Question 1

The long-run Phillips curve

Accepted Answer

A) represents the fact that inflation is consistent with many unemployment rates 
B) represents the fact that inflation will not influence unemployment in the long run 
C) has a negative slope because the short-run Phillips curve shifts up and to the left 
D) shows that expected inflation can never equal actual inflation 
E) shows that unemployment is a short run, but not a long run, phenomenon 
A) represents the fact that inflation is consistent with many unemployment rates 
B) represents the fact that inflation will not influence unemployment in the long run 
C) has a negative slope because the short-run Phillips curve shifts up and to the left 
D) shows that expected inflation can never equal actual inflation 
E) shows that unemployment is a short run, but not a long run, phenomenon

Question 2

If the advice of those who favor a passive approach to policy is correct, how would a contractionary gap eventually close?

Accepted Answer

A) The aggregate demand curve would shift rightward. 
B) The aggregate demand curve would shift leftward. 
C) The short-run aggregate supply curve would shift rightward. 
D) The short-run aggregate supply curve would shift leftward. 
E) There would be a movement upward along the aggregate demand curve. 
A) The aggregate demand curve would shift rightward. 
B) The aggregate demand curve would shift leftward. 
C) The short-run aggregate supply curve would shift rightward. 
D) The short-run aggregate supply curve would shift leftward. 
E) There would be a movement upward along the aggregate demand curve.

Question 3

The time it takes to identify and examine the nature and seriousness of an economic problem is the

Accepted Answer

A) activity lag 
B) decision-making lag 
C) effectiveness lag 
D) implementation lag 
E) recognition lag 
A) activity lag 
B) decision-making lag 
C) effectiveness lag 
D) implementation lag 
E) recognition lag

Question 4

Around the world, the tendency is toward

Accepted Answer

A) ever-higher interest rates 
B) a weakening of the relationship between central bank independence and inflation 
C) greater central bank independence 
D) ever-higher inflation rates 
E) a weakening of the relationship between central bank independence and money supply growth 
A) ever-higher interest rates 
B) a weakening of the relationship between central bank independence and inflation 
C) greater central bank independence 
D) ever-higher inflation rates 
E) a weakening of the relationship between central bank independence and money supply growth

Question 5

Exhibit 17-1  
-According to those who favor a passive approach to policy, where will the economy in Exhibit 17-1 end up when it achieves its potential output?

Accepted Answer

A) point A 
B) point B 
C) point C 
D) either point B or C 
E) unable to tell from the information given 
A) point A 
B) point B 
C) point C 
D) either point B or C 
E) unable to tell from the information given

Question 6

Exhibit 17-2  
-According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-2 attain equilibrium at potential output?

Accepted Answer

A) Real wages will rise causing the SRAS curve to shift left. 
B) The SRAS curve will shift to the right. 
C) Either the money supply or government spending should be increased. 
D) Either the money supply or government spending should be decreased. 
E) Aggregate demand should be decreased. 
A) Real wages will rise causing the SRAS curve to shift left. 
B) The SRAS curve will shift to the right. 
C) Either the money supply or government spending should be increased. 
D) Either the money supply or government spending should be decreased. 
E) Aggregate demand should be decreased.

Question 7

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?

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 should be increased. 
D) Either the money supply or government spending should be decreased. 
E) Aggregate demand should 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 should be increased. 
D) Either the money supply or government spending should be decreased. 
E) Aggregate demand should be decreased.

Question 8

Exhibit 17-3  
-In Exhibit 17-3, the most desirable of the points shown is

Accepted Answer

A) point a 
B) point b 
C) point c 
D) point d 
E) point e 
A) point a 
B) point b 
C) point c 
D) point d 
E) point e

Question 9

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Accepted Answer

A) True 
 B)False

Question 10

The initial Phillips curve relationship implied that the opportunity cost of __________ __________ was higher __________.

Accepted Answer

A) reducing, unemployment, inflation 
B) increasing, unemployment, inflation 
C) reducing, unemployment, deflation 
D) increasing, employment, deflation 
E) reducing, employment, inflation 
A) reducing, unemployment, inflation 
B) increasing, unemployment, inflation 
C) reducing, unemployment, deflation 
D) increasing, employment, deflation 
E) reducing, employment, inflation

Question 11

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

Accepted Answer

A) True 
 B)False

Question 12

When self-correction works to eliminate an expansionary gap,

Accepted Answer

A) both money wages and real wages increase 
B) money wages increase while real wages decrease 
C) both money wages and real wages decrease 
D) money wages decrease while real wages increase 
E) money wages remain unchanged 
A) both money wages and real wages increase 
B) money wages increase while real wages decrease 
C) both money wages and real wages decrease 
D) money wages decrease while real wages increase 
E) money wages remain unchanged

