inflation. 
D)  cold turkey solutions that lead to further inflation must be avoided. 
E)  a recession will have to be endured until expectations have been reduced. 
A)  a passive policy approach must be followed. 
B)  the monetary authorities must announce their decisions. 
C)  actual inflation must be greater than anticipated inflation. 
D)  cold turkey solutions that lead to further inflation must be avoided. 
E)  a recession will have to be endured until expectations have been reduced. E

Question 4

Those who favor an active approach to policy believe that _____

Accepted Answer

A)  discretionary monetary policy cannot be used to help an economy since monetary policy lags are long. 
B)  discretionary fiscal policy cannot be used to help an economy since fiscal policy lags are long. 
C)  the lags associated with implementing policies are too long and unstable for discretionary policy to be effective. 
D)  despite the lags involved, implementing discretionary policy is preferable to inaction. 
E)  discretionary fiscal policy cannot be used to help an economy since it leads to inflation. 
A)  discretionary monetary policy cannot be used to help an economy since monetary policy lags are long. 
B)  discretionary fiscal policy cannot be used to help an economy since fiscal policy lags are long. 
C)  the lags associated with implementing policies are too long and unstable for discretionary policy to be effective. 
D)  despite the lags involved, implementing discretionary policy is preferable to inaction. 
E)  discretionary fiscal policy cannot be used to help an economy since it leads to inflation.

Question 5

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

Accepted Answer

A)  to recognize a problem 
B)  to decide how to handle a 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 a problem 
B)  to decide how to handle a 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 6

The clearest trade-off between unemployment and inflation occurred from _____

Accepted Answer

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

Question 7

Exhibit 16.3
  
-Refer to Exhibit 16.3. An expansionary monetary policy and higher wage agreements will eventually cause the short-run aggregate supply curve in to shift _____. Output once again returns to the economy's potential GDP at _____, but in the process the price level changes to _____.

Accepted Answer

A)  leftward, Q, P 
B)  leftward, Q, P' 
C)  leftward, Q, P" 
D)  leftward, Q', P 
E)  leftward, Q', P' 
A)  leftward, Q, P 
B)  leftward, Q, P' 
C)  leftward, Q, P" 
D)  leftward, Q', P 
E)  leftward, Q', P'

Question 8

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

Accepted Answer

A)  a policy to manipulate the aggregate supply is being used. 
B)  an active approach to correcting a recessionary gap is being used. 
C)  an active approach to correcting an expansionary gap is being used. 
D)  a passive approach to correcting a recessionary gap is being used. 
E)  a passive approach to correcting an expansionary gap is being used. 
A)  a policy to manipulate the aggregate supply is being used. 
B)  an active approach to correcting a recessionary gap is being used. 
C)  an active approach to correcting an expansionary gap is being used. 
D)  a passive approach to correcting a recessionary gap is being used. 
E)  a passive approach to correcting an expansionary gap is being used.

Question 9

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

Question 10

The natural rate hypothesis states that _____

Accepted Answer

A)  in the long run, the economy tends toward the natural rate of unemployment. 
B)  better discretionary policy can be expected to work. 
C)  the adjustment of the short-run Phillips curve is slow. 
D)  less macro policy can influence unemployment. 
E)  a passive policy can influence unemployment. 
A)  in the long run, the economy tends toward the natural rate of unemployment. 
B)  better discretionary policy can be expected to work. 
C)  the adjustment of the short-run Phillips curve is slow. 
D)  less macro policy can influence unemployment. 
E)  a passive policy can influence unemployment.

Question 11

The natural rate hypothesis implies that _____

Accepted Answer

A)  the policy that results in low inflation is generally the optimal policy in the long run. 
B)  the policy that results in low inflation is generally the optimal policy in the short run. 
C)  the policy that results in high inflation is generally the optimal policy in the long run. 
D)  the policy that results in high inflation is generally the optimal policy in the short run. 
E)  the policy that results in zero inflation is generally the optimal policy in the short run. 
A)  the policy that results in low inflation is generally the optimal policy in the long run. 
B)  the policy that results in low inflation is generally the optimal policy in the short run. 
C)  the policy that results in high inflation is generally the optimal policy in the long run. 
D)  the policy that results in high inflation is generally the optimal policy in the short run. 
E)  the policy that results in zero inflation is generally the optimal policy in the short run.

Question 12

Which of the following is true of lags associated with discretionary policy?

Accepted Answer

A)  Such lags extend only from the time a problem occurs in an economy to the time it is recognized by the government. 
B)  Such lags extend only from the time a problem is recognized by the government to the time an agreed-on policy is approved of. 
C)  Such lags extend only from the time a policy is approved to the time the policy is implemented. 
D)  Such lags can be reduced by taxation. 
E)  Such lags extend only from the time a problem occurs in an economy to the time a corrective policy has an impact on the economy. 
A)  Such lags extend only from the time a problem occurs in an economy to the time it is recognized by the government. 
B)  Such lags extend only from the time a problem is recognized by the government to the time an agreed-on policy is approved of. 
C)  Such lags extend only from the time a policy is approved to the time the policy is implemented. 
D)  Such lags can be reduced by taxation. 
E)  Such lags extend only from the time a problem occurs in an economy to the time a corrective policy has an impact on the economy.

Question 13

-Exhibit 16.5 shows a Phillips curve. Combinations of inflation and unemployment that are unattainable as long as the curve itself does not shift are represented by _____

Accepted Answer

A)  point a. 
B)  point b. 
C)  point c. 
D)  points a and b. 
E)  points c and d. 
A)  point a. 
B)  point b. 
C)  point c. 
D)  points a and b. 
E)  points c and d.

