Question 1

Which of the following is an outcome of prolonged unemployment?

Accepted Answer

A)  an improvement in labor skills 
B)  an increase in the inflation rate 
C)  a decrease in frictional unemployment 
D)  a fall in potential GDP 
E)  an increase in the size of the labor force 
A)  an improvement in labor skills 
B)  an increase in the inflation rate 
C)  a decrease in frictional unemployment 
D)  a fall in potential GDP 
E)  an increase in the size of the labor force

Question 2

The short-run Phillips curve shows that _____

Accepted Answer

A)  the economy can have low inflation and low unemployment simultaneously. 
B)  the economy can have high per-capita income and a high interest rate simultaneously. 
C)  a reduction in per-capita income comes at the expense of lower inflation. 
D)  a reduction in unemployment comes at the expense of higher inflation. 
E)  a reduction in inflation comes at the expense of lower exchange rate. 
A)  the economy can have low inflation and low unemployment simultaneously. 
B)  the economy can have high per-capita income and a high interest rate simultaneously. 
C)  a reduction in per-capita income comes at the expense of lower inflation. 
D)  a reduction in unemployment comes at the expense of higher inflation. 
E)  a reduction in inflation comes at the expense of lower exchange rate.

Question 3

-Exhibit 16.5 shows a Phillips curve. If available, a reduction in unemployment with no change in inflation would be represented by _____

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 4

In general, the faster inflationary expectations adjust, the _____

Accepted Answer

A)  less macro policy can influence unemployment. 
B)  better discretionary policy can be expected to work. 
C)  slower the adjustment of the short-run Phillips curve. 
D)  stronger the case for active policy. 
E)  more effectively a policy can influence unemployment. 
A)  less macro policy can influence unemployment. 
B)  better discretionary policy can be expected to work. 
C)  slower the adjustment of the short-run Phillips curve. 
D)  stronger the case for active policy. 
E)  more effectively a policy can influence unemployment.

Question 5

Exhibit 16.3
  
-Refer to Exhibit 16.3. If the Fed follows the announced course, the aggregate demand curve will be _____ and equilibrium will be at point _____, where the price level is as expected and the economy is producing _____, the potential output.

Accepted Answer

A)  AD, a, Q 
B)  AD, a, Q' 
C)  AD, c, Q 
D)  AD', b, Q' 
A)  AD, a, Q 
B)  AD, a, Q' 
C)  AD, c, Q 
D)  AD', b, Q'

Question 6

Which of the following is not assumed before the implementation of a policy?

Accepted Answer

A)  The appropriate policy is selected instantaneously. 
B)  The appropriate policy is implemented instantaneously. 
C)  Once implemented, the policy works as advertised. 
D)  The policy, once implemented, works immediately. 
E)  Lags that reduce the effectiveness of the policy are predictable. 
A)  The appropriate policy is selected instantaneously. 
B)  The appropriate policy is implemented instantaneously. 
C)  Once implemented, the policy works as advertised. 
D)  The policy, once implemented, works immediately. 
E)  Lags that reduce the effectiveness of the policy are predictable.

Question 7

According to the rational expectations theory, people base their expectations about inflation on _____

Accepted Answer

A)  the announcement of a change in policy. 
B)  weighted averages of previous inflation rates, with the most distant getting the heaviest weight. 
C)  all information available to them. 
D)  changes in monetary policy only. 
E)  changes in both monetary and fiscal policy. 
A)  the announcement of a change in policy. 
B)  weighted averages of previous inflation rates, with the most distant getting the heaviest weight. 
C)  all information available to them. 
D)  changes in monetary policy only. 
E)  changes in both monetary and fiscal policy.

Question 8

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects _____

Accepted Answer

A)  the level of real GDP. 
B)  the level of real investment. 
C)  the price level. 
D)  the level of real consumption. 
E)  the level of exports. 
A)  the level of real GDP. 
B)  the level of real investment. 
C)  the price level. 
D)  the level of real consumption. 
E)  the level of exports.

Question 9

Which of the following statements supports the passive approach to close a recessionary gap?

