Question 1

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

Accepted Answer

A)  It is likely that policies will be subject to time lags. 
B)  Prolonged unemployment may cause the economy's potential real GDP to fall. 
C)  Workers' skills may grow rusty during a prolonged recession. 
D)  Unemployed workers may drop out of the labour force during a prolonged recession. 
A)  It is likely that policies will be subject to time lags. 
B)  Prolonged unemployment may cause the economy's potential real GDP to fall. 
C)  Workers' skills may grow rusty during a prolonged recession. 
D)  Unemployed workers may drop out of the labour force during a prolonged recession.

Question 2

Which hypothesis states that the economy tends toward the natural rate of unemployment in the long run?

Accepted Answer

A)  the cyclical unemployment hypothesis 
B)  the full employment hypothesis 
C)  the natural rate hypothesis 
D)  the economic stability hypothesis 
A)  the cyclical unemployment hypothesis 
B)  the full employment hypothesis 
C)  the natural rate hypothesis 
D)  the economic stability hypothesis

Question 3

The inflation associated with the oil embargoes of the 1970s illustrated the fallacy of the downward-sloping Phillips curve in the long run.What happened to unemployment during this period?

Accepted Answer

A)  It decreased. 
B)  It increased. 
C)  It did NOT change. 
D)  It first decreased, and then increased. 
A)  It decreased. 
B)  It increased. 
C)  It did NOT change. 
D)  It first decreased, and then increased.

Question 4

What did the economist A.W.Phillips believe?

Accepted Answer

A)  that the Bank of Canada should follow a policy rule because it does NOT know the lag structure 
B)  that the Bank of Canada should follow a policy rule to avoid monetary surprises 
C)  that there is an inverse relationship between inflation and unemployment 
D)  that private sector spending is inherently unstable 
A)  that the Bank of Canada should follow a policy rule because it does NOT know the lag structure 
B)  that the Bank of Canada should follow a policy rule to avoid monetary surprises 
C)  that there is an inverse relationship between inflation and unemployment 
D)  that private sector spending is inherently unstable

Question 5

Why does self-correction work to close a recessionary gap?

Accepted Answer

A)  because a labour shortage causes money wages to increase 
B)  because a labour surplus causes money wages to increase 
C)  because a labour shortage causes money wages to fall 
D)  because a labour surplus causes money wages to fall 
A)  because a labour shortage causes money wages to increase 
B)  because a labour surplus causes money wages to increase 
C)  because a labour shortage causes money wages to fall 
D)  because a labour surplus causes money wages to fall

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 
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

Question 7

Which of the following corresponds to a movement downward along a short-run Phillips curve?

Accepted Answer

A)  The aggregate demand curve shifts rightward, moving up along a short-run aggregate supply curve. 
B)  The aggregate demand curve shifts leftward, moving down along a short-run aggregate supply curve. 
C)  The short-run aggregate supply curve shifts rightward, moving down along the aggregate demand curve. 
D)  The short-run aggregate supply curve shifts leftward, moving up along the aggregate demand curve. 
A)  The aggregate demand curve shifts rightward, moving up along a short-run aggregate supply curve. 
B)  The aggregate demand curve shifts leftward, moving down along a short-run aggregate supply curve. 
C)  The short-run aggregate supply curve shifts rightward, moving down along the aggregate demand curve. 
D)  The short-run aggregate supply curve shifts leftward, moving up along the aggregate demand curve.

Question 8

What will happen in an economy in which actual GDP exceeds potential GDP?

Accepted Answer

A)  Wages and prices must fall. 
B)  Self-correcting forces will shift the SRAS curve to the left. 
C)  Self-correcting forces will shift the AD curve to the left. 
D)  Inflation will occur when AD shifts to the left. 
A)  Wages and prices must fall. 
B)  Self-correcting forces will shift the SRAS curve to the left. 
C)  Self-correcting forces will shift the AD curve to the left. 
D)  Inflation will occur when AD shifts to the left.

Question 9

When is new policy actually put in force?

Accepted Answer

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

Question 10

What is the main policy conclusion of the rational expectations school?

Accepted Answer

A)  Fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can be helpful. 
B)  Monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can be helpful. 
C)  Both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policymakers. 
D)  Neither monetary nor fiscal policy is helpful if firms and households correctly anticipate the plans of policymakers. 
A)  Fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can be helpful. 
B)  Monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can be helpful. 
C)  Both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policymakers. 
D)  Neither monetary nor fiscal policy is helpful if firms and households correctly anticipate the plans of policymakers.

Question 11

What is the term for an anti-inflation policy that involves announcing and executing tough measures to stop inflation?

Accepted Answer

A)  cold turkey 
B)  cold chicken 
C)  chokehold 
D)  time-inconsistency 
A)  cold turkey 
B)  cold chicken 
C)  chokehold 
D)  time-inconsistency

Question 12

Exhibit 15-4
  
-Refer to the graph in the exhibit.Suppose the economy is initially at point c, and aggregate demand decreases.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 13

Suppose an economy is at an unemployment level that corresponds to the potential output level.Which curve would represent this situation?

Accepted Answer

A)  the long-run Phillips curve 
B)  the short-run Phillips curve 
C)  the mid-term Phillips curve 
D)  the self-correcting Phillips curve 
A)  the long-run Phillips curve 
B)  the short-run Phillips curve 
C)  the mid-term Phillips curve 
D)  the self-correcting Phillips curve

Question 14

What does the rational expectations school advocate?

Accepted Answer

A)  monetarism 
B)  Keynesianism 
C)  an activist approach to policy 
D)  a passive approach to policy 
A)  monetarism 
B)  Keynesianism 
C)  an activist approach to policy 
D)  a passive approach to policy

Question 15

In the conduct of macroeconomic policy, what are the four lags that complicate the timing of the policy's implementation?

