Question 1

During inflation,the optimal discretionary fiscal policy would be _____.​

Accepted Answer

A) to decrease taxes 
B) to increase government spending 
C) to decrease the reserve ratio 
D) to increase taxes 
E) to decrease the market interest rate 
A) to decrease taxes 
B) to increase government spending 
C) to decrease the reserve ratio 
D) to increase taxes 
E) to decrease the market interest rate D

Question 2

Some economists believe that in the long run,the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.​

Accepted Answer

A) True 
 B)False  True

Question 3

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 D

Question 4

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when:​ ​
Figure 16-2
​

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 is increased. 
D) the money supply is decreased. 
E) aggregate demand will decrease. 
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 is increased. 
D) the money supply is decreased. 
E) aggregate demand will decrease.

Question 5

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

Accepted Answer

A) The 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) The 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 6

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.​

Accepted Answer

A) True 
 B)False

Question 7

The short-run Phillips curve shows that as 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 8

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?​

Accepted Answer

A) Cutting taxes 
B) Increasing government spending 
C) Reducing interest rates 
D) Increasing the money supply 
E) Doing nothing 
A) Cutting taxes 
B) Increasing government spending 
C) Reducing interest rates 
D) Increasing the money supply 
E) Doing nothing

Question 9

Current thinking on the Phillips curve suggests that it would be best for policy makers to:​

Accepted Answer

A) focus on controlling unemployment. 
B) stimulate permanent shifts in aggregate supply. 
C) focus on controlling inflation. 
D) stimulate permanent shifts in aggregate demand. 
E) develop a two-pronged policy to control both unemployment and inflation. 
A) focus on controlling unemployment. 
B) stimulate permanent shifts in aggregate supply. 
C) focus on controlling inflation. 
D) stimulate permanent shifts in aggregate demand. 
E) develop a two-pronged policy to control both unemployment and inflation.

Question 10

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.​

Accepted Answer

A) True 
 B)False

Question 11

The 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 observe public reaction after a policy announcement is made 
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 observe public reaction after a policy announcement is made

Question 12

The _____ lag is typically longer for fiscal policy than monetary policy.​

Accepted Answer

A) supply 
B) cyclical 
C) effectiveness 
D) implementation 
E) recognition 
A) supply 
B) cyclical 
C) effectiveness 
D) implementation 
E) recognition

Question 13

The reason why self-correction works to close a recessionary gap is because:​

Accepted Answer

A) a labor shortage causes wages to increase. 
B) a labor surplus causes wages to increase. 
C) a labor shortage causes wages to fall. 
D) a labor surplus causes wages to fall. 
E) a labor surplus causes price to fall. 
A) a labor shortage causes wages to increase. 
B) a labor surplus causes wages to increase. 
C) a labor shortage causes wages to fall. 
D) a labor surplus causes wages to fall. 
E) a labor surplus causes price to fall.

Question 14

Which of the following statements supports the passive approach to close a recessionary gap?​

Accepted Answer

A) It is likely that policies will be subject to time lags. 
B) Prolonged unemployment may cause the economy's potential real GDP to fall. 
C) Workers' skills may grow rusty during a prolonged recession. 
D) It is likely that unemployed workers will drop out of the labor force. 
E) Firms may neglect their capital stock during a prolonged recession. 
A) It is likely that policies will be subject to time lags. 
B) Prolonged unemployment may cause the economy's potential real GDP to fall. 
C) Workers' skills may grow rusty during a prolonged recession. 
D) It is likely that unemployed workers will drop out of the labor force. 
E) Firms may neglect their capital stock during a prolonged recession.