Accepted Answer

A)  It is likely that policies will be subject to time lags. 
B)  Prolonged unemployment may cause an economy's potential real GDP to fall. 
C)  Workers' skills may grow rusty during a prolonged recession. 
D)  It is likely that unemployed workers will drop out of the labor force. 
E)  Firms may neglect their capital stock during a prolonged recession. 
A)  It is likely that policies will be subject to time lags. 
B)  Prolonged unemployment may cause an economy's potential real GDP to fall. 
C)  Workers' skills may grow rusty during a prolonged recession. 
D)  It is likely that unemployed workers will drop out of the labor force. 
E)  Firms may neglect their capital stock during a prolonged recession.

Question 10

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, the economy can attain equilibrium at potential output if _____

Accepted Answer

A)  the SRAS curve shifts to the left. 
B)  the SRAS curve shifts to the right. 
C)  money supply remains constant. 
D)  government spending is decreased. 
E)  aggregate demand increases. 
A)  the SRAS curve shifts to the left. 
B)  the SRAS curve shifts to the right. 
C)  money supply remains constant. 
D)  government spending is decreased. 
E)  aggregate demand increases.

Question 11

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 an active approach to policy, the economy will end up at _____ when it attains the potential output level.

Accepted Answer

A)  point A 
B)  point B 
C)  point C 
D)  a point between point A and point B 
E)  a point between point A and point C 
A)  point A 
B)  point B 
C)  point C 
D)  a point between point A and point B 
E)  a point between point A and point C

Question 12

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 _____, intersecting ____ at point _____, the economy's potential output.

Accepted Answer

A)  leftward, AD', a 
B)  leftward, AD', b 
C)  leftward, AD', c 
D)  leftward, A', a 
E)  leftward, AD, b 
A)  leftward, AD', a 
B)  leftward, AD', b 
C)  leftward, AD', c 
D)  leftward, A', a 
E)  leftward, AD, b

Question 13

The government of Montesia had announced that it would keep its money supply unchanged in 2010. However, in 2011, the money supply increased, thereby ruining public expectations. This led to _____

Accepted Answer

A)  an implementation lag. 
B)  policy credibility. 
C)  a time-inconsistency problem. 
D)  the development of rational expectations. 
E)  a recognition lag. 
A)  an implementation lag. 
B)  policy credibility. 
C)  a time-inconsistency problem. 
D)  the development of rational expectations. 
E)  a recognition lag.

Question 14

Possible combinations of the inflation rate and the unemployment rate are shown on the _____

Accepted Answer

A)  Production Possibilities Frontier. 
B)  Tobit model. 
C)  Phillips Curve. 
D)  Gordon's triangle model. 
E)  Shapiro-Stiglitz theory. 
A)  Production Possibilities Frontier. 
B)  Tobit model. 
C)  Phillips Curve. 
D)  Gordon's triangle model. 
E)  Shapiro-Stiglitz theory.

Question 15

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

Accepted Answer

A)  employs an active monetary policy to close a recessionary gap. 
B)  employs an active monetary policy to close an expansionary gap. 
C)  relies on a passive approach to close a recessionary gap. 
D)  relies on a passive approach to close an expansionary gap. 
E)  employs an expansionary fiscal policy. 
A)  employs an active monetary policy to close a recessionary gap. 
B)  employs an active monetary policy to close an expansionary gap. 
C)  relies on a passive approach to close a recessionary gap. 
D)  relies on a passive approach to close an expansionary gap. 
E)  employs an expansionary fiscal policy.

Question 16

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

Accepted Answer

A)  policy makers often do not have enough information to pursue an active policy. 
B)  active intervention is required only if an economy is in recession. 
C)  a large bureaucracy can be eliminated by following the passive approach. 
D)  people render active policy ineffective by figuring out what it's going to be and taking actions to offset it. 
E)  they prefer to emphasize an active fiscal policy. 
A)  policy makers often do not have enough information to pursue an active policy. 
B)  active intervention is required only if an economy is in recession. 
C)  a large bureaucracy can be eliminated by following the passive approach. 
D)  people render active policy ineffective by figuring out what it's going to be and taking actions to offset it. 
E)  they prefer to emphasize an active fiscal policy.

