Question 1

After the 1960s, the short-run Phillips curve based on U.S. economic data

Accepted Answer

A) began shifting inward 
B) began shifting outward 
C) shifted little or none at all 
D) became virtually horizontal 
E) became virtually vertical 
A) began shifting inward 
B) began shifting outward 
C) shifted little or none at all 
D) became virtually horizontal 
E) became virtually vertical

Question 2

Which of the following is true about the long-run Phillips curve?

Accepted Answer

A) No event can shift the curve rightward; it can only be shifted leftward. 
B) No event can shift the curve leftward; it can only be shifted rightward. 
C) No event can shift the curve either rightward or leftward. 
D) Only fiscal and monetary policy can shift the curve. 
E) Demand-side policy cannot shift the curve. 
A) No event can shift the curve rightward; it can only be shifted leftward. 
B) No event can shift the curve leftward; it can only be shifted rightward. 
C) No event can shift the curve either rightward or leftward. 
D) Only fiscal and monetary policy can shift the curve. 
E) Demand-side policy cannot shift the curve.

Question 3

According to the rational expectations school, when monetary policy makers do exactly what is expected of them, their efforts to stimulate the economy will have no effect either on output or employment.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 17-3  
-In Exhibit 17-3, if the economy started near point b, and government purchases increased, we would expect the economy in the short run to move to

Accepted Answer

A) point a 
B) point e 
C) point c 
D) point d 
E) none of the above; the economy would remain at point b 
A) point a 
B) point e 
C) point c 
D) point d 
E) none of the above; the economy would remain at point b

Question 5

The long-run Phillips curve is

Accepted Answer

A) downward-sloping 
B) vertical 
C) upward-sloping 
D) horizontal 
E) U-shaped 
A) downward-sloping 
B) vertical 
C) upward-sloping 
D) horizontal 
E) U-shaped

Question 6

All of the following are true along a long-run Phillips curve except one. Which is the exception?

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 policy makers are different levels of inflation 
D) inflation and unemployment are inversely related 
E) changes in aggregate demand will have no effect in the long run on unemployment 
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 policy makers are different levels of inflation 
D) inflation and unemployment are inversely related 
E) changes in aggregate demand will have no effect in the long run on unemployment

Question 7

According to those who favor a passive approach to policy, a contractionary gap will be eliminated because

Accepted Answer

A) prices and wages rise rapidly 
B) prices and wages are flexible 
C) the aggregate demand curve will shift to the right 
D) the economy automatically slows down 
E) the aggregate demand curve will shift to the left 
A) prices and wages rise rapidly 
B) prices and wages are flexible 
C) the aggregate demand curve will shift to the right 
D) the economy automatically slows down 
E) the aggregate demand curve will shift to the left

Question 8

Problems facing active policy decisions include

Accepted Answer

A) both c and d 
B) all of the following 
C) timing problems related to lags and self-correction 
D) that the natural unemployment rate is uncertain 
E) the self-correcting forces in the economy don't work well 
A) both c and d 
B) all of the following 
C) timing problems related to lags and self-correction 
D) that the natural unemployment rate is uncertain 
E) the self-correcting forces in the economy don't work well

Question 9

The long-run Phillips curve is located at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 10

If an economist who favors a passive approach observes a drop in real GDP caused by a decrease in aggregate demand, she is most likely to think that

Accepted Answer

A) the economy will recover by itself before discretionary policy can correct the situation 
B) discretionary policy will correct the situation before the economy recovers by itself 
C) the imposition of policy rules will correct the situation before the economy recovers by itself 
D) aggregate supply will decrease to compensate for the decrease in aggregate demand 
E) the economy will not recover by itself 
A) the economy will recover by itself before discretionary policy can correct the situation 
B) discretionary policy will correct the situation before the economy recovers by itself 
C) the imposition of policy rules will correct the situation before the economy recovers by itself 
D) aggregate supply will decrease to compensate for the decrease in aggregate demand 
E) the economy will not recover by itself

Question 11

Exhibit 17-2  
-According to those who favor a passive approach to policy, where will the economy in Exhibit 17-2 end up once the expansionary gap is eliminated?

Accepted Answer

A) point A 
B) point B 
C) point C 
D) either point B or C 
E) cannot tell from the information provided 
A) point A 
B) point B 
C) point C 
D) either point B or C 
E) cannot tell from the information provided

Question 12

If the price level increases by more than expected, output can be expected to decrease as a result.

