Question 1

The long-run Phillips curve is located at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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

Question 3

A policy to increase aggregate demand to cure a recessionary gap may succeed; however, inflation is a likely result.

Accepted Answer

A) True 
 B)False

Question 4

The effectiveness lag for monetary policy is short.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following lags reduces the effectiveness of active policy?

Accepted Answer

A)  preliminary lag 
B)  accounting lag 
C)  self-correction lag 
D)  recognition lag 
E)  execution lag 
A)  preliminary lag 
B)  accounting lag 
C)  self-correction lag 
D)  recognition lag 
E)  execution lag

Question 6

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

Accepted Answer

A)  the recognition lag and the implementation lag 
B)  the effectiveness lag and the decision-making lag 
C)  the decision-making lag and the implementation lag 
D)  the implementation lag and the effectiveness lag 
E)  the recognition lag and the effectiveness lag 
A)  the recognition lag and the implementation lag 
B)  the effectiveness lag and the decision-making lag 
C)  the decision-making lag and the implementation lag 
D)  the implementation lag and the effectiveness lag 
E)  the recognition lag and the effectiveness lag

Question 7

Exhibit 16.4
  
-Refer to Exhibit 16.4. If the Fed announces it plans to keep prices stable at P' but workers and firms, expect monetary policy to be expansionary, then their expectations are depicted by the short-run aggregate supply curve SRAS at a price level ____

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

According to rational expectations theory, people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 9

The natural rate of unemployment is largely independent of any _____

Accepted Answer

A)  high-inflation targets. 
B)  growing of output beyond its potential. 
C)  adjustments of the short-run Phillips curve. 
D)  aggregate supply stimulus provided by monetary or fiscal policy. 
E)  aggregate demand stimulus provided by monetary or fiscal policy. 
A)  high-inflation targets. 
B)  growing of output beyond its potential. 
C)  adjustments of the short-run Phillips curve. 
D)  aggregate supply stimulus provided by monetary or fiscal policy. 
E)  aggregate demand stimulus provided by monetary or fiscal policy.

Question 10

The country of Erbia has been experiencing high unemployment over a period of seven years. A likely outcome of such a situation is that potential GDP will fall.

Accepted Answer

A) True 
 B)False

Question 11

If an active approach is followed in closing an expansionary gap, _____

Accepted Answer

A)  the aggregate demand curve would shift rightward. 
B)  the aggregate demand curve would shift leftward. 
C)  the short-run aggregate supply curve would shift rightward. 
D)  the short-run aggregate supply curve would shift leftward. 
E)  there would be an upward movement along the short-run aggregate supply curve. 
A)  the aggregate demand curve would shift rightward. 
B)  the aggregate demand curve would shift leftward. 
C)  the short-run aggregate supply curve would shift rightward. 
D)  the short-run aggregate supply curve would shift leftward. 
E)  there would be an upward movement along the short-run aggregate supply curve.

Question 12

When self-correction works to eliminate an expansionary gap, _____

Accepted Answer

A)  both money wages and real wages increase. 
B)  money wages increase while real wages decrease. 
C)  both money wages and real wages decrease. 
D)  money wages decrease while real wages increase. 
E)  money wages remain unchanged. 
A)  both money wages and real wages increase. 
B)  money wages increase while real wages decrease. 
C)  both money wages and real wages decrease. 
D)  money wages decrease while real wages increase. 
E)  money wages remain unchanged.

Question 13

What did A. W. Phillips' data trace based on roughly 100 years of evidence?

Accepted Answer

A)  a positive relationship between the unemployment rate and the rate of change in nominal wages 
B)  an inverse relationship between the unemployment rate and the rate of change in nominal wages 
C)  a positive relationship between unemployment rate and inflation 
D)  an inverse relationship between unemployment rate and inflation 
E)  the relationship between the rate of unemployment and the growth rate 
A)  a positive relationship between the unemployment rate and the rate of change in nominal wages 
B)  an inverse relationship between the unemployment rate and the rate of change in nominal wages 
C)  a positive relationship between unemployment rate and inflation 
D)  an inverse relationship between unemployment rate and inflation 
E)  the relationship between the rate of unemployment and the growth rate

Question 14

According to the rational expectations school, when monetary policy makers do exactly what is expected of them, their efforts to stimulate the economy will have no effect on employment.

Accepted Answer

A) True 
 B)False

Question 15

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

Accepted Answer

A) True 
 B)False

Question 16

After the 1960s, the short-run Phillips curve based on U.S. economic data _____

Accepted Answer

A)  began shifting inward. 
B)  began shifting outward. 
C)  did not shift at all. 
D)  became virtually horizontal. 
E)  became virtually vertical. 
A)  began shifting inward. 
B)  began shifting outward. 
C)  did not shift at all. 
D)  became virtually horizontal. 
E)  became virtually vertical.