Question 17

By the end of the 1970s, increases in both inflation and unemployment suggested _____

Accepted Answer

A)  either that the Phillips curve had shifted outward or that it no longer described economic reality. 
B)  either that the Phillips curve had shifted inward or that it no longer described economic reality. 
C)  that the Phillips curve had stayed the same but that it no longer described economic reality. 
D)  that unemployment increased because aggregate demand fell. 
E)  that unemployment increased because aggregate supply fell. 
A)  either that the Phillips curve had shifted outward or that it no longer described economic reality. 
B)  either that the Phillips curve had shifted inward or that it no longer described economic reality. 
C)  that the Phillips curve had stayed the same but that it no longer described economic reality. 
D)  that unemployment increased because aggregate demand fell. 
E)  that unemployment increased because aggregate supply fell.

Question 18

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

Accepted Answer

A)  unemployment insurance 
B)  a progressive income tax 
C)  a regressive income tax 
D)  transfer payments 
E)  money supply growth at a predetermined rate 
A)  unemployment insurance 
B)  a progressive income tax 
C)  a regressive income tax 
D)  transfer payments 
E)  money supply growth at a predetermined rate

Question 19

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 20

Advocates of an active approach think that only when unemployment is high can the natural adjustments of wages and prices be effective.

Accepted Answer

A) True 
 B)False

Which of the following is an outcome of prolonged unemployment?

The short-run Phillips curve shows that _____

-Exhibit 16.5 shows a Phillips curve. If available, a reduction in unemployment with no change in inflation would be represented by _____

In general, the faster inflationary expectations adjust, the _____

Exhibit 16.3 -Refer to Exhibit 16.3. If the Fed follows the announced course, the aggregate demand curve will be ___ and equilibrium will be at point _, where the price level is as expected and the economy is producing ___, the potential output.

Which of the following is not assumed before the implementation of a policy?

According to the rational expectations theory, people base their expectations about inflation on _____

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects _____

Which of the following statements supports the passive approach to close a recessionary gap?

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, the economy can attain equilibrium at potential output if _____

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 an active approach to policy, the economy will end up at _____ when it attains the potential output level.

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 _, intersecting at point _, the economy's potential output.

The government of Montesia had announced that it would keep its money supply unchanged in 2010. However, in 2011, the money supply increased, thereby ruining public expectations. This led to _____

Possible combinations of the inflation rate and the unemployment rate are shown on the _____

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

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

By the end of the 1970s, increases in both inflation and unemployment suggested _____

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

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Advocates of an active approach think that only when unemployment is high can the natural adjustments of wages and prices be effective.

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?

Which of the following is an outcome of prolonged unemployment?

The short-run Phillips curve shows that _____

-Exhibit 16.5 shows a Phillips curve. If available, a reduction in unemployment with no change in inflation would be represented by _____

In general, the faster inflationary expectations adjust, the _____

Exhibit 16.3 -Refer to Exhibit 16.3. If the Fed follows the announced course, the aggregate demand curve will be _____ and equilibrium will be at point _____, where the price level is as expected and the economy is producing _____, the potential output.

Which of the following is not assumed before the implementation of a policy?

According to the rational expectations theory, people base their expectations about inflation on _____

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects _____

Which of the following statements supports the passive approach to close a recessionary gap?

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, the economy can attain equilibrium at potential output if _____

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 an active approach to policy, the economy will end up at _____ when it attains the potential output level.

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 _____, intersecting ____ at point _____, the economy's potential output.

The government of Montesia had announced that it would keep its money supply unchanged in 2010. However, in 2011, the money supply increased, thereby ruining public expectations. This led to _____

Possible combinations of the inflation rate and the unemployment rate are shown on the _____

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

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

By the end of the 1970s, increases in both inflation and unemployment suggested _____

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

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Advocates of an active approach think that only when unemployment is high can the natural adjustments of wages and prices be effective.

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. If the Fed follows the announced course, the aggregate demand curve will be ___ and equilibrium will be at point _, where the price level is as expected and the economy is producing ___, the potential output.

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 _, intersecting at point _, the economy's potential output.