Accepted Answer

A) True 
 B)False

Question 13

In the 1992 presidential campaign, candidate Al Gore advocated a more active role for government in economic policy than did candidate George W. Bush

Accepted Answer

A) True 
 B)False

Question 14

The Federal Reserve

Accepted Answer

A) is not considered one of the more independent central banks 
B) is insulated from politics by the staggered 14-year appointments of Board members and by having its own source of income 
C) is more concerned with generating income than it is with achieving price stability 
D) is answerable to Congress and must do its bidding 
E) is answerable to the President and must do his bidding 
A) is not considered one of the more independent central banks 
B) is insulated from politics by the staggered 14-year appointments of Board members and by having its own source of income 
C) is more concerned with generating income than it is with achieving price stability 
D) is answerable to Congress and must do its bidding 
E) is answerable to the President and must do his bidding

Question 15

If a passive approach to policy was followed, how would an expansionary gap eventually close?

Accepted Answer

A) Restrictive fiscal policy would be used. 
B) Restrictive monetary policy would be used. 
C) Both restrictive fiscal policy and restrictive monetary policy would be used. 
D) Inflation would cure the problem because the price level in an expansionary gap is lower than firms and workers had expected. 
E) Inflation would cure the problem because the price level in an expansionary gap is higher than firms and workers had expected. 
A) Restrictive fiscal policy would be used. 
B) Restrictive monetary policy would be used. 
C) Both restrictive fiscal policy and restrictive monetary policy would be used. 
D) Inflation would cure the problem because the price level in an expansionary gap is lower than firms and workers had expected. 
E) Inflation would cure the problem because the price level in an expansionary gap is higher than firms and workers had expected.

Question 16

Exhibit 17-2  
-According to those who favor an active approach to policy, where will the economy in Exhibit 17-2 end up once the expansionary gap is eliminated?

Accepted Answer

A) point A 
B) point B 
C) point C 
D) either point B or C 
E) cannot tell from the information given 
A) point A 
B) point B 
C) point C 
D) either point B or C 
E) cannot tell from the information given

Question 17

In general, the Fed has not embraced a fixed-growth-rate monetary policy because

Accepted Answer

A) its adoption would cost them their jobs 
B) no influential economists have yet come out in favor of it 
C) the Fed has to answer to Congress, and Congress is not in favor of it 
D) the Fed prefers active fiscal policy 
E) they believe the economy is too complex and too changeable to make such a policy work consistently 
A) its adoption would cost them their jobs 
B) no influential economists have yet come out in favor of it 
C) the Fed has to answer to Congress, and Congress is not in favor of it 
D) the Fed prefers active fiscal policy 
E) they believe the economy is too complex and too changeable to make such a policy work consistently

Question 18

If the natural unemployment rate cannot easily be estimated, __________ policy making becomes more difficult.

Accepted Answer

A) active 
B) passive 
C) monetarist 
D) classical 
E) rational expectations 
A) active 
B) passive 
C) monetarist 
D) classical 
E) rational expectations

Question 19

The main policy conclusion of the rational expectations school is

Accepted Answer

A) fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can be helpful 
B) monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can be helpful 
C) both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households 
D) both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers 
E) neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers 
A) fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can be helpful 
B) monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can be helpful 
C) both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households 
D) both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers 
E) neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers

Question 20

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

Accepted Answer

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

Exam 17: Macro Policy Debate: Active or Passive

After the 1960s, the short-run Phillips curve based on U.S. economic data

Which of the following is true about the long-run Phillips curve?

According to the rational expectations school, when monetary policy makers do exactly what is expected of them, their efforts to stimulate the economy will have no effect either on output or employment.

Exhibit 17-3 -In Exhibit 17-3, if the economy started near point b, and government purchases increased, we would expect the economy in the short run to move to

The long-run Phillips curve is

All of the following are true along a long-run Phillips curve except one. Which is the exception?

According to those who favor a passive approach to policy, a contractionary gap will be eliminated because

Problems facing active policy decisions include

The long-run Phillips curve is located at the natural rate of unemployment.

If an economist who favors a passive approach observes a drop in real GDP caused by a decrease in aggregate demand, she is most likely to think that

Exhibit 17-2 -According to those who favor a passive approach to policy, where will the economy in Exhibit 17-2 end up once the expansionary gap is eliminated?

If the price level increases by more than expected, output can be expected to decrease as a result.

In the 1992 presidential campaign, candidate Al Gore advocated a more active role for government in economic policy than did candidate George W. Bush

The Federal Reserve

If a passive approach to policy was followed, how would an expansionary gap eventually close?

Exhibit 17-2 -According to those who favor an active approach to policy, where will the economy in Exhibit 17-2 end up once the expansionary gap is eliminated?

In general, the Fed has not embraced a fixed-growth-rate monetary policy because

If the natural unemployment rate cannot easily be estimated, __________ policy making becomes more difficult.

The main policy conclusion of the rational expectations school is

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

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

The Algebra of Income and Expenditure

Monetary Theory and Policy

The Algebra of Demand-Side Equilibrium

International Trade

International Finance

Economic Development

National Income Accounts

Understanding Graphs

Variable Net Exports

Variable Net Exports Revisited

Filters