Question 14

The time it takes to identify and examine the nature and seriousness of an economic problem is the _____

Accepted Answer

A)  activity lag. 
B)  decision-making lag. 
C)  effectiveness lag. 
D)  implementation lag. 
E)  recognition lag. 
A)  activity lag. 
B)  decision-making lag. 
C)  effectiveness lag. 
D)  implementation lag. 
E)  recognition lag.

Question 15

According to the rational expectations approach, if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output, then people will not be able to anticipate the effects of this policy on the price level, unemployment, and real output level.

Accepted Answer

A) True 
 B)False

Question 16

Before discovering that the short-run Phillips curve does not show the true long-run situation, policy makers were successful in trying to bring the economy to the zero-inflation, zero-unemployment point on the short-run curve.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is consistent with an active approach to policy?

Accepted Answer

A)  the natural rate of unemployment being uncertain 
B)  wages and prices being relatively quick to adjust 
C)  the short-run aggregate supply curve being slow to shift in the presence of a recessionary gap 
D)  the size of the multiplier being irrelevant 
E)  the aggregate demand curve being slow to shift in the presence of a recessionary gap 
A)  the natural rate of unemployment being uncertain 
B)  wages and prices being relatively quick to adjust 
C)  the short-run aggregate supply curve being slow to shift in the presence of a recessionary gap 
D)  the size of the multiplier being irrelevant 
E)  the aggregate demand curve being slow to shift in the presence of a recessionary gap

Question 18

Which of the following would correspond to a movement downward along a short-run Phillips curve?

Accepted Answer

A)  The aggregate demand curve shifts rightward, moving up along a short-run aggregate supply curve. 
B)  The aggregate demand curve shifts leftward, moving down along a short-run aggregate supply curve. 
C)  The short-run aggregate supply curve shifts leftward, moving up along the aggregate demand curve. 
D)  The money supply curve shifts rightward for a given money demand curve. 
E)  Both the money demand and the money supply curves shift leftward. 
A)  The aggregate demand curve shifts rightward, moving up along a short-run aggregate supply curve. 
B)  The aggregate demand curve shifts leftward, moving down along a short-run aggregate supply curve. 
C)  The short-run aggregate supply curve shifts leftward, moving up along the aggregate demand curve. 
D)  The money supply curve shifts rightward for a given money demand curve. 
E)  Both the money demand and the money supply curves shift leftward.

Question 19

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 20

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if _____

Accepted Answer

A)  the policy is anticipated by workers and firms. 
B)  it causes the aggregate supply curve to shift to the left. 
C)  the economy is operating at or above its potential output level. 
D)  policy makers follow through on their previously announced plans. 
E)  the policy is totally unexpected. 
A)  the policy is anticipated by workers and firms. 
B)  it causes the aggregate supply curve to shift to the left. 
C)  the economy is operating at or above its potential output level. 
D)  policy makers follow through on their previously announced plans. 
E)  the policy is totally unexpected.

The selection of a new policy takes place during a period of time known as the _____

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

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

Those who favor an active approach to policy believe that _____

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

The clearest trade-off between unemployment and inflation occurred from _____

Exhibit 16.3 -Refer to Exhibit 16.3. An expansionary monetary policy and higher wage agreements will eventually cause the short-run aggregate supply curve in to shift ___. Output once again returns to the economy's potential GDP at _, but in the process the price level changes to ___.

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

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

The natural rate hypothesis states that _____

The natural rate hypothesis implies that _____

Which of the following is true of lags associated with discretionary policy?

-Exhibit 16.5 shows a Phillips curve. Combinations of inflation and unemployment that are unattainable as long as the curve itself does not shift are represented by _____

The time it takes to identify and examine the nature and seriousness of an economic problem is the _____

According to the rational expectations approach, if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output, then people will not be able to anticipate the effects of this policy on the price level, unemployment, and real output level.

Before discovering that the short-run Phillips curve does not show the true long-run situation, policy makers were successful in trying to bring the economy to the zero-inflation, zero-unemployment point on the short-run curve.

Which of the following is consistent with an active approach to policy?

Which of the following would correspond to a movement downward along a short-run Phillips curve?

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

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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: Macro Policy Debate: Active or Passive?

The selection of a new policy takes place during a period of time known as the _____

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

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

Those who favor an active approach to policy believe that _____

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

The clearest trade-off between unemployment and inflation occurred from _____

Exhibit 16.3 -Refer to Exhibit 16.3. An expansionary monetary policy and higher wage agreements will eventually cause the short-run aggregate supply curve in to shift _____. Output once again returns to the economy's potential GDP at _____, but in the process the price level changes to _____.

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

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

The natural rate hypothesis states that _____

The natural rate hypothesis implies that _____

Which of the following is true of lags associated with discretionary policy?

-Exhibit 16.5 shows a Phillips curve. Combinations of inflation and unemployment that are unattainable as long as the curve itself does not shift are represented by _____

The time it takes to identify and examine the nature and seriousness of an economic problem is the _____

According to the rational expectations approach, if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output, then people will not be able to anticipate the effects of this policy on the price level, unemployment, and real output level.

Before discovering that the short-run Phillips curve does not show the true long-run situation, policy makers were successful in trying to bring the economy to the zero-inflation, zero-unemployment point on the short-run curve.

Which of the following is consistent with an active approach to policy?

Which of the following would correspond to a movement downward along a short-run Phillips curve?

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

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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

Exhibit 16.3 -Refer to Exhibit 16.3. An expansionary monetary policy and higher wage agreements will eventually cause the short-run aggregate supply curve in to shift ___. Output once again returns to the economy's potential GDP at _, but in the process the price level changes to ___.