Question 1

What can be inferred from an increase in inflationary expectations?

Accepted Answer

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

Question 2

According to the natural rate hypothesis, what does the economy tend toward?

Accepted Answer

A)  the natural rate of unemployment in the long run 
B)  the natural rate of unemployment in the short run 
C)  potential output in the short run 
D)  a stable trade-off between inflation and unemployment in the long run 
A)  the natural rate of unemployment in the long run 
B)  the natural rate of unemployment in the short run 
C)  potential output in the short run 
D)  a stable trade-off between inflation and unemployment in the long run

Question 3

Which of the following statements about the long-run Phillips curve is NOT accurate?

Accepted Answer

A)  Unemployment is at the natural rate. 
B)  Employers and workers have the time and ability to adjust fully to unexpected changes in aggregate demand. 
C)  The only choices for policymakers are different levels of inflation. 
D)  Inflation and unemployment are inversely related. 
A)  Unemployment is at the natural rate. 
B)  Employers and workers have the time and ability to adjust fully to unexpected changes in aggregate demand. 
C)  The only choices for policymakers are different levels of inflation. 
D)  Inflation and unemployment are inversely related.

Question 4

Suppose the advice of policymakers who favour a passive approach to policy is correct.How would a recessionary gap eventually close?

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. 
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.

Question 5

According to policymakers who favour a passive approach to policy, which of the following conditions will NOT allow the economy to bring itself out of a recessionary gap?

Accepted Answer

A)  lower real wages 
B)  a shortage of labour 
C)  lower production costs 
D)  a lower expected price level 
A)  lower real wages 
B)  a shortage of labour 
C)  lower production costs 
D)  a lower expected price level

Question 6

According to policymakers who favour a passive approach to policy, why will a recessionary gap be eliminated by a passive approach?

Accepted Answer

A)  because prices and wages will rise rapidly 
B)  because prices and wages are flexible 
C)  because the aggregate demand curve will shift to the right 
D)  because the aggregate demand curve will shift to the left 
A)  because prices and wages will rise rapidly 
B)  because prices and wages are flexible 
C)  because the aggregate demand curve will shift to the right 
D)  because the aggregate demand curve will shift to the left

Question 7

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 shifting the aggregate demand curve to the right 
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 shifting the aggregate demand curve to the right 
D)  by decreasing the money supply or by decreasing government spending

Question 8

Exhibit 15-2
  
-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 shift to the left 
B)  by shifting the SRAS curve shift to the right 
C)  by increasing the money supply or by increasing government spending 
D)  by decreasing aggregate demand 
A)  by shifting the SRAS curve shift to the left 
B)  by shifting the SRAS curve shift to the right 
C)  by increasing the money supply or by increasing government spending 
D)  by decreasing aggregate demand

Question 9

According to the rational expectations school, which of the following can affect the levels of output and employment?

Accepted Answer

A)  an expansionary monetary policy, if it is fully anticipated 
B)  a contractionary monetary policy, if it is fully anticipated 
C)  monetary policy that is unanticipated 
D)  fiscal policy that is anticipated 
A)  an expansionary monetary policy, if it is fully anticipated 
B)  a contractionary monetary policy, if it is fully anticipated 
C)  monetary policy that is unanticipated 
D)  fiscal policy that is anticipated

Question 10

Why do long lags make discretionary policy less effective?

Accepted Answer

A)  because by the time the impact of a discretionary policy is felt, the problem it was meant to cure may have been corrected 
B)  because lags are longer in contractions than in expansion. 
C)  because lags are longer in expansions than in contractions 
D)  because automatic stabilizers are subject to longer lags than are discretionary policies 
A)  because by the time the impact of a discretionary policy is felt, the problem it was meant to cure may have been corrected 
B)  because lags are longer in contractions than in expansion. 
C)  because lags are longer in expansions than in contractions 
D)  because automatic stabilizers are subject to longer lags than are discretionary policies

Question 11

Suppose an economy experiences several years of falling inflation rates.Which of the following would best explain this phenomenon?

Accepted Answer

A)  Unemployment is probably at the natural rate. 
B)  The unemployment rate must be rising. 
C)  The unemployment rate must be below the natural rate. 
D)  The unemployment rate is probably above the natural rate. 
A)  Unemployment is probably at the natural rate. 
B)  The unemployment rate must be rising. 
C)  The unemployment rate must be below the natural rate. 
D)  The unemployment rate is probably above the natural rate.

Question 12

Suppose workers and firms come to expect an expansionary monetary policy and the resulting inflation.What do some economists believe will occur when workers and firms believe this?

Accepted Answer

A)  Workers and firms will act so as to prevent price increases from occurring. 
B)  The actions of workers and firms will lead to a further increase in output. 
C)  Neither output nor employment will be affected by the expansionary policy. 
D)  The monetary authority will be forced to cancel the expansionary policy. 
A)  Workers and firms will act so as to prevent price increases from occurring. 
B)  The actions of workers and firms will lead to a further increase in output. 
C)  Neither output nor employment will be affected by the expansionary policy. 
D)  The monetary authority will be forced to cancel the expansionary policy.

Question 13

According to the rational expectations school, what do people base their expectations about inflation on?

Accepted Answer

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

Question 14

What does the natural rate hypothesis state about the long run?

Accepted Answer

A)  Economic policy can reduce inflation and unemployment. 
B)  The economy's natural rate of annual growth is approximately 3 percent. 
C)  Monetary and fiscal policies have their greatest effect on the rate of unemployment. 
D)  The economy tends toward the natural rate of unemployment. 
A)  Economic policy can reduce inflation and unemployment. 
B)  The economy's natural rate of annual growth is approximately 3 percent. 
C)  Monetary and fiscal policies have their greatest effect on the rate of unemployment. 
D)  The economy tends toward the natural rate of unemployment.