Question 15

Which of the following is an outcome of prolonged unemployment?​

Accepted Answer

A) An improvement in labor skills 
B) An increase in the inflation rate 
C) A rise in potential GDP 
D) A fall in potential GDP 
E) An increase in the size of the labor force 
A) An improvement in labor skills 
B) An increase in the inflation rate 
C) A rise in potential GDP 
D) A fall in potential GDP 
E) An increase in the size of the labor force

Question 16

Those who favor a passive approach to policy believe that:​

Accepted Answer

A) discretionary monetary policy can be used to help the economy since monetary policy lags are short. 
B) discretionary fiscal policy can be used to help the economy since fiscal policy lags are short. 
C) lags associated with implementing policies are too long and unstable for discretionary policy to be effective. 
D) despite the lags involved,implementing discretionary policy is preferable to inaction. 
E) automatic stabilizers cannot be used to help the economy since monetary policy lags are short. 
A) discretionary monetary policy can be used to help the economy since monetary policy lags are short. 
B) discretionary fiscal policy can be used to help the economy since fiscal policy lags are short. 
C) lags associated with implementing policies are too long and unstable for discretionary policy to be effective. 
D) despite the lags involved,implementing discretionary policy is preferable to inaction. 
E) automatic stabilizers cannot be used to help the economy since monetary policy lags are short.

Question 17

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.​

Accepted Answer

A) True 
 B)False

Question 18

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:​

Accepted Answer

A) increase prices and real output. 
B) increase real output only in the short run. 
C) have no effect on prices or real output. 
D) decrease prices and real output. 
E) lead only to a higher price level. 
A) increase prices and real output. 
B) increase real output only in the short run. 
C) have no effect on prices or real output. 
D) decrease prices and real output. 
E) lead only to a higher price level.

Question 19

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.​

Accepted Answer

A) True 
 B)False

Question 20

Opponents of inflation targets believe that:​

Accepted Answer

A) such targets will encourage workers to shirk work. 
B) such targets will lead to unsustainable economic growth. 
C) such targets will lead the Fed to pay less attention to jobs and economic growth. 
D) such targets will cause international competitiveness to be lost and the value of savings to be reduced. 
E) such targets would prevent investors from investing in profitable ventures. 
A) such targets will encourage workers to shirk work. 
B) such targets will lead to unsustainable economic growth. 
C) such targets will lead the Fed to pay less attention to jobs and economic growth. 
D) such targets will cause international competitiveness to be lost and the value of savings to be reduced. 
E) such targets would prevent investors from investing in profitable ventures.

During inflation,the optimal discretionary fiscal policy would be _____.

Some economists believe that in the long run,the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.

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

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when: Figure 16-2

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

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

The short-run Phillips curve shows that as the unemployment rate goes down,_____.

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Current thinking on the Phillips curve suggests that it would be best for policy makers to:

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

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

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

The reason why self-correction works to close a recessionary gap is because:

Which of the following statements supports the passive approach to close a recessionary gap?

Which of the following is an outcome of prolonged unemployment?

Those who favor a passive approach to policy believe that:

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.

Opponents of inflation targets believe that:

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

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

Economic Development

Filters

Exam 16: Macro Policy Debate: Active or Passive

During inflation,the optimal discretionary fiscal policy would be _____.​

Some economists believe that in the long run,the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.​

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

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when:​ ​ Figure 16-2 ​

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

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.​

The short-run Phillips curve shows that as the unemployment rate goes down,_____.​

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?​

Current thinking on the Phillips curve suggests that it would be best for policy makers to:​

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.​

The time required _____ is not a time lag associated with using discretionary policy to correct an economic problem.​

The _____ lag is typically longer for fiscal policy than monetary policy.​

The reason why self-correction works to close a recessionary gap is because:​

Which of the following statements supports the passive approach to close a recessionary gap?​

Which of the following is an outcome of prolonged unemployment?​

Those who favor a passive approach to policy believe that:​

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.​

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:​

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.​

Opponents of inflation targets believe that:​

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

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

Economic Development

Filters

During inflation,the optimal discretionary fiscal policy would be _____.

Some economists believe that in the long run,the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.

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

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,the economy will attain equilibrium at potential output when: Figure 16-2

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

Those who prefer a passive approach to the conduct of macroeconomic policy tend to believe that markets are self-correcting.

The short-run Phillips curve shows that as the unemployment rate goes down,_____.

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Current thinking on the Phillips curve suggests that it would be best for policy makers to:

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

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

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

The reason why self-correction works to close a recessionary gap is because:

Which of the following statements supports the passive approach to close a recessionary gap?

Which of the following is an outcome of prolonged unemployment?

Those who favor a passive approach to policy believe that:

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.

According to the rational expectations school,a correctly anticipated expansionary monetary policy will:

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.

Opponents of inflation targets believe that: