Question 1

Which hypothesis is associated with a government policy that results in low inflation regardless of concerns about unemployment in the long run?

Accepted Answer

A)  the Phillips curve hypothesis 
B)  the rational expectations hypothesis 
C)  the natural rate hypothesis 
D)  the expected price level hypothesis 
A)  the Phillips curve hypothesis 
B)  the rational expectations hypothesis 
C)  the natural rate hypothesis 
D)  the expected price level hypothesis

Question 2

What is an implementation lag?

Accepted Answer

A)  the time it takes policymakers to decide what to do 
B)  the time it takes for the chosen policy to have its full impact on the economy 
C)  the time it takes to identify trouble in the economy and to assess its severity 
D)  the time it takes to introduce a change in monetary or fiscal policy 
A)  the time it takes policymakers to decide what to do 
B)  the time it takes for the chosen policy to have its full impact on the economy 
C)  the time it takes to identify trouble in the economy and to assess its severity 
D)  the time it takes to introduce a change in monetary or fiscal policy

Question 3

Which of the following is NOT a time lag associated with using discretionary policy to correct an economic problem?

Accepted Answer

A)  the time required to recognize the problem 
B)  the time required to decide how to handle the problem 
C)  the time required to set a policy change in action 
D)  the time required to coordinate monetary and fiscal policy 
A)  the time required to recognize the problem 
B)  the time required to decide how to handle the problem 
C)  the time required to set a policy change in action 
D)  the time required to coordinate monetary and fiscal policy

Question 4

Which of the following is consistent with an active approach to policy?

Accepted Answer

A)  Wages and prices adjust relatively quickly. 
B)  The short-run aggregate supply curve is slow to shift in the presence of a recessionary gap. 
C)  The size of the multiplier is irrelevant. 
D)  Self-correction lags are NOT a problem. 
A)  Wages and prices adjust relatively quickly. 
B)  The short-run aggregate supply curve is slow to shift in the presence of a recessionary gap. 
C)  The size of the multiplier is irrelevant. 
D)  Self-correction lags are NOT a problem.

Question 5

How will an increase in the expected inflation rate affect the Phillips curve?

Accepted Answer

A)  The short-run Phillips curve will shift upward and to the right. 
B)  The short-run Phillips curve will shift downward and to the left. 
C)  The short-run Phillips curve will NOT shift unless the unemployment rate changes. 
D)  The short-run Phillips curve will become flatter. 
A)  The short-run Phillips curve will shift upward and to the right. 
B)  The short-run Phillips curve will shift downward and to the left. 
C)  The short-run Phillips curve will NOT shift unless the unemployment rate changes. 
D)  The short-run Phillips curve will become flatter.

Question 6

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 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

Question 7

Fiscal policy usually takes months, or longer, to develop and approve.What is this time lag known as?

Accepted Answer

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

Question 8

According to the rational expectations theory, monetary policy is fully anticipated.Therefore, what is the only factor affected by the policy?

Accepted Answer

A)  the level of real GDP 
B)  the level of real investment 
C)  the price level 
D)  the level of real consumption 
A)  the level of real GDP 
B)  the level of real investment 
C)  the price level 
D)  the level of real consumption

Question 9

Suppose that in 2014 the Bank of Canada announced a policy of rapid growth in the money supply, but then put the brakes on money expansion without any announcement.And suppose in 2015 officials at the Bank of Canada announce again that an expansion is planned.What is the most likely result?

Accepted Answer

A)  People will believe the second announcement because the conditions that created a need for the expansion are probably still in effect. 
B)  Even though the Bank of Canada failed to implement the expansion after the first announcement, people will believe the second announcement because they will believe the Bank of Canada still plans to implement the policy. 
C)  People will NOT believe the second announcement because they will believe that the conditions that created a need for the expansion must have changed since the first announcement. 
D)  People will have more uncertainty about the Bank of Canada following through on the policies it announces. 
A)  People will believe the second announcement because the conditions that created a need for the expansion are probably still in effect. 
B)  Even though the Bank of Canada failed to implement the expansion after the first announcement, people will believe the second announcement because they will believe the Bank of Canada still plans to implement the policy. 
C)  People will NOT believe the second announcement because they will believe that the conditions that created a need for the expansion must have changed since the first announcement. 
D)  People will have more uncertainty about the Bank of Canada following through on the policies it announces.

