Question 1

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 2

If the price level increases by more than expected,output can be expected to decrease as a result.​

Accepted Answer

A) True 
 B)False

Question 3

Economist Alban William Phillips believed that:​

Accepted Answer

A) the Fed should follow a policy rule because it does not know the lag structure. 
B) the Fed should follow a policy rule to avoid monetary surprises. 
C) there is an inverse relationship between inflation and unemployment. 
D) private sector spending is inherently unstable. 
E) government spending is inherently unstable. 
A) the Fed should follow a policy rule because it does not know the lag structure. 
B) the Fed should follow a policy rule to avoid monetary surprises. 
C) there is an inverse relationship between inflation and unemployment. 
D) private sector spending is inherently unstable. 
E) government spending is inherently unstable.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.​

Accepted Answer

A) True 
 B)False

Question 6

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 7

A policy to increase aggregate demand to cure a recessionary gap may succeed; however,inflation is a likely result.​

Accepted Answer

A) True 
 B)False

Question 8

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy is initially at point c and aggregate demand increases,the economy will in the long run:​ ​
Figure 16.4
​

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 9

The theorists of the rational expectations school:​

Accepted Answer

A) favor monetary rules because they believe individuals know too little about how the economy works. 
B) favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed. 
C) are those who favor an "active approach" to policy and reject monetary rules. 
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy. 
E) do not believe in implementing discretionary policies. 
A) favor monetary rules because they believe individuals know too little about how the economy works. 
B) favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed. 
C) are those who favor an "active approach" to policy and reject monetary rules. 
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy. 
E) do not believe in implementing discretionary policies.

Question 10

The figure below reflects the inverse relationship between real GDP and the price level.If the economy is initially at point c and aggregate demand is stable,in the long run,the economy will:​ ​
Figure 16.4
​

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 11

The rational expectations school advocates the passive rule of a fixed-growth rate monetary policy because:​

Accepted Answer

A) policy makers often do not have enough information to pursue an active policy. 
B) active intervention is required only if an economy is in recession. 
C) a large bureaucracy can be eliminated by following the passive approach. 
D) people render active policy ineffective by figuring out what it's going to be and taking actions to offset it. 
E) they prefer to emphasize on an active fiscal policy. 
A) policy makers often do not have enough information to pursue an active policy. 
B) active intervention is required only if an economy is in recession. 
C) a large bureaucracy can be eliminated by following the passive approach. 
D) people render active policy ineffective by figuring out what it's going to be and taking actions to offset it. 
E) they prefer to emphasize on an active fiscal policy.

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:​

Accepted Answer

A) the policy is anticipated by workers and firms. 
B) it causes the aggregate supply curve to shift to the left. 
C) the economy is operating at or above its potential output level. 
D) policy makers follow through on their previously announced plans. 
E) the policy is totally unexpected. 
A) the policy is anticipated by workers and firms. 
B) it causes the aggregate supply curve to shift to the left. 
C) the economy is operating at or above its potential output level. 
D) policy makers follow through on their previously announced plans. 
E) the policy is totally unexpected.

Question 15

According to the rational expectations school,when the economy is operating at the potential output level,a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.​

Accepted Answer

A) True 
 B)False

Question 16

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at:​ ​
Figure 16.2
​

Accepted Answer

A) point A. 
B) point B. 
C) point C. 
D) a point above point A on the SRAS curve. 
E) at a point below point C on the SRAS curve. 
A) point A. 
B) point B. 
C) point C. 
D) a point above point A on the SRAS curve. 
E) at a point below point C on the SRAS curve.