Accepted Answer

A)  the recognition lag, the decision-making lag, the correction lag, and the feedback lag 
B)  the statistical lag, the decision-making lag, the implementation lag, and the effectiveness lag 
C)  the recognition lag, the decision-making lag, the implementation lag, and the effectiveness lag 
D)  the statistical lag, the decision-making lag, the correction lag, and the effectiveness lag 
A)  the recognition lag, the decision-making lag, the correction lag, and the feedback lag 
B)  the statistical lag, the decision-making lag, the implementation lag, and the effectiveness lag 
C)  the recognition lag, the decision-making lag, the implementation lag, and the effectiveness lag 
D)  the statistical lag, the decision-making lag, the correction lag, and the effectiveness lag

Question 16

According to current thinking about the Phillips curve, what is the best action for policymakers to take?

Accepted Answer

A)  Stimulate permanent shifts in aggregate demand. 
B)  Stimulate permanent shifts in aggregate supply. 
C)  Focus on controlling inflation. 
D)  Focus on controlling unemployment. 
A)  Stimulate permanent shifts in aggregate demand. 
B)  Stimulate permanent shifts in aggregate supply. 
C)  Focus on controlling inflation. 
D)  Focus on controlling unemployment.

Question 17

Which of the following is likely the most significant implication of the natural rate of unemployment hypothesis?

Accepted Answer

A)  The natural rate of inflation tends toward zero. 
B)  Long-run policy should be directed toward controlling inflation rather than unemployment. 
C)  The natural rate of unemployment can be reduced if policymakers accept worsening inflation. 
D)  The natural rate of unemployment is consistent only with a zero inflation rate in the long run. 
A)  The natural rate of inflation tends toward zero. 
B)  Long-run policy should be directed toward controlling inflation rather than unemployment. 
C)  The natural rate of unemployment can be reduced if policymakers accept worsening inflation. 
D)  The natural rate of unemployment is consistent only with a zero inflation rate in the long run.

Question 18

According to the passive policymaker's position, why would an expansionary gap be eliminated?

Accepted Answer

A)  because the short-run aggregate supply shifts to the left 
B)  because the short-run aggregate supply shifts to the right 
C)  because rising prices shift the aggregate demand to the left 
D)  because wages fall relatively quickly 
A)  because the short-run aggregate supply shifts to the left 
B)  because the short-run aggregate supply shifts to the right 
C)  because rising prices shift the aggregate demand to the left 
D)  because wages fall relatively quickly

Question 19

Suppose resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent.How would output be affected?

Accepted Answer

A)  Output would remain the same. 
B)  Output would fall. 
C)  Output would increase. 
D)  Output would increase, but only if nominal wages increased more rapidly than prices. 
A)  Output would remain the same. 
B)  Output would fall. 
C)  Output would increase. 
D)  Output would increase, but only if nominal wages increased more rapidly than prices.

Question 20

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

Accepted Answer

A)  by shifting the SRAS curve to the left 
B)  by shifting the SRAS curve to the right 
C)  by increasing the money supply or by increasing government spending 
D)  by decreasing the money supply or by decreasing government spending 
A)  by shifting the SRAS curve to the left 
B)  by shifting the SRAS curve to the right 
C)  by increasing the money supply or by increasing government spending 
D)  by decreasing the money supply or by decreasing government spending

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

Which hypothesis states that the economy tends toward the natural rate of unemployment in the long run?

The inflation associated with the oil embargoes of the 1970s illustrated the fallacy of the downward-sloping Phillips curve in the long run.What happened to unemployment during this period?

What did the economist A.W.Phillips believe?

Why does self-correction work to close a recessionary gap?

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

Which of the following corresponds to a movement downward along a short-run Phillips curve?

What will happen in an economy in which actual GDP exceeds potential GDP?

When is new policy actually put in force?

What is the main policy conclusion of the rational expectations school?

What is the term for an anti-inflation policy that involves announcing and executing tough measures to stop inflation?

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

Suppose an economy is at an unemployment level that corresponds to the potential output level.Which curve would represent this situation?

What does the rational expectations school advocate?

In the conduct of macroeconomic policy, what are the four lags that complicate the timing of the policy's implementation?

According to current thinking about the Phillips curve, what is the best action for policymakers to take?

Which of the following is likely the most significant implication of the natural rate of unemployment hypothesis?

According to the passive policymaker's position, why would an expansionary gap be eliminated?

Suppose resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent.How would output be affected?

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

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 statements supports the passive approach to a recessionary gap?

Which hypothesis states that the economy tends toward the natural rate of unemployment in the long run?

The inflation associated with the oil embargoes of the 1970s illustrated the fallacy of the downward-sloping Phillips curve in the long run.What happened to unemployment during this period?

What did the economist A.W.Phillips believe?

Why does self-correction work to close a recessionary gap?

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

Which of the following corresponds to a movement downward along a short-run Phillips curve?

What will happen in an economy in which actual GDP exceeds potential GDP?

When is new policy actually put in force?

What is the main policy conclusion of the rational expectations school?

What is the term for an anti-inflation policy that involves announcing and executing tough measures to stop inflation?

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

Suppose an economy is at an unemployment level that corresponds to the potential output level.Which curve would represent this situation?

What does the rational expectations school advocate?

In the conduct of macroeconomic policy, what are the four lags that complicate the timing of the policy's implementation?

According to current thinking about the Phillips curve, what is the best action for policymakers to take?

Which of the following is likely the most significant implication of the natural rate of unemployment hypothesis?

According to the passive policymaker's position, why would an expansionary gap be eliminated?

Suppose resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent.How would output be affected?

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

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