Question 10

In total, how long can the lags associated with discretionary policy extend?

Accepted Answer

A)  from the time a problem occurs in the economy through to the time the problem is recognized by the government 
B)  from the time a problem is recognized by the government through to the time an agreed-on policy is approved 
C)  from the time a policy is implemented through to the time the policy's impact is felt in the economy 
D)  from the time a problem occurs in the economy through to the time a corrective policy has an impact on the economy 
A)  from the time a problem occurs in the economy through to the time the problem is recognized by the government 
B)  from the time a problem is recognized by the government through to the time an agreed-on policy is approved 
C)  from the time a policy is implemented through to the time the policy's impact is felt in the economy 
D)  from the time a problem occurs in the economy through to the time a corrective policy has an impact on the economy

Question 11

Suppose an economist who favours a passive approach observes a drop in real GDP caused by a decrease in aggregate demand.What is the economist most likely to think?

Accepted Answer

A)  that the economy will recover by itself, before discretionary policy can correct the situation 
B)  that discretionary policy will correct the situation before the economy can recover by itself 
C)  that the imposition of policy rules will correct the situation before the economy can recover by itself 
D)  that aggregate supply will decrease 
A)  that the economy will recover by itself, before discretionary policy can correct the situation 
B)  that discretionary policy will correct the situation before the economy can recover by itself 
C)  that the imposition of policy rules will correct the situation before the economy can recover by itself 
D)  that aggregate supply will decrease

Question 12

Consider policymakers who favour a passive approach to policy.In general, which of the following would these policymakers believe in?

Accepted Answer

A)  slow self-correction rather than rapid self-correction 
B)  potentially incorrect price expectations rather than rational price expectations 
C)  a negatively sloped Phillips curve rather than a vertical Phillips curve 
D)  the natural rate hypothesis 
A)  slow self-correction rather than rapid self-correction 
B)  potentially incorrect price expectations rather than rational price expectations 
C)  a negatively sloped Phillips curve rather than a vertical Phillips curve 
D)  the natural rate hypothesis

Question 13

Exhibit 15-2
  
-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)  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

Question 14

Suppose the time required for an economy to self-correct is shorter than the active policy lags.Which of the following best describes the results of implementing an active policy?

Accepted Answer

A)  Active policy should be strengthened. 
B)  Active policy will likely be destabilizing. 
C)  The aggregate demand curve will shift more rapidly than the short-run aggregate supply curve. 
D)  Active policy will work better than passive policy. 
A)  Active policy should be strengthened. 
B)  Active policy will likely be destabilizing. 
C)  The aggregate demand curve will shift more rapidly than the short-run aggregate supply curve. 
D)  Active policy will work better than passive policy.

Question 15

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policymakers to believe they understood the trade-offs between two particular variables.What are the two variables?

Accepted Answer

A)  aggregate supply and aggregate demand 
B)  inflation and unemployment 
C)  monetary policy and fiscal policy 
D)  rule-making policy and discretionary policy 
A)  aggregate supply and aggregate demand 
B)  inflation and unemployment 
C)  monetary policy and fiscal policy 
D)  rule-making policy and discretionary policy

Question 16

Suppose prices and wages are NOT flexible.What is most likely to occur after an adverse supply shock?

Accepted Answer

A)  deflation 
B)  unemployment 
C)  inflation 
D)  full employment 
A)  deflation 
B)  unemployment 
C)  inflation 
D)  full employment

Question 17

Suppose an economist of the rational expectations school is giving advice to a policymaker.Which of the following is the piece of advice the economist would most likely give?

Accepted Answer

A)  Do NOT use discretionary policy. 
B)  Do NOT use discretionary policy if activity lags are long. 
C)  Do NOT use fiscal policy if effectiveness lags are long. 
D)  Do NOT use monetary policy if implementation lags are long. 
A)  Do NOT use discretionary policy. 
B)  Do NOT use discretionary policy if activity lags are long. 
C)  Do NOT use fiscal policy if effectiveness lags are long. 
D)  Do NOT use monetary policy if implementation lags are long.

