Question 1

Suppose a recession surprises economic forecasters who did not see it coming. This is an example of a(n) _____

Accepted Answer

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

Question 2

The effectiveness of a particular government policy depends in part on _____

Accepted Answer

A)  public announcements. 
B)  rumors. 
C)  hope. 
D)  best possible outcomes. 
E)  what people expect. 
A)  public announcements. 
B)  rumors. 
C)  hope. 
D)  best possible outcomes. 
E)  what people expect.

Question 3

The initial Phillips curve relationship implied that the opportunity cost of _____ was higher _____.

Accepted Answer

A)  reducing inflation; unemployment 
B)  increasing inflation; unemployment 
C)  decreasing employment; interest rate 
D)  increasing employment; deflation 
E)  increasing employment; interest rate 
A)  reducing inflation; unemployment 
B)  increasing inflation; unemployment 
C)  decreasing employment; interest rate 
D)  increasing employment; deflation 
E)  increasing employment; interest rate

Question 4

According to the rational expectations school, when the economy is operating at the potential output level, a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

Accepted Answer

A) True 
 B)False

Question 5

If rational expectations cause people's price expectations to be generally correct, active policy will influence the price level but not output.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 16-2
  
-Refer to Exhibit 16.2, which shows the price level, real GDP, and 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)  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)  a point below point C on the SRAS curve.

Question 7

Exhibit 16.3
  
-Refer to Exhibit 16.3. The short-run aggregate supply curve, SRAS is based on wage contracts reflecting an expected price level of _____

Accepted Answer

A)  P. 
B)  P'. 
C)  P". 
D)  between 0 and P'. 
E)  between P' and P. 
A)  P. 
B)  P'. 
C)  P". 
D)  between 0 and P'. 
E)  between P' and P.

Question 8

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

Accepted Answer

A)  falling wages that correct a recessionary gap 
B)  falling prices that correct a recessionary gap 
C)  rising prices that correct an expansionary gap 
D)  the tendency of the short-run aggregate supply curve to shift until it intersects the aggregate demand curve at potential GDP 
E)  an active approach to a recession or depression 
A)  falling wages that correct a recessionary gap 
B)  falling prices that correct a recessionary gap 
C)  rising prices that correct an expansionary gap 
D)  the tendency of the short-run aggregate supply curve to shift until it intersects the aggregate demand curve at potential GDP 
E)  an active approach to a recession or depression

Question 9

Exhibit 16.1
  
-Refer to Exhibit 16.1, which shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when _____

Accepted Answer

A)  the short-run aggregate supply curve shifts to the left. 
B)  the short-run aggregate supply curve shifts to the right due to a fall in real wages. 
C)  government spending increases. 
D)  the money supply increases. 
E)  aggregate demand decreases. 
A)  the short-run aggregate supply curve shifts to the left. 
B)  the short-run aggregate supply curve shifts to the right due to a fall in real wages. 
C)  government spending increases. 
D)  the money supply increases. 
E)  aggregate demand decreases.

Question 10

Opponents of inflation targets argue that _____

Accepted Answer

A)  such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases. 
B)  the Fed pays less attention to economic growth when it sets such targets. 
C)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases. 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases. 
E)  the Fed pays more attention to jobs and economic growth when it sets such targets. 
A)  such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases. 
B)  the Fed pays less attention to economic growth when it sets such targets. 
C)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases. 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases. 
E)  the Fed pays more attention to jobs and economic growth when it sets such targets.

Question 11

An implementation lag is the time it takes _____

Accepted Answer

A)  for policy makers to decide what to do. 
B)  for the chosen policy to have its full impact on an economy. 
C)  to identify trouble in an economy and to assess its severity. 
D)  to put a selected policy into action. 
E)  before a policy's effects on an economy are noticed by ordinary people. 
A)  for policy makers to decide what to do. 
B)  for the chosen policy to have its full impact on an economy. 
C)  to identify trouble in an economy and to assess its severity. 
D)  to put a selected policy into action. 
E)  before a policy's effects on an economy are noticed by ordinary people.

