Exam 17: Macro Policy Debate: Active or Passive

Exhibit 17-3 -In Exhibit 17-3, the natural rate of unemployment is

Before discovering that the short-run Phillips curve does not show the true long-run situation, policy makers were successful in trying to bring the economy to the zero-inflation, zero-unemployment point on the short-run curve.

An anti-inflation policy that involves announcing and executing tough measures to stop inflation is called

If prices and wages are not flexible, an adverse supply shock is most likely to be followed by

The time inconsistency problem arises when

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if

If rational expectations cause people's price expectations to be generally correct, active policy will influence the price level but not output.

If an economy is at potential GDP and an expansionary policy is correctly anticipated, the result will be

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

There is little or no evidence that countries experience less inflation when their central banks are free from political pressures.

The Fed is not completely independent because

Which of the following would eliminate the time inconsistency problem?

The natural rate hypothesis claims that policy makers can have considerable success in reducing unemployment through monetary and fiscal policy.

If self-correction works, a policy that continually increases aggregate demand will

If an active approach to policy is followed, how would an expansionary gap eventually close?

When policy makers have an incentive to announce one policy to shape expectations but then pursue a different policy once those expectations have been formed and acted on, there is

Unemployment cannot be maintained below the natural rate, no matter what inflation rate is tolerated.

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

An economy that self-corrects a contractionary gap will experience falling nominal wages, rising real wages and falling output.

An economy that self-corrects an expansionary gap will experience stagflation.