Exam 17: Macro Policy Debate: Active or Passive

According to the rational expectations school, a correctly anticipated expansionary monetary policy will

The early Phillips curve showed a tradeoff between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

A passive approach to economic policy calls for the government to do nothing to offset unemployment because of

Along the long-run Phillips curve,

The effectiveness lag for monetary policy is short.

If an economy adjusts to potential GDP accompanied by a rising price level and a falling output level,

According to a recent study of central banks around the world,

An important implication of the natural rate hypothesis is that the government policy that results in low inflation is generally the optimal long-run policy

One often-cited rationale for a fixed-growth-rate monetary policy is that

Some economists believe that when workers and firms come to expect an expansionary monetary policy and the resulting inflation,

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

A policy to increase aggregate demand to cure a contractionary gap may succeed; however, inflation is a likely result.

A credible policy designed to lower inflation must throw the economy into recession.

Exhibit 17-1 -According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-1 attain equilibrium at potential output?

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Evidence indicates that inflation rates are

A new policy is actually put in force during the

The time it takes for a new policy to register its full impact on the economy after it has been put in force is known as the

According to the natural rate hypothesis, the natural rate of unemployment is

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.