Question 1

For those who favor an active approach, public policy changes are necessary to cure a recessionary gap because _____

Accepted Answer

A)  the short-run aggregate supply curve will otherwise shift quickly to the right. 
B)  prices and wages are flexible downward but not upward. 
C)  the required decrease in output can be achieved only by shifting the aggregate demand curve. 
D)  real wages must fall in order to increase aggregate supply in the economy. 
E)  falling money wages will cause the AD curve to shift leftward unless policy counters this movement. 
A)  the short-run aggregate supply curve will otherwise shift quickly to the right. 
B)  prices and wages are flexible downward but not upward. 
C)  the required decrease in output can be achieved only by shifting the aggregate demand curve. 
D)  real wages must fall in order to increase aggregate supply in the economy. 
E)  falling money wages will cause the AD curve to shift leftward unless policy counters this movement.

Question 2

An economy experiencing an expansionary gap _____

Accepted Answer

A)  operates in an environment in which labor shortages drive up money wages, real wages, and prices. 
B)  has an excess supply of labor due to rising money wages and prices. 
C)  will self-correct as money wages decrease faster than rising prices. 
D)  will experience rising money wages and prices but falling real wages. 
E)  will have excessive involuntary unemployment. 
A)  operates in an environment in which labor shortages drive up money wages, real wages, and prices. 
B)  has an excess supply of labor due to rising money wages and prices. 
C)  will self-correct as money wages decrease faster than rising prices. 
D)  will experience rising money wages and prices but falling real wages. 
E)  will have excessive involuntary unemployment.

Question 3

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Accepted Answer

A)  cutting taxes 
B)  increasing government spending 
C)  reducing interest rates 
D)  increasing the money supply 
E)  doing nothing 
A)  cutting taxes 
B)  increasing government spending 
C)  reducing interest rates 
D)  increasing the money supply 
E)  doing nothing

Question 4

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

Accepted Answer

A) True 
 B)False

Question 5

Those who favor a passive approach to policy believe that _____

Accepted Answer

A)  discretionary monetary policy can be used to help an economy since monetary policy lags are short. 
B)  discretionary fiscal policy can be used to help an economy since fiscal policy lags are short. 
C)  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)  automatic stabilizers cannot be used to help an economy since monetary policy lags are short. 
A)  discretionary monetary policy can be used to help an economy since monetary policy lags are short. 
B)  discretionary fiscal policy can be used to help an economy since fiscal policy lags are short. 
C)  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)  automatic stabilizers cannot be used to help an economy since monetary policy lags are short.

Question 6

-Exhibit 16.5 shows a Phillips curve. Combinations of inflation and unemployment that are attainable 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 7

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in both inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 8

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

Accepted Answer

A) True 
 B)False

Question 9

An increase in inflationary expectations _____

Accepted Answer

A)  shifts the short-run Phillips curve up and to the right, away from the origin. 
B)  shifts the short-run Phillips curve up and to the right, closer to the origin. 
C)  shifts the short-run Phillips curve up and to the left, away from the origin. 
D)  shifts the long-run Phillips curve up and to the right, away from the origin. 
E)  shifts the long-run Phillips curve up and to the right, closer to the origin. 
A)  shifts the short-run Phillips curve up and to the right, away from the origin. 
B)  shifts the short-run Phillips curve up and to the right, closer to the origin. 
C)  shifts the short-run Phillips curve up and to the left, away from the origin. 
D)  shifts the long-run Phillips curve up and to the right, away from the origin. 
E)  shifts the long-run Phillips curve up and to the right, closer to the origin.

Question 10

According to the rational expectations school, if the Fed announces a policy of rapid growth in the money supply, but then puts the brakes on money expansion without any announcement, which of the following is likely to be the short-run result?

Accepted Answer

A)  an unexpected surge in aggregate demand 
B)  an unexpected drop in aggregate demand 
C)  an anticipated surge in aggregate demand 
D)  an anticipated drop in aggregate demand 
E)  no change in aggregate demand 
A)  an unexpected surge in aggregate demand 
B)  an unexpected drop in aggregate demand 
C)  an anticipated surge in aggregate demand 
D)  an anticipated drop in aggregate demand 
E)  no change in aggregate demand

Question 11

Discretionary policy advocates believe _____

Accepted Answer

A)  that there is a high cost associated with the use of discretionary policy. 
B)  that self-corrective forces in an economy work slowly. 
C)  that natural adjustments of wages and prices can help attain potential output. 
D)  in rational expectations. 
E)  that an active stabilization policy imposes troubling fluctuations in the price level and real GDP. 
A)  that there is a high cost associated with the use of discretionary policy. 
B)  that self-corrective forces in an economy work slowly. 
C)  that natural adjustments of wages and prices can help attain potential output. 
D)  in rational expectations. 
E)  that an active stabilization policy imposes troubling fluctuations in the price level and real GDP.

Question 12

Which of the following is a rationale for the passive approach?

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)  The economy is complex, and economic aggregates can interact in obscure ways. 
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)  The economy is complex, and economic aggregates can interact in obscure ways.

Question 13

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

During inflation, the optimal discretionary fiscal policy would be _____

Accepted Answer

A)  to decrease taxes. 
B)  to increase government spending. 
C)  to decrease the reserve ratio. 
D)  to increase taxes. 
E)  to decrease the market interest rate. 
A)  to decrease taxes. 
B)  to increase government spending. 
C)  to decrease the reserve ratio. 
D)  to increase taxes. 
E)  to decrease the market interest rate.

Question 15

Suppose policy makers are concerned about a shortage of long-term capital investment. To remedy the problem, various plans to cut capital gains taxes have been suggested. The delay in picking a plan is called the _____

Accepted Answer

A)  implementation lag. 
B)  policy coordination problem. 
C)  decision-making lag. 
D)  recognition lag. 
E)  effectiveness lag. 
A)  implementation lag. 
B)  policy coordination problem. 
C)  decision-making lag. 
D)  recognition lag. 
E)  effectiveness lag.

Question 16

The commitment of central bankers to keep inflation below a certain rate for the next year or two is called _____

Accepted Answer

A)  the inflation target. 
B)  the economic growth target. 
C)  the price target. 
D)  the discount rate. 
E)  an automatic stabilizer. 
A)  the inflation target. 
B)  the economic growth target. 
C)  the price target. 
D)  the discount rate. 
E)  an automatic stabilizer.

Question 17

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following macroeconomic variables is most dependent on whether the government pursues an active approach to policy or a passive approach to policy?

Accepted Answer

A)  aggregate supply 
B)  investment demand 
C)  money demand 
D)  money supply 
E)  interest rates 
A)  aggregate supply 
B)  investment demand 
C)  money demand 
D)  money supply 
E)  interest rates

Question 19

If inflationary expectations increase, we can infer that _____

Accepted Answer

A)  unemployment is above the natural rate. 
B)  the economy is not on the long-run Phillips curve. 
C)  the short-run Phillips curve is shifting to the left. 
D)  output is below potential GDP. 
E)  the unemployment rate is at the natural rate. 
A)  unemployment is above the natural rate. 
B)  the economy is not on the long-run Phillips curve. 
C)  the short-run Phillips curve is shifting to the left. 
D)  output is below potential GDP. 
E)  the unemployment rate is at the natural rate.

Question 20

If a passive approach is followed in closing an expansionary gap, _____

Accepted Answer

A)  restrictive fiscal policy would be used. 
B)  restrictive monetary policy would be used. 
C)  the short-run aggregate supply curve would shift to the right. 
D)  the price level would decrease in the long run. 
E)  an economy would experience inflationary pressure. 
A)  restrictive fiscal policy would be used. 
B)  restrictive monetary policy would be used. 
C)  the short-run aggregate supply curve would shift to the right. 
D)  the price level would decrease in the long run. 
E)  an economy would experience inflationary pressure.

For those who favor an active approach, public policy changes are necessary to cure a recessionary gap because _____

An economy experiencing an expansionary gap _____

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

Those who favor a passive approach to policy believe that _____

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

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in both inflation and unemployment.

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

An increase in inflationary expectations _____

According to the rational expectations school, if the Fed announces a policy of rapid growth in the money supply, but then puts the brakes on money expansion without any announcement, which of the following is likely to be the short-run result?

Discretionary policy advocates believe _____

Which of the following is a rationale for the passive approach?

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

During inflation, the optimal discretionary fiscal policy would be _____

Suppose policy makers are concerned about a shortage of long-term capital investment. To remedy the problem, various plans to cut capital gains taxes have been suggested. The delay in picking a plan is called the _____

The commitment of central bankers to keep inflation below a certain rate for the next year or two is called _____

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

Which of the following macroeconomic variables is most dependent on whether the government pursues an active approach to policy or a passive approach to policy?

If inflationary expectations increase, we can infer that _____

If a passive approach is followed in closing an expansionary gap, _____

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.

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Exam 16: Macro Policy Debate: Active or Passive?

For those who favor an active approach, public policy changes are necessary to cure a recessionary gap because _____

An economy experiencing an expansionary gap _____

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

Those who favor a passive approach to policy believe that _____

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

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in both inflation and unemployment.

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

An increase in inflationary expectations _____

According to the rational expectations school, if the Fed announces a policy of rapid growth in the money supply, but then puts the brakes on money expansion without any announcement, which of the following is likely to be the short-run result?

Discretionary policy advocates believe _____

Which of the following is a rationale for the passive approach?

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

During inflation, the optimal discretionary fiscal policy would be _____

Suppose policy makers are concerned about a shortage of long-term capital investment. To remedy the problem, various plans to cut capital gains taxes have been suggested. The delay in picking a plan is called the _____

The commitment of central bankers to keep inflation below a certain rate for the next year or two is called _____

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

Which of the following macroeconomic variables is most dependent on whether the government pursues an active approach to policy or a passive approach to policy?

If inflationary expectations increase, we can infer that _____

If a passive approach is followed in closing an expansionary gap, _____

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