Question 1

Suppose actual GDP is $10 billion below potential GDP.How can the economy achieve long-run equilibrium using a passive approach?

Accepted Answer

A)  Policymakers can stimulate aggregate demand. 
B)  The short-run aggregate supply could shift outward. 
C)  The short-run aggregate supply curve could shift to the left. 
D)  Policymakers can reduce aggregate demand. 
A)  Policymakers can stimulate aggregate demand. 
B)  The short-run aggregate supply could shift outward. 
C)  The short-run aggregate supply curve could shift to the left. 
D)  Policymakers can reduce aggregate demand.

Question 2

According to the natural rate hypothesis, what can government policymakers influence?

Accepted Answer

A)  stable interest rates and a stable money supply in the long run, but NOT in the short run 
B)  stable interest rates and a stable money supply in the short run, but NOT in the long run 
C)  the trade-off between inflation and unemployment in the long run, but NOT in the short run 
D)  the trade-off between inflation and unemployment in the short run. but NOT in the long run 
A)  stable interest rates and a stable money supply in the long run, but NOT in the short run 
B)  stable interest rates and a stable money supply in the short run, but NOT in the long run 
C)  the trade-off between inflation and unemployment in the long run, but NOT in the short run 
D)  the trade-off between inflation and unemployment in the short run. but NOT in the long run

Question 3

Which of the following best describes the long-run Phillips curve?

Accepted Answer

A)  It is vertical. 
B)  It is horizontal. 
C)  It slopes upward. 
D)  It slopes downward. 
A)  It is vertical. 
B)  It is horizontal. 
C)  It slopes upward. 
D)  It slopes downward.

Question 4

What relationship is portrayed by the short-run Phillips curve?

Accepted Answer

A)  a direct relationship between total employment and the inflation rate 
B)  an inverse relationship between inflation and total employment 
C)  a direct relationship between the unemployment rate and the inflation rate 
D)  an inverse relationship between the unemployment rate and the inflation rate 
A)  a direct relationship between total employment and the inflation rate 
B)  an inverse relationship between inflation and total employment 
C)  a direct relationship between the unemployment rate and the inflation rate 
D)  an inverse relationship between the unemployment rate and the inflation rate

Question 5

Suppose the actual inflation rate exceeds the expected inflation rate.Which of the following best describes what is required to maintain the existing unemployment rate in the long run?

Accepted Answer

A)  increasing economic growth 
B)  decreasing economic growth 
C)  increasing inflation 
D)  decreasing inflation 
A)  increasing economic growth 
B)  decreasing economic growth 
C)  increasing inflation 
D)  decreasing inflation

Question 6

Exhibit 15-2
  
-Refer to the graph in the exhibit.Suppose the expansionary gap is eliminated.According to policymakers who favour an active approach to policy, where will the economy end up?

Accepted Answer

A)  at point A 
B)  at point B 
C)  at point C 
D)  unknown 
A)  at point A 
B)  at point B 
C)  at point C 
D)  unknown

Question 7

Policymakers who favour a passive approach to policy often argue that the passive approach is more effective than an active approach because changes in prices and wages will shift the short-run aggregate supply curve (SRAS).Why is the passive approach able to shift the SRAS?

Accepted Answer

A)  because a passive policy will act faster than an active policy aimed at shifting the aggregate demand curve 
B)  because a passive policy will be effective only after an active policy shifts the aggregate demand curve 
C)  because a passive policy will shift the SRAS curve more than an active policy aimed at shifting the aggregate demand curve 
D)  because a passive policy will shift the SRAS curve less than an active policy aimed at shifting the aggregate demand curve 
A)  because a passive policy will act faster than an active policy aimed at shifting the aggregate demand curve 
B)  because a passive policy will be effective only after an active policy shifts the aggregate demand curve 
C)  because a passive policy will shift the SRAS curve more than an active policy aimed at shifting the aggregate demand curve 
D)  because a passive policy will shift the SRAS curve less than an active policy aimed at shifting the aggregate demand curve

Question 8

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 increasing real wages, thus causing the SRAS curve to shift 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 increasing real wages, thus causing the SRAS curve to shift 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 9

Consider the short-run Phillips curve based on Canadian economic data.What happened to this curve after the 1960s?

Accepted Answer

A)  It began shifting inward. 
B)  It began shifting outward. 
C)  It became virtually horizontal. 
D)  It became virtually vertical. 
A)  It began shifting inward. 
B)  It began shifting outward. 
C)  It became virtually horizontal. 
D)  It became virtually vertical.

Question 10

Which of the following best characterizes how economists of the rational expectations school view the economy?

Accepted Answer

A)  They have no confidence in the ability of workers and firms to observe and react to economic events. 
B)  They have great faith in the ability of monetary policymakers to maintain a full employment economy with stable prices. 
C)  They believe that effective monetary policy can shift the potential level of output to the right. 
D)  They believe workers and firms make decisions based on what they think monetary policy will be in the future. 
A)  They have no confidence in the ability of workers and firms to observe and react to economic events. 
B)  They have great faith in the ability of monetary policymakers to maintain a full employment economy with stable prices. 
C)  They believe that effective monetary policy can shift the potential level of output to the right. 
D)  They believe workers and firms make decisions based on what they think monetary policy will be in the future.

Suppose actual GDP is $10 billion below potential GDP.How can the economy achieve long-run equilibrium using a passive approach?

According to the natural rate hypothesis, what can government policymakers influence?

Which of the following best describes the long-run Phillips curve?

What relationship is portrayed by the short-run Phillips curve?

Suppose the actual inflation rate exceeds the expected inflation rate.Which of the following best describes what is required to maintain the existing unemployment rate in the long run?

Exhibit 15-2 -Refer to the graph in the exhibit.Suppose the expansionary gap is eliminated.According to policymakers who favour an active approach to policy, where will the economy end up?

Policymakers who favour a passive approach to policy often argue that the passive approach is more effective than an active approach because changes in prices and wages will shift the short-run aggregate supply curve (SRAS).Why is the passive approach able to shift the SRAS?

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?

Consider the short-run Phillips curve based on Canadian economic data.What happened to this curve after the 1960s?

Which of the following best characterizes how economists of the rational expectations school view the economy?

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

Exam 16: Macro Policy Debate: Active or Passive

Suppose actual GDP is $10 billion below potential GDP.How can the economy achieve long-run equilibrium using a passive approach?

According to the natural rate hypothesis, what can government policymakers influence?

Which of the following best describes the long-run Phillips curve?

What relationship is portrayed by the short-run Phillips curve?

Suppose the actual inflation rate exceeds the expected inflation rate.Which of the following best describes what is required to maintain the existing unemployment rate in the long run?

Exhibit 15-2 -Refer to the graph in the exhibit.Suppose the expansionary gap is eliminated.According to policymakers who favour an active approach to policy, where will the economy end up?

Policymakers who favour a passive approach to policy often argue that the passive approach is more effective than an active approach because changes in prices and wages will shift the short-run aggregate supply curve (SRAS).Why is the passive approach able to shift the SRAS?

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?

Consider the short-run Phillips curve based on Canadian economic data.What happened to this curve after the 1960s?

Which of the following best characterizes how economists of the rational expectations school view the economy?

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