Question 12

The short-run aggregate supply curve is drawn for _____

Accepted Answer

A)  a given expected price level reflected in long-term wage contracts. 
B)  a given expected price level reflected in short-term wage contracts. 
C)  an actual price level reflected in long-term wage contracts. 
D)  an actual price level reflected in short-term wage contracts. 
E)  the highest price level possible reflected in long-term wage contracts. 
A)  a given expected price level reflected in long-term wage contracts. 
B)  a given expected price level reflected in short-term wage contracts. 
C)  an actual price level reflected in long-term wage contracts. 
D)  an actual price level reflected in short-term wage contracts. 
E)  the highest price level possible reflected in long-term wage contracts.

Question 13

An effective policy of governmental intervention in an economy requires all of the following except one. Which is the exception?

Accepted Answer

A)  the will to reject sound policy if it gets in the way of political considerations 
B)  the ability to estimate the economy's potential level of output 
C)  the ability to predict what would happen without intervention 
D)  an assortment of effective tools of discretionary policy 
E)  the ability to achieve effective cooperation between fiscal and monetary policy makers 
A)  the will to reject sound policy if it gets in the way of political considerations 
B)  the ability to estimate the economy's potential level of output 
C)  the ability to predict what would happen without intervention 
D)  an assortment of effective tools of discretionary policy 
E)  the ability to achieve effective cooperation between fiscal and monetary policy makers

Question 14

The inflation target is _____

Accepted Answer

A)  the commitment of central bankers to keep inflation below a certain rate for the next year or two. 
B)  the commitment of central bankers to keep money growth at a certain rate for the next year or two. 
C)  the commitment of central bankers to keep output at a certain rate for the next year or two. 
D)  the commitment of central bankers to keep unemployment at a certain rate for the next year or two. 
E)  the commitment of central bankers to keep fiscal spending at a certain rate for the next year or two. 
A)  the commitment of central bankers to keep inflation below a certain rate for the next year or two. 
B)  the commitment of central bankers to keep money growth at a certain rate for the next year or two. 
C)  the commitment of central bankers to keep output at a certain rate for the next year or two. 
D)  the commitment of central bankers to keep unemployment at a certain rate for the next year or two. 
E)  the commitment of central bankers to keep fiscal spending at a certain rate for the next year or two.

Question 15

The inflation associated with the oil embargoes of the 1970s illustrated the _____ of the downward-sloping Phillips curve in the long run, as unemployment _____ during this period.

Accepted Answer

A)  validity; fell 
B)  validity; rose 
C)  fallacy; rose 
D)  fallacy; fell 
E)  fallacy; did not change 
A)  validity; fell 
B)  validity; rose 
C)  fallacy; rose 
D)  fallacy; fell 
E)  fallacy; did not change

Question 16

Exhibit 16-2
  
-Refer to Exhibit 16.2, which shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, once the expansionary gap is eliminated, the economy will end up at _____

Accepted Answer

A)  point A. 
B)  point B. 
C)  point C. 
D)  a point to the right of point A. 
E)  a point below point C. 
A)  point A. 
B)  point B. 
C)  point C. 
D)  a point to the right of point A. 
E)  a point below point C.

Question 17

The argument that the Fed would pay less attention to jobs and economic growth is put forward by _____

Accepted Answer

A)  the rational expectations school. 
B)  opponents of monetary targets. 
C)  opponents of inflation targets. 
D)  the active approach. 
E)  the passive approach. 
A)  the rational expectations school. 
B)  opponents of monetary targets. 
C)  opponents of inflation targets. 
D)  the active approach. 
E)  the passive approach.

Question 18

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

Accepted Answer

A) True 
 B)False

Question 19

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then _____

Accepted Answer

A)  real wages would fall. 
B)  output would decrease. 
C)  output would remain unchanged. 
D)  output would increase, but only if nominal wages increased more rapidly than prices. 
E)  the expected inflation rate was less than the actual rate. 
A)  real wages would fall. 
B)  output would decrease. 
C)  output would remain unchanged. 
D)  output would increase, but only if nominal wages increased more rapidly than prices. 
E)  the expected inflation rate was less than the actual rate.

