Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

According to the active policy approach, the elimination of a recessionary gap _____

Accepted Answer

A)  can only be achieved by decreasing wages. 
B)  requires a public policy of wage and price controls. 
C)  should be accomplished by stimulating aggregate demand. 
D)  will increase unemployment. 
E)  will cause a recession. 
A)  can only be achieved by decreasing wages. 
B)  requires a public policy of wage and price controls. 
C)  should be accomplished by stimulating aggregate demand. 
D)  will increase unemployment. 
E)  will cause a recession.

Question 3

The natural rate of unemployment occurs at _____

Accepted Answer

A)  the economy's nominal output. 
B)  the economy's real output. 
C)  the economy's potential output. 
D)  the nominal rate of inflation. 
E)  the real rate of inflation. 
A)  the economy's nominal output. 
B)  the economy's real output. 
C)  the economy's potential output. 
D)  the nominal rate of inflation. 
E)  the real rate of inflation.

Question 4

Opponents of inflation targets believe that _____

Accepted Answer

A)  such targets will encourage workers to shirk work. 
B)  such targets will lead to unsustainable economic growth. 
C)  such targets will lead the Fed to pay less attention to jobs. 
D)  such targets will cause international competitiveness to be lost and the value of savings to be reduced. 
E)  such targets would prevent investors from investing in profitable ventures. 
A)  such targets will encourage workers to shirk work. 
B)  such targets will lead to unsustainable economic growth. 
C)  such targets will lead the Fed to pay less attention to jobs. 
D)  such targets will cause international competitiveness to be lost and the value of savings to be reduced. 
E)  such targets would prevent investors from investing in profitable ventures.

Question 5

The short-run Phillips curve portrays a(n) _____

Accepted Answer

A)  direct relationship between total employment and the inflation rate. 
B)  inverse relationship between inflation and total employment. 
C)  direct relationship between the unemployment rate and the inflation rate. 
D)  inverse relationship between the inflation rate and the unemployment rate. 
E)  inverse relationship between the price level and the unemployment rate. 
A)  direct relationship between total employment and the inflation rate. 
B)  inverse relationship between inflation and total employment. 
C)  direct relationship between the unemployment rate and the inflation rate. 
D)  inverse relationship between the inflation rate and the unemployment rate. 
E)  inverse relationship between the price level and the unemployment rate.

Question 6

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the _____

Accepted Answer

A)  short-run aggregate supply curve before active policy shifts the aggregate demand curve. 
B)  short-run aggregate supply curve only after active policy shifts the aggregate demand curve. 
C)  short-run aggregate supply curve more than active policy shifts the aggregate demand curve. 
D)  short-run aggregate supply curve less than active policy shifts the aggregate demand curve. 
E)  short-run aggregate supply curve in a direction opposite the shift in the aggregate demand curve. 
A)  short-run aggregate supply curve before active policy shifts the aggregate demand curve. 
B)  short-run aggregate supply curve only after active policy shifts the aggregate demand curve. 
C)  short-run aggregate supply curve more than active policy shifts the aggregate demand curve. 
D)  short-run aggregate supply curve less than active policy shifts the aggregate demand curve. 
E)  short-run aggregate supply curve in a direction opposite the shift in the aggregate demand curve.

Question 7

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____

Accepted Answer

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

Question 8

An economy that self-corrects a recessionary gap will experience falling nominal wages, rising real wages, and falling output.

Accepted Answer

A) True 
 B)False

Question 9

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 10

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

Accepted Answer

A) True 
 B)False

Question 11

-Exhibit 16.5 shows a Phillips curve. Beginning at point a, if fiscal or monetary policy is used to stimulate output and thereby reduce unemployment, the economy will move from _____

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 12

-Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will ____

Accepted Answer

A)  move toward point a. 
B)  move toward point b. 
C)  stay at point c. 
D)  move toward point d. 
E)  move toward point f. 
A)  move toward point a. 
B)  move toward point b. 
C)  stay at point c. 
D)  move toward point d. 
E)  move toward point f.

Question 13

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

Accepted Answer

A)  they try 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 try 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 14

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 15

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 of the United States sits on the Board of Governors. 
D)  Congress must approve any new monetary policy. 
E)  The President of the United States 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 of the United States sits on the Board of Governors. 
D)  Congress must approve any new monetary policy. 
E)  The President of the United States must approve any new monetary policy.

Question 16

The Phillips curve shows _____

Accepted Answer

A)  the relationship between the interest rate and the inflation rate. 
B)  the relationship between the inflation rate and the rate of unemployment. 
C)  the relationship between the unemployment rate and the level of real GDP. 
D)  the relationship between the growth rate and the inflation rate. 
E)  the relationship between the rate of unemployment and the growth rate. 
A)  the relationship between the interest rate and the inflation rate. 
B)  the relationship between the inflation rate and the rate of unemployment. 
C)  the relationship between the unemployment rate and the level of real GDP. 
D)  the relationship between the growth rate and the inflation rate. 
E)  the relationship between the rate of unemployment and the growth rate.

Question 17

Aggregate supply depends on _____

Accepted Answer

A)  what sort of macroeconomic course policy makers are expected to pursue. 
B)  the inflationary expectations of firms and workers. 
C)  short-run output and employment. 
D)  having discretionary policies in place to stimulate aggregate demand. 
E)  having passive policies in place to stimulate aggregate demand. 
A)  what sort of macroeconomic course policy makers are expected to pursue. 
B)  the inflationary expectations of firms and workers. 
C)  short-run output and employment. 
D)  having discretionary policies in place to stimulate aggregate demand. 
E)  having passive policies in place to stimulate aggregate demand.

Question 18

Exhibit 16.4
  
-Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P', short-run output at point _____ is less than the economy's potential output of _____.

Accepted Answer

A)  c, Q 
B)  d, Q 
C)  e, Q 
D)  c, Q' 
E)  d, Q' 
A)  c, Q 
B)  d, Q 
C)  e, Q 
D)  c, Q' 
E)  d, Q'

Question 19

The inflation associated with the oil embargoes of the 1970s resulted in _____

Accepted Answer

A)  reduced unemployment because aggregate demand increased. 
B)  reduced unemployment because aggregate demand fell. 
C)  increased unemployment because aggregate demand increased. 
D)  increased unemployment because aggregate demand fell. 
E)  increased unemployment because aggregate supply fell. 
A)  reduced unemployment because aggregate demand increased. 
B)  reduced unemployment because aggregate demand fell. 
C)  increased unemployment because aggregate demand increased. 
D)  increased unemployment because aggregate demand fell. 
E)  increased unemployment because aggregate supply fell.

Question 20

Passive policy advocates rely on an economy's natural ability to correct itself in case of unemployment because of _____

Accepted Answer

A)  the lack of any real concern for those who have no jobs. 
B)  the conviction that unemployment is relatively harmless. 
C)  the belief that active economic policy is likely to be either ineffective or harmful. 
D)  the desire to await further economic data before intervening. 
E)  the belief in the law of diminishing returns. 
A)  the lack of any real concern for those who have no jobs. 
B)  the conviction that unemployment is relatively harmless. 
C)  the belief that active economic policy is likely to be either ineffective or harmful. 
D)  the desire to await further economic data before intervening. 
E)  the belief in the law of diminishing returns.

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

According to the active policy approach, the elimination of a recessionary gap _____

The natural rate of unemployment occurs at _____

Opponents of inflation targets believe that _____

The short-run Phillips curve portrays a(n) _____

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the _____

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____

An economy that self-corrects a recessionary gap will experience falling nominal wages, rising real wages, and falling output.

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

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

-Exhibit 16.5 shows a Phillips curve. Beginning at point a, if fiscal or monetary policy is used to stimulate output and thereby reduce unemployment, the economy will move from _____

-Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will ____

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

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

Which of the following is true of the Fed?

The Phillips curve shows _____

Aggregate supply depends on _____

Exhibit 16.4 -Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P', short-run output at point _ is less than the economy's potential output of _.

The inflation associated with the oil embargoes of the 1970s resulted in _____

Passive policy advocates rely on an economy's natural ability to correct itself in case of unemployment because of _____

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?

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

According to the active policy approach, the elimination of a recessionary gap _____

The natural rate of unemployment occurs at _____

Opponents of inflation targets believe that _____

The short-run Phillips curve portrays a(n) _____

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the _____

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____

An economy that self-corrects a recessionary gap will experience falling nominal wages, rising real wages, and falling output.

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

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

-Exhibit 16.5 shows a Phillips curve. Beginning at point a, if fiscal or monetary policy is used to stimulate output and thereby reduce unemployment, the economy will move from _____

-Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will ____

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

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

Which of the following is true of the Fed?

The Phillips curve shows _____

Aggregate supply depends on _____

Exhibit 16.4 -Refer to Exhibit 16.4. If the Fed follows the announced stable-price policy of keeping prices at P', short-run output at point _____ is less than the economy's potential output of _____.

The inflation associated with the oil embargoes of the 1970s resulted in _____

Passive policy advocates rely on an economy's natural ability to correct itself in case of unemployment because of _____

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', short-run output at point _ is less than the economy's potential output of _.