Question 1

Policy makers may not know that the economy is in a recession until six months after the recession starts; this is a phenomenon known as the

Accepted Answer

A)  implementation lag 
B)  policy coordination problem 
C)  decision-making lag 
D)  recognition lag 
E)  effectiveness lag 
A)  implementation lag 
B)  policy coordination problem 
C)  decision-making lag 
D)  recognition lag 
E)  effectiveness lag D

Question 2

If an active approach to policy is followed,how would an expansionary 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 up and to the left along the short-run supply 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 up and to the left along the short-run supply curve. B

Question 3

An increase in the expected inflation rate will

Accepted Answer

A)  shift the short-run Phillips curve upward and to the right 
B)  shift the short-run Phillips curve downward and to the left 
C)  not shift the short-run Phillips curve unless the unemployment rate changes 
D)  cause the unemployment rate associated with each inflation rate to decrease 
E)  tend to increase production unless the actual inflation rate also increases 
A)  shift the short-run Phillips curve upward and to the right 
B)  shift the short-run Phillips curve downward and to the left 
C)  not shift the short-run Phillips curve unless the unemployment rate changes 
D)  cause the unemployment rate associated with each inflation rate to decrease 
E)  tend to increase production unless the actual inflation rate also increases A

Question 4

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

Accepted Answer

A)  cold turkey 
B)  cold chicken 
C)  hot water 
D)  chokehold 
E)  time-inconsistency 
A)  cold turkey 
B)  cold chicken 
C)  hot water 
D)  chokehold 
E)  time-inconsistency

Question 5

The short-run Phillips curve portrays a(n)

Accepted Answer

A)  direct relationship between total employment and the inflation rate 
B)  inverse relationship between inflation and total employment 
C)  direct relationship between the unemployment rate and the inflation rate 
D)  inverse relationship between the unemployment rate and the inflation rate 
E)  inverse relationship between the price level and the unemployment rate 
A)  direct relationship between total employment and the inflation rate 
B)  inverse relationship between inflation and total employment 
C)  direct relationship between the unemployment rate and the inflation rate 
D)  inverse relationship between the unemployment rate and the inflation rate 
E)  inverse relationship between the price level and the unemployment rate

Question 6

The unemployment rate can remain below the natural rate,but only

Accepted Answer

A)  in the long run 
B)  with continuous deflation 
C)  with a continuously increasing inflation rate 
D)  with a series of adverse supply shocks 
E)  if the money supply is constant 
A)  in the long run 
B)  with continuous deflation 
C)  with a continuously increasing inflation rate 
D)  with a series of adverse supply shocks 
E)  if the money supply is constant

Question 7

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

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 8

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a contractionary gap.

Accepted Answer

A) True 
 B)False

Question 9

The long-run Phillips curve

Accepted Answer

A)  is vertical 
B)  is the same as the short-run Phillips curve 
C)  slopes downward 
D)  slopes upward 
E)  is horizontal 
A)  is vertical 
B)  is the same as the short-run Phillips curve 
C)  slopes downward 
D)  slopes upward 
E)  is horizontal

Question 10

To favor a passive approach to policy is to believe that the private sector is

Accepted Answer

A)  relatively stable and both wages and prices adjust quickly to eliminate excess supply or excess demand for labor 
B)  basically unstable,although both wages and prices adjust quickly to eliminate excess supply or excess demand for labor 
C)  relatively stable,although both wages and prices tend to be very sticky downward 
D)  basically unstable and both wages and prices tend to be very sticky downward 
E)  so stable that wages and prices rarely change 
A)  relatively stable and both wages and prices adjust quickly to eliminate excess supply or excess demand for labor 
B)  basically unstable,although both wages and prices adjust quickly to eliminate excess supply or excess demand for labor 
C)  relatively stable,although both wages and prices tend to be very sticky downward 
D)  basically unstable and both wages and prices tend to be very sticky downward 
E)  so stable that wages and prices rarely change

Question 11

The time inconsistency problem occurs when

Accepted Answer

A)  all of the following occur 
B)  expectations are slow to adjust to reality,causing output to vary in the short run 
C)  public officials' reelection goals generate short-term economic gains at the expense of long-term inflation 
D)  execution lags are shorter than self-correction lags 
E)  policy makers execute one type of policy after influencing the public to anticipate another type 
A)  all of the following occur 
B)  expectations are slow to adjust to reality,causing output to vary in the short run 
C)  public officials' reelection goals generate short-term economic gains at the expense of long-term inflation 
D)  execution lags are shorter than self-correction lags 
E)  policy makers execute one type of policy after influencing the public to anticipate another type

Question 12

Exhibit 16-1  
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 attain equilibrium at potential output?