Question 20

-Refer to Exhibit 16.6, which reflects the relationship between the inflation rate and the unemployment rate. If the economy started near point b and government purchases increased, we would expect the economy in the short run to move to _____

Accepted Answer

A)  point a. 
B)  point e. 
C)  point c. 
D)  point d. 
E)  a point to the right of point b. 
A)  point a. 
B)  point e. 
C)  point c. 
D)  point d. 
E)  a point to the right of point b.

Suppose a recession surprises economic forecasters who did not see it coming. This is an example of a(n) _____

The effectiveness of a particular government policy depends in part on _____

The initial Phillips curve relationship implied that the opportunity cost of _ was higher _.

According to the rational expectations school, when the economy is operating at the potential output level, a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

If rational expectations cause people's price expectations to be generally correct, active policy will influence the price level but not output.

Exhibit 16-2 -Refer to Exhibit 16.2, which shows the price level, real GDP, and 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 _____

Exhibit 16.3 -Refer to Exhibit 16.3. The short-run aggregate supply curve, SRAS is based on wage contracts reflecting an expected price level of _____

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

Exhibit 16.1 -Refer to Exhibit 16.1, which shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when _____

Opponents of inflation targets argue that _____

An implementation lag is the time it takes _____

The short-run aggregate supply curve is drawn for _____

An effective policy of governmental intervention in an economy requires all of the following except one. Which is the exception?

The inflation target is _____

The inflation associated with the oil embargoes of the 1970s illustrated the _ of the downward-sloping Phillips curve in the long run, as unemployment _ during this period.

Exhibit 16-2 -Refer to Exhibit 16.2, which shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, once the expansionary gap is eliminated, the economy will end up at _____

The argument that the Fed would pay less attention to jobs and economic growth is put forward by _____

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then _____

-Refer to Exhibit 16.6, which reflects the relationship between the inflation rate and the unemployment rate. If the economy started near point b and government purchases increased, we would expect the economy in the short run to move to _____

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?

Suppose a recession surprises economic forecasters who did not see it coming. This is an example of a(n) _____

The effectiveness of a particular government policy depends in part on _____

The initial Phillips curve relationship implied that the opportunity cost of _____ was higher _____.

According to the rational expectations school, when the economy is operating at the potential output level, a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

If rational expectations cause people's price expectations to be generally correct, active policy will influence the price level but not output.

Exhibit 16-2 -Refer to Exhibit 16.2, which shows the price level, real GDP, and 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 _____

Exhibit 16.3 -Refer to Exhibit 16.3. The short-run aggregate supply curve, SRAS is based on wage contracts reflecting an expected price level of _____

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

Exhibit 16.1 -Refer to Exhibit 16.1, which shows the relationship between an economy's potential output, price level, and real GDP. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when _____

Opponents of inflation targets argue that _____

An implementation lag is the time it takes _____

The short-run aggregate supply curve is drawn for _____

An effective policy of governmental intervention in an economy requires all of the following except one. Which is the exception?

The inflation target is _____

The inflation associated with the oil embargoes of the 1970s illustrated the _____ of the downward-sloping Phillips curve in the long run, as unemployment _____ during this period.

Exhibit 16-2 -Refer to Exhibit 16.2, which shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, once the expansionary gap is eliminated, the economy will end up at _____

The argument that the Fed would pay less attention to jobs and economic growth is put forward by _____

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then _____

-Refer to Exhibit 16.6, which reflects the relationship between the inflation rate and the unemployment rate. If the economy started near point b and government purchases increased, we would expect the economy in the short run to move to _____

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

The initial Phillips curve relationship implied that the opportunity cost of _ was higher _.

The inflation associated with the oil embargoes of the 1970s illustrated the _ of the downward-sloping Phillips curve in the long run, as unemployment _ during this period.