Question 1

Given the expected price level,policies for reaching potential GDP will work best if the money supply is

Accepted Answer

A)  large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
B)  large enough that prices at potential GDP are above expectations and firms can afford to hire workers 
C)  small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
D)  small,so that prices at potential GDP are above expectations and firms can afford to hire the workers 
E)  exactly the size that makes prices equal to the prices people expected to prevail 
A)  large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
B)  large enough that prices at potential GDP are above expectations and firms can afford to hire workers 
C)  small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
D)  small,so that prices at potential GDP are above expectations and firms can afford to hire the workers 
E)  exactly the size that makes prices equal to the prices people expected to prevail

Question 2

The time inconsistency problem arises when

Accepted Answer

A)  attempts are made to coordinate monetary policy throughout different time zones 
B)  there is a lag between the announcement of a monetary policy and the implementation of it 
C)  policy makers have an incentive to mislead people about their monetary policy intentions 
D)  policy makers do not allow enough time for a new policy to take effect 
E)  there is a deep conflict among monetary policy makers 
A)  attempts are made to coordinate monetary policy throughout different time zones 
B)  there is a lag between the announcement of a monetary policy and the implementation of it 
C)  policy makers have an incentive to mislead people about their monetary policy intentions 
D)  policy makers do not allow enough time for a new policy to take effect 
E)  there is a deep conflict among monetary policy makers

Question 3

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 4

In general,we would expect those who favor a passive approach to policy to believe in

Accepted Answer

A)  slow rather than rapid self-correction 
B)  potentially incorrect rather than rational price expectations 
C)  short,certain rather than long,variable policy lags 
D)  a negatively sloped rather than vertical Phillips curve 
E)  the natural rate hypothesis 
A)  slow rather than rapid self-correction 
B)  potentially incorrect rather than rational price expectations 
C)  short,certain rather than long,variable policy lags 
D)  a negatively sloped rather than vertical Phillips curve 
E)  the natural rate hypothesis

Question 5

If the price level increases more rapidly than expected,

Accepted Answer

A)  output will fall 
B)  output will increase 
C)  output will not change 
D)  real wages will increase 
E)  none of the above 
A)  output will fall 
B)  output will increase 
C)  output will not change 
D)  real wages will increase 
E)  none of the above

Question 6

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 7

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 8

The __________ lag is typically longer for fiscal policy than monetary policy.

Accepted Answer

A)  both b and d 
B)  decision-making 
C)  effectiveness 
D)  implementation 
E)  recognition 
A)  both b and d 
B)  decision-making 
C)  effectiveness 
D)  implementation 
E)  recognition

Question 9

Along the short-run Phillips curve,when the unemployment rate goes down,

Accepted Answer

A)  unemployment benefit payments go up 
B)  prices go down 
C)  the Phillips curve shifts outward 
D)  the inflation rate goes up 
E)  there is no change in the rate of inflation 
A)  unemployment benefit payments go up 
B)  prices go down 
C)  the Phillips curve shifts outward 
D)  the inflation rate goes up 
E)  there is no change in the rate of inflation

Question 10

Long lags make discretionary policy less effective because

Accepted Answer

A)  in the long run,we shall all be dead 
B)  by the time the impact of a policy is felt,the problem it was meant to cure may have been corrected 
C)  lags are longer in contractions than in expansions 
D)  lags are longer in expansions than in contractions 
E)  automatic stabilizers are subject to longer lags than are discretionary policies 
A)  in the long run,we shall all be dead 
B)  by the time the impact of a policy is felt,the problem it was meant to cure may have been corrected 
C)  lags are longer in contractions than in expansions 
D)  lags are longer in expansions than in contractions 
E)  automatic stabilizers are subject to longer lags than are discretionary policies

Question 11

The short-run Phillips curve shows that

Accepted Answer

A)  the economy can have low inflation and low unemployment simultaneously 
B)  the economy can have high inflation and high unemployment simultaneously 
C)  a reduction in unemployment comes at the expense of lower inflation 
D)  a reduction in unemployment comes at the expense of higher inflation 
E)  a reduction in inflation comes at the expense of lower unemployment 
A)  the economy can have low inflation and low unemployment simultaneously 
B)  the economy can have high inflation and high unemployment simultaneously 
C)  a reduction in unemployment comes at the expense of lower inflation 
D)  a reduction in unemployment comes at the expense of higher inflation 
E)  a reduction in inflation comes at the expense of lower unemployment

Question 12

The inflation associated with the oil embargoes of the 1970s illustrated the __________ of the downward-sloping Phillips curve in the long run,as unemployment __________.

Accepted Answer

A)  validity; fell 
B)  validity; rose 
C)  fallacy; rose 
D)  fallacy; fell 
E)  fallacy; did not change 
A)  validity; fell 
B)  validity; rose 
C)  fallacy; rose 
D)  fallacy; fell 
E)  fallacy; did not change

Question 13

Discretionary policy advocates believe

Accepted Answer

A)  both c and d 
B)  that self-correction forces work slowly 
C)  that rules are effective in changing output 
D)  in rational expectations 
E)  none of the above 
A)  both c and d 
B)  that self-correction forces work slowly 
C)  that rules are effective in changing output 
D)  in rational expectations 
E)  none of the above

Question 14

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 15

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

Accepted Answer

A) True 
 B)False

Question 16

According to the __________ approach,__________ policy may __________ the instability of the economy.

Accepted Answer

A)  passive,automatic,increase 
B)  passive,discretionary,increase 
C)  passive,discretionary,decrease 
D)  active,discretionary,increase 
E)  active,automatic,decrease 
A)  passive,automatic,increase 
B)  passive,discretionary,increase 
C)  passive,discretionary,decrease 
D)  active,discretionary,increase 
E)  active,automatic,decrease

Question 17

In its original form,the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Which of the following would correspond to movement downward along a short-run Phillips curve?

Accepted Answer

A)  The aggregate demand curve shifts rightward,moving up along a short-run aggregate supply curve. 
B)  The aggregate demand curve shifts leftward,moving down along a short-run aggregate supply curve. 
C)  The short-run aggregate supply curve shifts leftward,moving up along the aggregate demand curve. 
D)  The short-run aggregate supply curve shifts rightward,moving down along the aggregate demand curve. 
E)  Both the aggregate demand and the short-run aggregate supply curves shift leftward. 
A)  The aggregate demand curve shifts rightward,moving up along a short-run aggregate supply curve. 
B)  The aggregate demand curve shifts leftward,moving down along a short-run aggregate supply curve. 
C)  The short-run aggregate supply curve shifts leftward,moving up along the aggregate demand curve. 
D)  The short-run aggregate supply curve shifts rightward,moving down along the aggregate demand curve. 
E)  Both the aggregate demand and the short-run aggregate supply curves shift leftward.

Question 20

An economy that self-corrects a contractionary gap will experience falling nominal wages,rising real wages and falling output.

Accepted Answer

A) True 
 B)False

Exam 17: Macro Policy Debate: Active or Passive

Given the expected price level,policies for reaching potential GDP will work best if the money supply is

The time inconsistency problem arises when

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

In general,we would expect those who favor a passive approach to policy to believe in

If the price level increases more rapidly than expected,

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.

Problems facing active policy decisions include

The __________ lag is typically longer for fiscal policy than monetary policy.

Along the short-run Phillips curve,when the unemployment rate goes down,

Long lags make discretionary policy less effective because

The short-run Phillips curve shows that

The inflation associated with the oil embargoes of the 1970s illustrated the __________ of the downward-sloping Phillips curve in the long run,as unemployment __________.

Discretionary policy advocates believe

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

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

According to the __________ approach,__________ policy may __________ the instability of the economy.

In its original form,the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

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

Which of the following would correspond to movement downward along a short-run Phillips curve?

An economy that self-corrects a contractionary gap will experience falling nominal wages,rising real wages and falling 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

Filters

The inflation associated with the oil embargoes of the 1970s illustrated the of the downward-sloping Phillips curve in the long run,as unemployment .

According to the approach, policy may __ the instability of the economy.

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