Question 15

What term refers to the time it takes to identify and examine the nature and seriousness of an economic problem?

Accepted Answer

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

Question 16

According to the rational expectations school, how do people form expectations?

Accepted Answer

A)  On average, people who form expectations have very little idea of what to expect from government policymakers. 
B)  People form expectations by focusing only on the private sector. 
C)  People do NOT consider the likely government policies when forming expectations, thus they choose to remain rationally ignorant. 
D)  People form expectations, in part, by considering the probable future actions of government policymakers. 
A)  On average, people who form expectations have very little idea of what to expect from government policymakers. 
B)  People form expectations by focusing only on the private sector. 
C)  People do NOT consider the likely government policies when forming expectations, thus they choose to remain rationally ignorant. 
D)  People form expectations, in part, by considering the probable future actions of government policymakers.

Question 17

What term refers to the time it takes for a new policy to register its full impact on the economy after it has been put in force?

Accepted Answer

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

Question 18

When self-correcting forces cure a recessionary gap, how are money and real wages affected?

Accepted Answer

A)  Money wages increase, and real wages increase. 
B)  Money wages remain constant, and real wages fall. 
C)  Money wages fall, and real wages fall. 
D)  Money wages fall, and real wages increase. 
A)  Money wages increase, and real wages increase. 
B)  Money wages remain constant, and real wages fall. 
C)  Money wages fall, and real wages fall. 
D)  Money wages fall, and real wages increase.

Question 19

When does the time inconsistency problem arise?

Accepted Answer

A)  when attempts are made to coordinate monetary policy throughout different time zones 
B)  when there is a lag between the announcement of a monetary policy and the implementation of it 
C)  when policymakers have an incentive to mislead people about their monetary policy intentions 
D)  when policymakers do NOT allow enough time for a new policy to take effect 
A)  when attempts are made to coordinate monetary policy throughout different time zones 
B)  when there is a lag between the announcement of a monetary policy and the implementation of it 
C)  when policymakers have an incentive to mislead people about their monetary policy intentions 
D)  when policymakers do NOT allow enough time for a new policy to take effect

Question 20

According to the rational expectations model, when does active policy have an impact on aggregate output?

Accepted Answer

A)  only when active policy is expansionary 
B)  only when active policy is contractionary 
C)  only when active policy is unannounced 
D)  only when the economy has a contractionary gap 
A)  only when active policy is expansionary 
B)  only when active policy is contractionary 
C)  only when active policy is unannounced 
D)  only when the economy has a contractionary gap

What can be inferred from an increase in inflationary expectations?

According to the natural rate hypothesis, what does the economy tend toward?

Which of the following statements about the long-run Phillips curve is NOT accurate?

Suppose the advice of policymakers who favour a passive approach to policy is correct.How would a recessionary gap eventually close?

According to policymakers who favour a passive approach to policy, which of the following conditions will NOT allow the economy to bring itself out of a recessionary gap?

According to policymakers who favour a passive approach to policy, why will a recessionary gap be eliminated by a passive approach?

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?

Exhibit 15-2 -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?

According to the rational expectations school, which of the following can affect the levels of output and employment?

Why do long lags make discretionary policy less effective?

Suppose an economy experiences several years of falling inflation rates.Which of the following would best explain this phenomenon?

Suppose workers and firms come to expect an expansionary monetary policy and the resulting inflation.What do some economists believe will occur when workers and firms believe this?

According to the rational expectations school, what do people base their expectations about inflation on?

What does the natural rate hypothesis state about the long run?

What term refers to the time it takes to identify and examine the nature and seriousness of an economic problem?

According to the rational expectations school, how do people form expectations?

What term refers to the time it takes for a new policy to register its full impact on the economy after it has been put in force?

When self-correcting forces cure a recessionary gap, how are money and real wages affected?

When does the time inconsistency problem arise?

According to the rational expectations model, when does active policy have an impact on aggregate 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

What can be inferred from an increase in inflationary expectations?

According to the natural rate hypothesis, what does the economy tend toward?

Which of the following statements about the long-run Phillips curve is NOT accurate?

Suppose the advice of policymakers who favour a passive approach to policy is correct.How would a recessionary gap eventually close?

According to policymakers who favour a passive approach to policy, which of the following conditions will NOT allow the economy to bring itself out of a recessionary gap?

According to policymakers who favour a passive approach to policy, why will a recessionary gap be eliminated by a passive approach?

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?

Exhibit 15-2 -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?

According to the rational expectations school, which of the following can affect the levels of output and employment?

Why do long lags make discretionary policy less effective?

Suppose an economy experiences several years of falling inflation rates.Which of the following would best explain this phenomenon?

Suppose workers and firms come to expect an expansionary monetary policy and the resulting inflation.What do some economists believe will occur when workers and firms believe this?

According to the rational expectations school, what do people base their expectations about inflation on?

What does the natural rate hypothesis state about the long run?

What term refers to the time it takes to identify and examine the nature and seriousness of an economic problem?

According to the rational expectations school, how do people form expectations?

What term refers to the time it takes for a new policy to register its full impact on the economy after it has been put in force?

When self-correcting forces cure a recessionary gap, how are money and real wages affected?

When does the time inconsistency problem arise?

According to the rational expectations model, when does active policy have an impact on aggregate 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