Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

During the period __________,the short-run Phillips curve for the United States was farthest from the origin.

Accepted Answer

A)  1960 to 1964 
B)  1964 to 1969 
C)  1970 to 1973 
D)  1974 to 1983 
E)  1984 to 1989 
A)  1960 to 1964 
B)  1964 to 1969 
C)  1970 to 1973 
D)  1974 to 1983 
E)  1984 to 1989

Question 3

According to the active policy position,eliminating a contractionary gap

Accepted Answer

A)  can only be achieved by decreasing wages 
B)  requires a public policy of wage and price controls 
C)  should be accomplished by stimulating aggregate demand 
D)  will increase unemployment 
E)  will cause a recession 
A)  can only be achieved by decreasing wages 
B)  requires a public policy of wage and price controls 
C)  should be accomplished by stimulating aggregate demand 
D)  will increase unemployment 
E)  will cause a recession

Question 4

Exhibit 16-4  
-Consider Exhibit 16-4.If the economy is initially at point c and aggregate demand increases,the economy will (in the long run)

Accepted Answer

A)  move toward point a 
B)  move toward point b 
C)  stay at point c 
D)  move toward point d 
E)  move toward point f 
A)  move toward point a 
B)  move toward point b 
C)  stay at point c 
D)  move toward point d 
E)  move toward point f

Question 5

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

Accepted Answer

A)  a lack of any real concern for those who have no jobs 
B)  a conviction that unemployment is relatively harmless 
C)  a belief that active economic policy is likely to be either ineffective or harmful 
D)  a desire to await further economic data before intervening 
E)  belief in the law of diminishing returns 
A)  a lack of any real concern for those who have no jobs 
B)  a conviction that unemployment is relatively harmless 
C)  a belief that active economic policy is likely to be either ineffective or harmful 
D)  a desire to await further economic data before intervening 
E)  belief in the law of diminishing returns

Question 6

According to the natural rate hypothesis,unemployment can

Accepted Answer

A)  never be maintained below the natural rate 
B)  be maintained below the natural rate only at the cost of higher taxes 
C)  be maintained below the natural rate while maintaining a constant low inflation rate 
D)  be maintained below the natural rate only at the cost of ever-increasing inflation 
E)  be maintained below the natural rate only at the cost of ever-increasing federal budget deficits 
A)  never be maintained below the natural rate 
B)  be maintained below the natural rate only at the cost of higher taxes 
C)  be maintained below the natural rate while maintaining a constant low inflation rate 
D)  be maintained below the natural rate only at the cost of ever-increasing inflation 
E)  be maintained below the natural rate only at the cost of ever-increasing federal budget deficits

Question 7

Which of the following is not a valid criticism of discretionary fiscal policy?

Accepted Answer

A)  Implementation of fiscal policy is sometimes difficult. 
B)  Time lags in fiscal policy are long. 
C)  Fiscal policy works only during periods of stagflation. 
D)  Fiscal policy often affects only current income,but many economic decisions are made on the basis of permanent income. 
E)  Fiscal policy might have undesirable long-term effects on aggregate supply. 
A)  Implementation of fiscal policy is sometimes difficult. 
B)  Time lags in fiscal policy are long. 
C)  Fiscal policy works only during periods of stagflation. 
D)  Fiscal policy often affects only current income,but many economic decisions are made on the basis of permanent income. 
E)  Fiscal policy might have undesirable long-term effects on aggregate supply.

Question 8

If self-correction causes prices to fall less than nominal wages,both output and real wages will decrease.

Accepted Answer

A) True 
 B)False

Question 9

One way of expressing the meaning of the short-run Phillips curve is to say that

Accepted Answer

A)  the cost of reducing unemployment is higher inflation 
B)  nothing but good comes from reducing unemployment 
C)  the cost of reducing inflation is lower unemployment 
D)  aggregate supply and aggregate demand will always be equal at the potential output level 
E)  the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment 
A)  the cost of reducing unemployment is higher inflation 
B)  nothing but good comes from reducing unemployment 
C)  the cost of reducing inflation is lower unemployment 
D)  aggregate supply and aggregate demand will always be equal at the potential output level 
E)  the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Time required __________ is not a time lag associated with using discretionary policy to correct an economic problem.

Accepted Answer

A)  to recognize the problem 
B)  to decide how to handle the problem 
C)  to set a policy change in action 
D)  for a policy to affect economic variables 
E)  to coordinate monetary and fiscal policy 
A)  to recognize the problem 
B)  to decide how to handle the problem 
C)  to set a policy change in action 
D)  for a policy to affect economic variables 
E)  to coordinate monetary and fiscal policy

Question 12

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 13

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 14

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the short-run aggregate supply curve

Accepted Answer

A)  before active policy shifts the aggregate demand curve 
B)  only after active policy shifts the aggregate demand curve 
C)  more than active policy shifts the aggregate demand curve 
D)  less than active policy shifts the aggregate demand curve 
E)  in a direction opposite to the shift in the aggregate demand curve caused by active policy 
A)  before active policy shifts the aggregate demand curve 
B)  only after active policy shifts the aggregate demand curve 
C)  more than active policy shifts the aggregate demand curve 
D)  less than active policy shifts the aggregate demand curve 
E)  in a direction opposite to the shift in the aggregate demand curve caused by active policy

Question 15

Suppose that policy makers are concerned about a shortage of long-term capital investment.To remedy the problem,various plans to cut capital gains taxes have been suggested.The delay in picking a plan is called 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

Question 16

The selection of a new policy takes place during a period of time 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 17

Along the long-run Phillips curve,

Accepted Answer

A)  the economy is at an unemployment level that corresponds to the potential output level 
B)  expectations have not fully adjusted 
C)  policy makers can have lower inflation only with higher unemployment 
D)  a cut in taxes will lower inflation 
E)  a tax cut will increase unemployment 
A)  the economy is at an unemployment level that corresponds to the potential output level 
B)  expectations have not fully adjusted 
C)  policy makers can have lower inflation only with higher unemployment 
D)  a cut in taxes will lower inflation 
E)  a tax cut will increase unemployment

Question 18

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 19

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

Accepted Answer

A) True 
 B)False

Question 20

An increase in price expectations shifts the long-run Phillips curve,but not the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Exam 17: Macro Policy Debate: Active or Passive

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

During the period __________,the short-run Phillips curve for the United States was farthest from the origin.

According to the active policy position,eliminating a contractionary gap

Exhibit 16-4 -Consider Exhibit 16-4.If the economy is initially at point c and aggregate demand increases,the economy will (in the long run)

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

According to the natural rate hypothesis,unemployment can

Which of the following is not a valid criticism of discretionary fiscal policy?

If self-correction causes prices to fall less than nominal wages,both output and real wages will decrease.

One way of expressing the meaning of the short-run Phillips curve is to say that

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

Time required __________ is not a time lag associated with using discretionary policy to correct an economic problem.

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

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

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the short-run aggregate supply curve

Suppose that policy makers are concerned about a shortage of long-term capital investment.To remedy the problem,various plans to cut capital gains taxes have been suggested.The delay in picking a plan is called the

The selection of a new policy takes place during a period of time known as the

Along the long-run Phillips curve,

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

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

An increase in price expectations shifts the long-run Phillips curve,but not the short-run Phillips curve.

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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