Question 1

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

Accepted Answer

A)  cold turkey. 
B)  red tape. 
C)  a pork-barrel policy. 
D)  chokehold. 
E)  time-inconsistency. 
A)  cold turkey. 
B)  red tape. 
C)  a pork-barrel policy. 
D)  chokehold. 
E)  time-inconsistency.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 16.4
  
-Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P' and keeping the economy at its potential, the Fed must stimulate aggregate demand as much as workers and firms expect (shown by point_____), but this is _____.

Accepted Answer

A)  c, inflationary 
B)  d, inflationary 
C)  e, inflationary 
D)  c, deflationary 
E)  d, deflationary 
A)  c, inflationary 
B)  d, inflationary 
C)  e, inflationary 
D)  c, deflationary 
E)  d, deflationary

Question 4

-Exhibit 16.5 shows a Phillips curve. Increases in both inflation and unemployment caused by a decrease in aggregate supply can be represented by an outcome such as _____.

Accepted Answer

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

Question 5

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

Question 6

To the extent that monetary policy is fully anticipated by workers and firms, it has _____

Accepted Answer

A)  no effect on the level of output; it affects only the price level. 
B)  an effect on the level of output; it affects the price level. 
C)  no effect on the level of output; it affects only employment. 
D)  an effect on the level of output; it affects employment. 
E)  no effect on the level of output; it affects only output. 
A)  no effect on the level of output; it affects only the price level. 
B)  an effect on the level of output; it affects the price level. 
C)  no effect on the level of output; it affects only employment. 
D)  an effect on the level of output; it affects employment. 
E)  no effect on the level of output; it affects only output.

Question 7

As long as wage increases do not exceed labor productivity growth rates, a stable price level should be the result.

Accepted Answer

A) True 
 B)False

Question 8

The main policy conclusion of the rational expectations school is that _____

Accepted Answer

A)  fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can be helpful. 
B)  monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can be helpful. 
C)  both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households. 
D)  both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers. 
E)  neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers. 
A)  fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can be helpful. 
B)  monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can be helpful. 
C)  both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households. 
D)  both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers. 
E)  neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers.

Question 9

One implication of the Phillips curve analysis is that _____

Accepted Answer

A)  unemployment rates below the natural rate are only possible in the long run. 
B)  unemployment rates below the natural rate lead to falling rates of inflation in the long run. 
C)  if inflationary expectations are accurate, the economy is on the short-run Phillips curve but not on the long-run Phillips curve. 
D)  unemployment rates below the natural rate may be achieved only with rising inflation rates. 
E)  the natural rate of unemployment is strictly a short-run phenomenon. 
A)  unemployment rates below the natural rate are only possible in the long run. 
B)  unemployment rates below the natural rate lead to falling rates of inflation in the long run. 
C)  if inflationary expectations are accurate, the economy is on the short-run Phillips curve but not on the long-run Phillips curve. 
D)  unemployment rates below the natural rate may be achieved only with rising inflation rates. 
E)  the natural rate of unemployment is strictly a short-run phenomenon.

Question 10

Along the long-run Phillips curve, the economy is at an unemployment level that corresponds to an output level lower than the potential output level.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Self-correction works to close a recessionary gap 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 13

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 14

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 15

In the context of monetary policy, which of the following might be a passive rule?

Accepted Answer

A)  promoting unemployment insurance 
B)  implementing a progressive income tax 
C)  implementing a regressive income tax 
D)  implementing transfer payments 
E)  maintaining interest rates at some predetermined level 
A)  promoting unemployment insurance 
B)  implementing a progressive income tax 
C)  implementing a regressive income tax 
D)  implementing transfer payments 
E)  maintaining interest rates at some predetermined level

Question 16

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 17

An increase in the expected inflation rate will _____

Accepted Answer

A)  shift the short-run Phillips curve upward and to the right. 
B)  shift the short-run Phillips curve downward and to the left. 
C)  not shift the short-run Phillips curve unless the unemployment rate changes. 
D)  cause the unemployment rate associated with each inflation rate to decrease. 
E)  tend to increase production unless the actual inflation rate also increases. 
A)  shift the short-run Phillips curve upward and to the right. 
B)  shift the short-run Phillips curve downward and to the left. 
C)  not shift the short-run Phillips curve unless the unemployment rate changes. 
D)  cause the unemployment rate associated with each inflation rate to decrease. 
E)  tend to increase production unless the actual inflation rate also increases.

Question 18

The time it takes for a new policy to register its full impact on an economy after it has been put in force is 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.

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

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

Exhibit 16.4 -Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P' and keeping the economy at its potential, the Fed must stimulate aggregate demand as much as workers and firms expect (shown by point_), but this is _.

-Exhibit 16.5 shows a Phillips curve. Increases in both inflation and unemployment caused by a decrease in aggregate supply can be represented by an outcome such as _____.

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

To the extent that monetary policy is fully anticipated by workers and firms, it has _____

As long as wage increases do not exceed labor productivity growth rates, a stable price level should be the result.

The main policy conclusion of the rational expectations school is that _____

One implication of the Phillips curve analysis is that _____

Along the long-run Phillips curve, the economy is at an unemployment level that corresponds to an output level lower than the potential output level.

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.

Self-correction works to close a recessionary gap because _____

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

Long time lags hamper the effectiveness of economic policy because _____

In the context of monetary policy, which of the following might be a passive rule?

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

An increase in the expected inflation rate will _____

The time it takes for a new policy to register its full impact on an economy after it has been put in force is known as the _____

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?

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

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

Exhibit 16.4 -Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P' and keeping the economy at its potential, the Fed must stimulate aggregate demand as much as workers and firms expect (shown by point_____), but this is _____.

-Exhibit 16.5 shows a Phillips curve. Increases in both inflation and unemployment caused by a decrease in aggregate supply can be represented by an outcome such as _____.

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

To the extent that monetary policy is fully anticipated by workers and firms, it has _____

As long as wage increases do not exceed labor productivity growth rates, a stable price level should be the result.

The main policy conclusion of the rational expectations school is that _____

One implication of the Phillips curve analysis is that _____

Along the long-run Phillips curve, the economy is at an unemployment level that corresponds to an output level lower than the potential output level.

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.

Self-correction works to close a recessionary gap because _____

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

Long time lags hamper the effectiveness of economic policy because _____

In the context of monetary policy, which of the following might be a passive rule?

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

An increase in the expected inflation rate will _____

The time it takes for a new policy to register its full impact on an economy after it has been put in force is known as the _____

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 16.4 -Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P' and keeping the economy at its potential, the Fed must stimulate aggregate demand as much as workers and firms expect (shown by point_), but this is _.