Accepted Answer

A)  The SRAS curve will shift to the 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)  The SRAS curve will shift to the 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 13

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

Accepted Answer

A)  the will to reject sound policy if it gets in the way of political considerations 
B)  the ability to estimate the economy's potential level of output 
C)  the ability to predict what would happen without intervention 
D)  an assortment of effective tools of discretionary policy 
E)  the ability to achieve effective cooperation between fiscal and monetary policy makers 
A)  the will to reject sound policy if it gets in the way of political considerations 
B)  the ability to estimate the economy's potential level of output 
C)  the ability to predict what would happen without intervention 
D)  an assortment of effective tools of discretionary policy 
E)  the ability to achieve effective cooperation between fiscal and monetary policy makers

Question 14

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the

Accepted Answer

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

Question 15

If inflationary expectations increase,we can infer that

Accepted Answer

A)  unemployment is above the natural rate 
B)  the economy is not on the long-run Phillips curve 
C)  the short-run Phillips curve is shifting to the left 
D)  output is below potential GDP 
E)  the unemployment rate is at the natural rate 
A)  unemployment is above the natural rate 
B)  the economy is not on the long-run Phillips curve 
C)  the short-run Phillips curve is shifting to the left 
D)  output is below potential GDP 
E)  the unemployment rate is at the natural rate

Question 16

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 17

Opponents of inflation targets say that

Accepted Answer

A)  such targets encourage workers to plan on a low and stable inflation rate and hold down demands for wage increases 
B)  the Fed will pay less attention to jobs and economic growth 
C)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases 
E)  None of the answers is correct 
A)  such targets encourage workers to plan on a low and stable inflation rate and hold down demands for wage increases 
B)  the Fed will pay less attention to jobs and economic growth 
C)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases 
E)  None of the answers is correct

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The Fed is not completely independent because

Accepted Answer

A)  Congress could rewrite the laws that created the Fed 
B)  it relies heavily on Congressional appropriations 
C)  the president sits on the Board of Governors 
D)  Congress must approve any new monetary policy 
E)  the president must approve any new monetary policy 
A)  Congress could rewrite the laws that created the Fed 
B)  it relies heavily on Congressional appropriations 
C)  the president sits on the Board of Governors 
D)  Congress must approve any new monetary policy 
E)  the president must approve any new monetary policy

Question 20

Exhibit 16-2  
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-2 attain equilibrium at potential output?

Accepted Answer

A)  The SRAS curve will shift to the 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)  The SRAS curve will shift to the 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.

Exam 17: Macro Policy Debate: Active or Passive

Policy makers may not know that the economy is in a recession until six months after the recession starts; this is a phenomenon known as the

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

An increase in the expected inflation rate will

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

The short-run Phillips curve portrays a(n)

The unemployment rate can remain below the natural rate,but only

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

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a contractionary gap.

The long-run Phillips curve

To favor a passive approach to policy is to believe that the private sector is

The time inconsistency problem occurs when

Exhibit 16-1 -According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 attain equilibrium at potential output?

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the

If inflationary expectations increase,we can infer that

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

Opponents of inflation targets say that

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

The Fed is not completely independent because

Exhibit 16-2 -According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-2 attain equilibrium at potential output?

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Productivity and Growth

Tracking the US Economy

Unemployment and Inflation

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

Monetary Theory and Policy

International Trade

International Finance

Developing and Transitional Economies

Understanding Graphs

National Income Accounts

Variable Net Exports

Variable Net Exports Revisited

The Algebra of Income and Expenditure

The Algebra of Demand-Side Equilibrium

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