Question 17

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.​

Accepted Answer

A) the economy was experiencing an expansionary gap 
B) there is a labor surplus 
C) the economy was experiencing a recessionary gap 
D) self-correction is not the process that is occurring 
E) there are widespread labor shortages 
A) the economy was experiencing an expansionary gap 
B) there is a labor surplus 
C) the economy was experiencing a recessionary gap 
D) self-correction is not the process that is occurring 
E) there are widespread labor shortages

Question 18

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

Question 19

Suppose a recession surprises economic forecasters who did not see it coming.This is an example of a _____.​

Accepted Answer

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

Question 20

The government of Montesia had announced that it would keep its money supply unchanged in 2010.However,in 2011,the money supply increased,thereby ruining public expectations.This led to:​

Accepted Answer

A) no problem; this is normal behavior. 
B) policy credibility. 
C) a time-inconsistency problem. 
D) the development of rational expectations. 
E) an anticipation about the monetary policy. 
A) no problem; this is normal behavior. 
B) policy credibility. 
C) a time-inconsistency problem. 
D) the development of rational expectations. 
E) an anticipation about the monetary policy.

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

If the price level increases by more than expected,output can be expected to decrease as a result.

Economist Alban William Phillips believed that:

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

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

The short-run Phillips curve portrays a(n):

A policy to increase aggregate demand to cure a recessionary gap may succeed; however,inflation is a likely result.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy is initially at point c and aggregate demand increases,the economy will in the long run: Figure 16.4

The theorists of the rational expectations school:

The figure below reflects the inverse relationship between real GDP and the price level.If the economy is initially at point c and aggregate demand is stable,in the long run,the economy will: Figure 16.4

The rational expectations school advocates the passive rule of a fixed-growth rate monetary policy because:

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.

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

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:

According to the rational expectations school,when the economy is operating at the potential output level,a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at: Figure 16.2

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.

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

Suppose a recession surprises economic forecasters who did not see it coming.This is an example of a _____.

The government of Montesia had announced that it would keep its money supply unchanged in 2010.However,in 2011,the money supply increased,thereby ruining public expectations.This led to:

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

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

If the price level increases by more than expected,output can be expected to decrease as a result.​

Economist Alban William Phillips believed that:​

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

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.​

The short-run Phillips curve portrays a(n):​

A policy to increase aggregate demand to cure a recessionary gap may succeed; however,inflation is a likely result.​

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy is initially at point c and aggregate demand increases,the economy will in the long run:​ ​ Figure 16.4 ​

The theorists of the rational expectations school:​

The figure below reflects the inverse relationship between real GDP and the price level.If the economy is initially at point c and aggregate demand is stable,in the long run,the economy will:​ ​ Figure 16.4 ​

The rational expectations school advocates the passive rule of a fixed-growth rate monetary policy because:​

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.​

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

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:​

According to the rational expectations school,when the economy is operating at the potential output level,a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.​

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at:​ ​ Figure 16.2 ​

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.​

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

Suppose a recession surprises economic forecasters who did not see it coming.This is an example of a _____.​

The government of Montesia had announced that it would keep its money supply unchanged in 2010.However,in 2011,the money supply increased,thereby ruining public expectations.This led to:​

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

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

If the price level increases by more than expected,output can be expected to decrease as a result.

Economist Alban William Phillips believed that:

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

Passive macroeconomic policy would rely on natural market forces and automatic stabilizers to close an expansionary gap.

The short-run Phillips curve portrays a(n):

A policy to increase aggregate demand to cure a recessionary gap may succeed; however,inflation is a likely result.

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy is initially at point c and aggregate demand increases,the economy will in the long run: Figure 16.4

The theorists of the rational expectations school:

The figure below reflects the inverse relationship between real GDP and the price level.If the economy is initially at point c and aggregate demand is stable,in the long run,the economy will: Figure 16.4

The rational expectations school advocates the passive rule of a fixed-growth rate monetary policy because:

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.

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

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:

According to the rational expectations school,when the economy is operating at the potential output level,a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,once the expansionary gap is eliminated,the economy can attain equilibrium at: Figure 16.2

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.

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

Suppose a recession surprises economic forecasters who did not see it coming.This is an example of a _____.

The government of Montesia had announced that it would keep its money supply unchanged in 2010.However,in 2011,the money supply increased,thereby ruining public expectations.This led to: