Question 1

Which of the following is one reason that long time lags hamper the effectiveness of economic policy?

Accepted Answer

A)  because the longer unemployment lasts, the more intense inflation becomes 
B)  because by the time the impact of a policy is felt, a new problem may have come along that requires a different policy, which may make the situation even worse 
C)  because if inflation is allowed to continue for too long, it becomes immune to policy interference 
D)  because if unemployment is allowed to continue for too long, it becomes immune to policy interference 
A)  because the longer unemployment lasts, the more intense inflation becomes 
B)  because by the time the impact of a policy is felt, a new problem may have come along that requires a different policy, which may make the situation even worse 
C)  because if inflation is allowed to continue for too long, it becomes immune to policy interference 
D)  because if unemployment is allowed to continue for too long, it becomes immune to policy interference

Question 2

Why does a passive approach to economic policy call for the government to do nothing to offset unemployment?

Accepted Answer

A)  because there is a lack of any real concern for people who have no jobs 
B)  because there is a conviction that unemployment is relatively harmless 
C)  because there is a belief that active economic policy is likely to be either ineffective or harmful 
D)  because there is a desire to await further economic data before intervening 
A)  because there is a lack of any real concern for people who have no jobs 
B)  because there is a conviction that unemployment is relatively harmless 
C)  because there is a belief that active economic policy is likely to be either ineffective or harmful 
D)  because there is a desire to await further economic data before intervening

Question 3

Suppose we observe an economy adjusting to potential GDP as prices fall and real output increases.Which of the following describes what the economy is experiencing?

Accepted Answer

A)  It is experiencing an expansionary gap. 
B)  It is experiencing a shift of the AD curve. 
C)  It is experiencing a recessionary gap. 
D)  It is NOT experiencing a self-correction. 
A)  It is experiencing an expansionary gap. 
B)  It is experiencing a shift of the AD curve. 
C)  It is experiencing a recessionary gap. 
D)  It is NOT experiencing a self-correction.

Question 4

Suppose the natural unemployment rate CANNOT easily be estimated.What type of policymaking becomes more difficult under these circumstances?

Accepted Answer

A)  active policymaking 
B)  passive policymaking 
C)  monetarist policymaking 
D)  classical policymaking 
A)  active policymaking 
B)  passive policymaking 
C)  monetarist policymaking 
D)  classical policymaking

Question 5

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

Accepted Answer

A)  Prices and wages are flexible. 
B)  A recessionary gap is corrected through falling wages and prices. 
C)  The short-run aggregate supply tends to shift until it intersects aggregate demand at potential GDP. 
D)  The best policy is to take an active approach to a recession or depression. 
A)  Prices and wages are flexible. 
B)  A recessionary gap is corrected through falling wages and prices. 
C)  The short-run aggregate supply tends to shift until it intersects aggregate demand at potential GDP. 
D)  The best policy is to take an active approach to a recession or depression.

Question 6

Why does the rational expectations school advocate the passive rule of a fixed-growth-rate monetary policy?

Accepted Answer

A)  because the information needed to pursue an active policy is insufficient 
B)  because the economy is NOT in bad enough shape to require active intervention 
C)  because people render active policy ineffective by figuring out what the policy is going to be and taking actions to offset it 
D)  because people prefer to put their major emphasis on an active fiscal policy 
A)  because the information needed to pursue an active policy is insufficient 
B)  because the economy is NOT in bad enough shape to require active intervention 
C)  because people render active policy ineffective by figuring out what the policy is going to be and taking actions to offset it 
D)  because people prefer to put their major emphasis on an active fiscal policy

Question 7

Suppose an economy is at potential GDP and an expansionary policy is correctly anticipated.Which of the following will result?

Accepted Answer

A)  little or no increase in GDP 
B)  an increase in wages along with a dramatically falling price level 
C)  a rapidly expanding GDP 
D)  a severe decline in GDP 
A)  little or no increase in GDP 
B)  an increase in wages along with a dramatically falling price level 
C)  a rapidly expanding GDP 
D)  a severe decline in GDP

Question 8

Suppose that an economy is experiencing an expansionary gap.And suppose the economy is adjusting to potential GDP through a rising price level and a falling output level.Which of the following best illustrates how the adjustment of GDP is being achieved?

Accepted Answer

A)  An active approach to correcting a recessionary gap is being used. 
B)  An active approach to correcting an expansionary gap is being used. 
C)  A passive approach to correcting a recessionary gap is being used. 
D)  A passive approach to correcting an expansionary gap is being used. 
A)  An active approach to correcting a recessionary gap is being used. 
B)  An active approach to correcting an expansionary gap is being used. 
C)  A passive approach to correcting a recessionary gap is being used. 
D)  A passive approach to correcting an expansionary gap is being used.

Question 9

Given the expected price level, what size of money supply will best facilitate policies for the achievement of potential GDP?

Accepted Answer

A)  a large money supply, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
B)  a large enough money supply that prices at potential GDP are above expectations and firms can afford to hire workers 
C)  a small money supply, so that prices at potential GDP are above expectations and firms can afford to hire the workers 
D)  a money supply that is exactly the size needed to make prices equal to the prices people expect to prevail 
A)  a large money supply, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
B)  a large enough money supply that prices at potential GDP are above expectations and firms can afford to hire workers 
C)  a small money supply, so that prices at potential GDP are above expectations and firms can afford to hire the workers 
D)  a money supply that is exactly the size needed to make prices equal to the prices people expect to prevail

Question 10

Consider policymakers who favour an active approach to policy.Which of the following is one of their beliefs?

Accepted Answer

A)  Discretionary monetary policy CANNOT be used to help the economy because monetary policy lags are long. 
B)  Discretionary fiscal policy CANNOT be used to help the economy because fiscal policy lags are long. 
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. 
A)  Discretionary monetary policy CANNOT be used to help the economy because monetary policy lags are long. 
B)  Discretionary fiscal policy CANNOT be used to help the economy because fiscal policy lags are long. 
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.

Question 11

During which time frame was Canada's short-run Phillips curve farthest from the origin?

Accepted Answer

A)  from 1967 to 1972 
B)  from 1973 to 1982 
C)  from 1983 to 1991 
D)  from 1992 to 2012 
A)  from 1967 to 1972 
B)  from 1973 to 1982 
C)  from 1983 to 1991 
D)  from 1992 to 2012

Question 12

Consider policymakers who favour a passive approach to policy.Which of the following do these policymakers believe?

Accepted Answer

A)  Discretionary monetary policy can be used to help the economy because monetary policy lags are short. 
B)  Discretionary fiscal policy can be used to help the economy because 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. 
A)  Discretionary monetary policy can be used to help the economy because monetary policy lags are short. 
B)  Discretionary fiscal policy can be used to help the economy because 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.

Question 13

Exhibit 15-4
  
-Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand increases.What point would the economy move toward in the long run, assuming a passive policy?

Accepted Answer

A)  toward point a 
B)  toward point b 
C)  toward point d 
D)  toward point f 
A)  toward point a 
B)  toward point b 
C)  toward point d 
D)  toward point f

Question 14

Which of the following statements characterizes the nature of the long-run Phillips curve?

Accepted Answer

A)  No event can shift the curve rightward because the curve can only be shifted leftward. 
B)  No event can shift the curve leftward because the curve can only be shifted rightward. 
C)  Only fiscal and monetary policy can shift the curve. 
D)  Demand-side policy CANNOT shift the curve. 
A)  No event can shift the curve rightward because the curve can only be shifted leftward. 
B)  No event can shift the curve leftward because the curve can only be shifted rightward. 
C)  Only fiscal and monetary policy can shift the curve. 
D)  Demand-side policy CANNOT shift the curve.

Question 15

Policymakers may NOT know that the economy is in a recession until six months after the recession starts.What is this phenomenon known as?

Accepted Answer

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

Question 16

Which of the following is one way of expressing the meaning of the short-run Phillips curve?

Accepted Answer

A)  The cost of reducing unemployment is higher inflation. 
B)  Nothing but good comes from reducing unemployment. 
C)  The cost of reducing inflation is lower unemployment. 
D)  Aggregate supply and aggregate demand will always be equal at the potential output level. 
A)  The cost of reducing unemployment is higher inflation. 
B)  Nothing but good comes from reducing unemployment. 
C)  The cost of reducing inflation is lower unemployment. 
D)  Aggregate supply and aggregate demand will always be equal at the potential output level.

Question 17

Exhibit 15-4
  
-Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand is stable.What will the economy do?

Accepted Answer

A)  The economy will move toward point a. 
B)  The economy will move toward point b. 
C)  The economy will stay at point c. 
D)  The economy will move toward point d. 
A)  The economy will move toward point a. 
B)  The economy will move toward point b. 
C)  The economy will stay at point c. 
D)  The economy will move toward point d.

Question 18

Which of the following is one implication of the Phillips curve analysis?

Accepted Answer

A)  Unemployment rates below the natural rate are possible only in the long run. 
B)  Unemployment rates below the natural rate lead to falling rates of inflation in the long run. 
C)  Unemployment rates below the natural rate may be achieved only with rising inflation rates. 
D)  The natural rate of unemployment is strictly a short-run phenomenon. 
A)  Unemployment rates below the natural rate are possible only in the long run. 
B)  Unemployment rates below the natural rate lead to falling rates of inflation in the long run. 
C)  Unemployment rates below the natural rate may be achieved only with rising inflation rates. 
D)  The natural rate of unemployment is strictly a short-run phenomenon.