Question 17

If the time taken for an economy to self-correct is shorter than the active policy lags, then _____

Accepted Answer

A)  active policy will shift the short-run aggregate supply curve more than the aggregate demand curve. 
B)  active policy is likely to destabilize the economy. 
C)  time is required to accumulate evidence that the economy is performing below its potential. 
D)  the aggregate demand curve will shift more rapidly than the short-run aggregate supply curve. 
E)  active policy will work better than passive policy. 
A)  active policy will shift the short-run aggregate supply curve more than the aggregate demand curve. 
B)  active policy is likely to destabilize the economy. 
C)  time is required to accumulate evidence that the economy is performing below its potential. 
D)  the aggregate demand curve will shift more rapidly than the short-run aggregate supply curve. 
E)  active policy will work better than passive policy.

Question 18

Ms. Jones is a professor at a university. She strongly supports the rational expectations theory. She is likely to believe that the only time active policy has an impact on aggregate output is when _____

Accepted Answer

A)  an expansionary policy is implemented. 
B)  a recessionary policy is implemented. 
C)  policy changes are unannounced. 
D)  an economy has a recessionary gap. 
E)  an economy has an expansionary gap. 
A)  an expansionary policy is implemented. 
B)  a recessionary policy is implemented. 
C)  policy changes are unannounced. 
D)  an economy has a recessionary gap. 
E)  an economy has an expansionary gap.

Question 19

The curve has shifted out again because of higher unemployment in the wake of the Great Recession _____

Accepted Answer

A)  in 2008. 
B)  in 2017. 
C)  during the 1970s. 
D)  during the 1980s. 
E)  during the 1990s. 
A)  in 2008. 
B)  in 2017. 
C)  during the 1970s. 
D)  during the 1980s. 
E)  during the 1990s.

Question 20

If we observe an economy adjusting to potential GDP as prices fall and real output increases, we can conclude that _____

Accepted Answer

A)  the economy was experiencing an expansionary gap. 
B)  there is a labor surplus. 
C)  the economy was experiencing a recessionary gap. 
D)  self-correction is not the process that is occurring. 
E)  there are widespread labor shortages. 
A)  the economy was experiencing an expansionary gap. 
B)  there is a labor surplus. 
C)  the economy was experiencing a recessionary gap. 
D)  self-correction is not the process that is occurring. 
E)  there are widespread labor shortages.

The long-run Phillips curve is located at the natural rate of unemployment.

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

A policy to increase aggregate demand to cure a recessionary gap may succeed; however, inflation is a likely result.

The effectiveness lag for monetary policy is short.

Which of the following lags reduces the effectiveness of active policy?

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

Exhibit 16.4 -Refer to Exhibit 16.4. If the Fed announces it plans to keep prices stable at P' but workers and firms, expect monetary policy to be expansionary, then their expectations are depicted by the short-run aggregate supply curve SRAS at a price level ____

According to rational expectations theory, people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

The natural rate of unemployment is largely independent of any _____

The country of Erbia has been experiencing high unemployment over a period of seven years. A likely outcome of such a situation is that potential GDP will fall.

If an active approach is followed in closing an expansionary gap, _____

When self-correction works to eliminate an expansionary gap, _____

What did A. W. Phillips' data trace based on roughly 100 years of evidence?

According to the rational expectations school, when monetary policy makers do exactly what is expected of them, their efforts to stimulate the economy will have no effect on employment.

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

After the 1960s, the short-run Phillips curve based on U.S. economic data _____

If the time taken for an economy to self-correct is shorter than the active policy lags, then _____

Ms. Jones is a professor at a university. She strongly supports the rational expectations theory. She is likely to believe that the only time active policy has an impact on aggregate output is when _____

The curve has shifted out again because of higher unemployment in the wake of the Great Recession _____

If we observe an economy adjusting to potential GDP as prices fall and real output increases, we can conclude that _____

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?

The long-run Phillips curve is located at the natural rate of unemployment.

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

A policy to increase aggregate demand to cure a recessionary gap may succeed; however, inflation is a likely result.

The effectiveness lag for monetary policy is short.

Which of the following lags reduces the effectiveness of active policy?

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

Exhibit 16.4 -Refer to Exhibit 16.4. If the Fed announces it plans to keep prices stable at P' but workers and firms, expect monetary policy to be expansionary, then their expectations are depicted by the short-run aggregate supply curve SRAS at a price level ____

According to rational expectations theory, people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

The natural rate of unemployment is largely independent of any _____

The country of Erbia has been experiencing high unemployment over a period of seven years. A likely outcome of such a situation is that potential GDP will fall.

If an active approach is followed in closing an expansionary gap, _____

When self-correction works to eliminate an expansionary gap, _____

What did A. W. Phillips' data trace based on roughly 100 years of evidence?

According to the rational expectations school, when monetary policy makers do exactly what is expected of them, their efforts to stimulate the economy will have no effect on employment.

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

After the 1960s, the short-run Phillips curve based on U.S. economic data _____

If the time taken for an economy to self-correct is shorter than the active policy lags, then _____

Ms. Jones is a professor at a university. She strongly supports the rational expectations theory. She is likely to believe that the only time active policy has an impact on aggregate output is when _____

The curve has shifted out again because of higher unemployment in the wake of the Great Recession _____

If we observe an economy adjusting to potential GDP as prices fall and real output increases, we can conclude that _____

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 _.