Question 13

The formulation of active policy is

Accepted Answer

A) made easier if the natural unemployment rate can be easily calculated 
B) made easier if the natural unemployment rate cannot be easily calculated 
C) made more difficult if the natural unemployment rate can be easily calculated 
D) made more difficult if the natural unemployment rate cannot be easily calculated 
E) done without considering the natural unemployment rate because such a policy focuses on rules to follow in any unemployment situation 
A) made easier if the natural unemployment rate can be easily calculated 
B) made easier if the natural unemployment rate cannot be easily calculated 
C) made more difficult if the natural unemployment rate can be easily calculated 
D) made more difficult if the natural unemployment rate cannot be easily calculated 
E) done without considering the natural unemployment rate because such a policy focuses on rules to follow in any unemployment situation

Question 14

According to the rational expectations school, which of the following can affect the levels of output and employment?

Accepted Answer

A) an expansionary monetary policy, if it is fully anticipated 
B) a contractionary monetary policy, if it is fully anticipated 
C) monetary policy that is unanticipated 
D) fiscal policy that is anticipated 
E) the Fed's announcement of no change in monetary policy 
A) an expansionary monetary policy, if it is fully anticipated 
B) a contractionary monetary policy, if it is fully anticipated 
C) monetary policy that is unanticipated 
D) fiscal policy that is anticipated 
E) the Fed's announcement of no change in monetary policy

Question 15

An economy in which actual GDP exceeds potential GDP means that

Accepted Answer

A) wages and prices must fall 
B) self-correcting forces will shift the SRAS curve to the left 
C) self-correcting forces will shift the AD curve to the left 
D) inflation will occur when AD shifts to the left 
E) unemployment is likely to be unusually high 
A) wages and prices must fall 
B) self-correcting forces will shift the SRAS curve to the left 
C) self-correcting forces will shift the AD curve to the left 
D) inflation will occur when AD shifts to the left 
E) unemployment is likely to be unusually high

Question 16

Probably the most significant implication of the natural rate of unemployment hypothesis is that

Accepted Answer

A) the natural rate of inflation tends toward zero 
B) long-run policy should be directed toward controlling inflation rather than unemployment 
C) the natural rate of unemployment can be reduced by accepting worsening inflation 
D) the natural rate of unemployment is consistent only with a zero inflation rate in the long run 
E) tax cuts stimulate the economy and lower inflation 
A) the natural rate of inflation tends toward zero 
B) long-run policy should be directed toward controlling inflation rather than unemployment 
C) the natural rate of unemployment can be reduced by accepting worsening inflation 
D) the natural rate of unemployment is consistent only with a zero inflation rate in the long run 
E) tax cuts stimulate the economy and lower inflation

Question 17

In the 1992 presidential campaign, Clinton's biggest political liabilities were the sluggish recovery and ballooning federal deficits.

Accepted Answer

A) True 
 B)False

Question 18

According to rational expectations theory, people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 19

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 20

Some of those who favor a passive approach to policy disapprove of government intervention in the economy because they think government policy makers do not know which policy is correct.

Accepted Answer

A) True 
 B)False

Exam 17: Macro Policy Debate: Active or Passive

The long-run Phillips curve

If the advice of those who favor a passive approach to policy is correct, how would a contractionary gap eventually close?

The time it takes to identify and examine the nature and seriousness of an economic problem is the

Around the world, the tendency is toward

Exhibit 17-1 -According to those who favor a passive approach to policy, where will the economy in Exhibit 17-1 end up when it achieves its potential output?

Exhibit 17-2 -According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-2 attain equilibrium at potential output?

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?

Exhibit 17-3 -In Exhibit 17-3, the most desirable of the points shown is

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

The initial Phillips curve relationship implied that the opportunity cost of __________ __________ was higher __________.

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

When self-correction works to eliminate an expansionary gap,

The formulation of active policy is

According to the rational expectations school, which of the following can affect the levels of output and employment?

An economy in which actual GDP exceeds potential GDP means that

Probably the most significant implication of the natural rate of unemployment hypothesis is that

In the 1992 presidential campaign, Clinton's biggest political liabilities were the sluggish recovery and ballooning federal deficits.

According to rational expectations theory, people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

Contrary to what the Phillips curve would have predicted, the U.S. economy in the 1970s experienced simultaneous increases in inflation and unemployment.

Some of those who favor a passive approach to policy disapprove of government intervention in the economy because they think government policy makers do not know which policy is correct.

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

The initial Phillips curve relationship implied that the opportunity cost of was higher __.