Question 19

Exhibit 15-1
  
-Refer to the graph in the exhibit.According to policymakers who favour a passive approach to policy, how will the economy attain equilibrium at potential output?

Accepted Answer

A)  The SRAS curve will shift to the left. 
B)  The SRAS curve will shift to the right. 
C)  Either the money supply or government spending will be increased. 
D)  Either the money supply or government spending will be decreased. 
A)  The SRAS curve will shift to the left. 
B)  The SRAS curve will shift to the right. 
C)  Either the money supply or government spending will be increased. 
D)  Either the money supply or government spending will be decreased.

Question 20

Suppose the unemployment rate goes down.According to the short-run Phillips curve, what will happen to the inflation rate?

Accepted Answer

A)  The inflation rate will go up. 
B)  The inflation rate will go down. 
C)  The inflation rate will NOT change. 
D)  The inflation rate will become a deflation rate. 
A)  The inflation rate will go up. 
B)  The inflation rate will go down. 
C)  The inflation rate will NOT change. 
D)  The inflation rate will become a deflation rate.

Which of the following is one reason that long time lags hamper the effectiveness of economic policy?

Why does a passive approach to economic policy call for the government to do nothing to offset unemployment?

Suppose we observe an economy adjusting to potential GDP as prices fall and real output increases.Which of the following describes what the economy is experiencing?

Suppose the natural unemployment rate CANNOT easily be estimated.What type of policymaking becomes more difficult under these circumstances?

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

Why does the rational expectations school advocate the passive rule of a fixed-growth-rate monetary policy?

Suppose an economy is at potential GDP and an expansionary policy is correctly anticipated.Which of the following will result?

Suppose that an economy is experiencing an expansionary gap.And suppose the economy is adjusting to potential GDP through a rising price level and a falling output level.Which of the following best illustrates how the adjustment of GDP is being achieved?

Given the expected price level, what size of money supply will best facilitate policies for the achievement of potential GDP?

Consider policymakers who favour an active approach to policy.Which of the following is one of their beliefs?

During which time frame was Canada's short-run Phillips curve farthest from the origin?

Consider policymakers who favour a passive approach to policy.Which of the following do these policymakers believe?

Exhibit 15-4 -Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand increases.What point would the economy move toward in the long run, assuming a passive policy?

Which of the following statements characterizes the nature of the long-run Phillips curve?

Policymakers may NOT know that the economy is in a recession until six months after the recession starts.What is this phenomenon known as?

Which of the following is one way of expressing the meaning of the short-run Phillips curve?

Exhibit 15-4 -Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand is stable.What will the economy do?

Which of the following is one implication of the Phillips curve analysis?

Exhibit 15-1 -Refer to the graph in the exhibit.According to policymakers who favour a passive approach to policy, how will the economy attain equilibrium at potential output?

Suppose the unemployment rate goes down.According to the short-run Phillips curve, what will happen to the inflation rate?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

International Finance

International Trade

Economic Development

Understanding Graphs

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Exam 16: Macro Policy Debate: Active or Passive

Which of the following is one reason that long time lags hamper the effectiveness of economic policy?

Why does a passive approach to economic policy call for the government to do nothing to offset unemployment?

Suppose we observe an economy adjusting to potential GDP as prices fall and real output increases.Which of the following describes what the economy is experiencing?

Suppose the natural unemployment rate CANNOT easily be estimated.What type of policymaking becomes more difficult under these circumstances?

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

Why does the rational expectations school advocate the passive rule of a fixed-growth-rate monetary policy?

Suppose an economy is at potential GDP and an expansionary policy is correctly anticipated.Which of the following will result?

Suppose that an economy is experiencing an expansionary gap.And suppose the economy is adjusting to potential GDP through a rising price level and a falling output level.Which of the following best illustrates how the adjustment of GDP is being achieved?

Given the expected price level, what size of money supply will best facilitate policies for the achievement of potential GDP?

Consider policymakers who favour an active approach to policy.Which of the following is one of their beliefs?

During which time frame was Canada's short-run Phillips curve farthest from the origin?

Consider policymakers who favour a passive approach to policy.Which of the following do these policymakers believe?

Exhibit 15-4 -Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand increases.What point would the economy move toward in the long run, assuming a passive policy?

Which of the following statements characterizes the nature of the long-run Phillips curve?

Policymakers may NOT know that the economy is in a recession until six months after the recession starts.What is this phenomenon known as?

Which of the following is one way of expressing the meaning of the short-run Phillips curve?

Exhibit 15-4 -Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand is stable.What will the economy do?

Which of the following is one implication of the Phillips curve analysis?

Exhibit 15-1 -Refer to the graph in the exhibit.According to policymakers who favour a passive approach to policy, how will the economy attain equilibrium at potential output?

Suppose the unemployment rate goes down.According to the short-run Phillips curve, what will happen to the inflation rate?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

International Finance

International Trade

Economic Development

Understanding Graphs

Filters