Question 18

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)  Real wages will fall, shifting the SRAS curve 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)  Real wages will fall, shifting the SRAS curve 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 19

On the Phillips curve, how are the immediate effects of a discretionary increase in government spending represented?

Accepted Answer

A)  by a rightward shift of the aggregate demand curve 
B)  by a rightward shift of the Phillips curve 
C)  by a leftward shift of the Phillips curve 
D)  by a movement along the Phillips curve 
A)  by a rightward shift of the aggregate demand curve 
B)  by a rightward shift of the Phillips curve 
C)  by a leftward shift of the Phillips curve 
D)  by a movement along the Phillips curve

Question 20

Once a policy has been implemented, a period of time passes before the full impact of the policy registers on the economy.What is this time lag known as?

Accepted Answer

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

Which hypothesis is associated with a government policy that results in low inflation regardless of concerns about unemployment in the long run?

What is an implementation lag?

Which of the following is NOT a time lag associated with using discretionary policy to correct an economic problem?

Which of the following is consistent with an active approach to policy?

How will an increase in the expected inflation rate affect the Phillips curve?

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?

Fiscal policy usually takes months, or longer, to develop and approve.What is this time lag known as?

According to the rational expectations theory, monetary policy is fully anticipated.Therefore, what is the only factor affected by the policy?

Suppose that in 2014 the Bank of Canada announced a policy of rapid growth in the money supply, but then put the brakes on money expansion without any announcement.And suppose in 2015 officials at the Bank of Canada announce again that an expansion is planned.What is the most likely result?

In total, how long can the lags associated with discretionary policy extend?

Suppose an economist who favours a passive approach observes a drop in real GDP caused by a decrease in aggregate demand.What is the economist most likely to think?

Consider policymakers who favour a passive approach to policy.In general, which of the following would these policymakers believe in?

Exhibit 15-2 -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 time required for an economy to self-correct is shorter than the active policy lags.Which of the following best describes the results of implementing an active policy?

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policymakers to believe they understood the trade-offs between two particular variables.What are the two variables?

Suppose prices and wages are NOT flexible.What is most likely to occur after an adverse supply shock?

Suppose an economist of the rational expectations school is giving advice to a policymaker.Which of the following is the piece of advice the economist would most likely give?

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?

On the Phillips curve, how are the immediate effects of a discretionary increase in government spending represented?

Once a policy has been implemented, a period of time passes before the full impact of the policy registers on the economy.What is this time lag known as?

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 hypothesis is associated with a government policy that results in low inflation regardless of concerns about unemployment in the long run?

What is an implementation lag?

Which of the following is NOT a time lag associated with using discretionary policy to correct an economic problem?

Which of the following is consistent with an active approach to policy?

How will an increase in the expected inflation rate affect the Phillips curve?

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?

Fiscal policy usually takes months, or longer, to develop and approve.What is this time lag known as?

According to the rational expectations theory, monetary policy is fully anticipated.Therefore, what is the only factor affected by the policy?

Suppose that in 2014 the Bank of Canada announced a policy of rapid growth in the money supply, but then put the brakes on money expansion without any announcement.And suppose in 2015 officials at the Bank of Canada announce again that an expansion is planned.What is the most likely result?

In total, how long can the lags associated with discretionary policy extend?

Suppose an economist who favours a passive approach observes a drop in real GDP caused by a decrease in aggregate demand.What is the economist most likely to think?

Consider policymakers who favour a passive approach to policy.In general, which of the following would these policymakers believe in?

Exhibit 15-2 -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 time required for an economy to self-correct is shorter than the active policy lags.Which of the following best describes the results of implementing an active policy?

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policymakers to believe they understood the trade-offs between two particular variables.What are the two variables?

Suppose prices and wages are NOT flexible.What is most likely to occur after an adverse supply shock?

Suppose an economist of the rational expectations school is giving advice to a policymaker.Which of the following is the piece of advice the economist would most likely give?

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?

On the Phillips curve, how are the immediate effects of a discretionary increase in government spending represented?

Once a policy has been implemented, a period of time passes before the full impact of the policy registers on the economy.What is this time lag known as?

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