Question 1

Economists of the rational expectations school:​

Accepted Answer

A) have no confidence in the ability of workers and firms to observe and react to economic events. 
B) believe workers and firms behave the same regardless of what the Fed does. 
C) have great faith in the ability of monetary policy makers to maintain a full employment economy with stable prices. 
D) believe that effective monetary policy can shift the potential level of output to the right. 
E) believe workers and firms make decisions based on what they think monetary policy will be in the future. 
A) have no confidence in the ability of workers and firms to observe and react to economic events. 
B) believe workers and firms behave the same regardless of what the Fed does. 
C) have great faith in the ability of monetary policy makers to maintain a full employment economy with stable prices. 
D) believe that effective monetary policy can shift the potential level of output to the right. 
E) believe workers and firms make decisions based on what they think monetary policy will be in the future.

Question 2

If the short-run equilibrium output of the United States exceeds the potential output,the Fed:​

Accepted Answer

A) employs an active monetary policy to close a recessionary gap. 
B) employs an active monetary policy to close an expansionary gap. 
C) relies on a passive approach to close a recessionary gap. 
D) relies on a passive approach to close an expansionary gap. 
E) employs an expansionary fiscal policy. 
A) employs an active monetary policy to close a recessionary gap. 
B) employs an active monetary policy to close an expansionary gap. 
C) relies on a passive approach to close a recessionary gap. 
D) relies on a passive approach to close an expansionary gap. 
E) employs an expansionary fiscal policy.

Question 3

As long as wage increases do not exceed labor productivity growth rates,a stable price level should be the result.​

Accepted Answer

A) True 
 B)False

Question 4

Discretionary policy advocates believe:​

Accepted Answer

A) that there is a high cost associated with the use of a discretionary policy. 
B) that self-corrective forces in an economy work slowly. 
C) that natural adjustments of wages and prices can help attain potential output. 
D) in rational expectations. 
E) that an active stabilization policy imposes troubling fluctuations in the price level and real GDP. 
A) that there is a high cost associated with the use of a discretionary policy. 
B) that self-corrective forces in an economy work slowly. 
C) that natural adjustments of wages and prices can help attain potential output. 
D) in rational expectations. 
E) that an active stabilization policy imposes troubling fluctuations in the price level and real GDP.

Question 5

An economy that self-corrects an expansionary gap will experience stagflation.​

Accepted Answer

A) True 
 B)False

Question 6

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.​

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) cold turkey 
B) red tape 
C) a pork-barrel policy 
D) chokehold 
E) time-inconsistency 
A) cold turkey 
B) red tape 
C) a pork-barrel policy 
D) chokehold 
E) time-inconsistency

Question 8

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 9

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?​

Accepted Answer

A) The recognition lag and the implementation lag 
B) The effectiveness lag and the decision-making lag 
C) The decision-making lag and the implementation lag 
D) The implementation lag and the effectiveness lag 
E) The recognition lag and the effectiveness lag 
A) The recognition lag and the implementation lag 
B) The effectiveness lag and the decision-making lag 
C) The decision-making lag and the implementation lag 
D) The implementation lag and the effectiveness lag 
E) The recognition lag and the effectiveness lag

Question 10

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,once the expansionary gap is eliminated,the economy will end up at:​ ​
Figure 16.2
​

Accepted Answer

A) point A. 
B) point B. 
C) point C. 
D) a point to the right of point A. 
E) a point below C. 
A) point A. 
B) point B. 
C) point C. 
D) a point to the right of point A. 
E) a point below C.

Question 11

If the actual inflation rate exceeds the expected inflation rate,then:​

Accepted Answer

A) the economy is operating along the long-run Phillips curve. 
B) unemployment exceeds the natural rate. 
C) maintaining the existing unemployment rate will require increasing inflation in the long run. 
D) the actual rate will tend to fall toward the expected rate. 
E) unemployment will tend to decrease in the long run. 
A) the economy is operating along the long-run Phillips curve. 
B) unemployment exceeds the natural rate. 
C) maintaining the existing unemployment rate will require increasing inflation in the long run. 
D) the actual rate will tend to fall toward the expected rate. 
E) unemployment will tend to decrease in the long run.

Question 12

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:​

Accepted Answer

A) a policy to manipulate the aggregate supply is being used. 
B) an active approach to correcting a recessionary gap is being used. 
C) an active approach to correcting an expansionary gap is being used. 
D) a passive approach to correcting a recessionary gap is being used. 
E) a passive approach to correcting an expansionary gap is being used. 
A) a policy to manipulate the aggregate supply is being used. 
B) an active approach to correcting a recessionary gap is being used. 
C) an active approach to correcting an expansionary gap is being used. 
D) a passive approach to correcting a recessionary gap is being used. 
E) a passive approach to correcting an expansionary gap is being used.

Question 13

Before discovering that the short-run Phillips curve does not show the true long-run situation,policy makers were successful in trying to bring the economy to the zero-inflation,zero-unemployment point on the short-run curve.​

Accepted Answer

A) True 
 B)False

Question 14

According to the active policy approach,the elimination of a recessionary policy _____.​

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 15

Which of the following is true about rational expectations?​

Accepted Answer

A) People form expectations on the basis of information about past as well as future actions of policy makers. 
B) Wage agreements do not reflect inflationary expectations if workers expect continued inflation. 
C) Rational people cannot easily anticipate the effects of discretionary policy on the price level and output. 
D) The role of expectations is applicable in the context of monetary policy only. 
E) The effectiveness of a particular government policy is independent of people's expectations. 
A) People form expectations on the basis of information about past as well as future actions of policy makers. 
B) Wage agreements do not reflect inflationary expectations if workers expect continued inflation. 
C) Rational people cannot easily anticipate the effects of discretionary policy on the price level and output. 
D) The role of expectations is applicable in the context of monetary policy only. 
E) The effectiveness of a particular government policy is independent of people's expectations.

Question 16

Suppose we observe several years of falling inflation rates for an economy.Which of the following would best explain this phenomenon?​

Accepted Answer

A) Unemployment is probably at the natural rate. 
B) The unemployment rate must be rising. 
C) The unemployment rate must be below the natural rate. 
D) The unemployment rate is probably above the natural rate. 
E) Aggregate output must be increasing. 
A) Unemployment is probably at the natural rate. 
B) The unemployment rate must be rising. 
C) The unemployment rate must be below the natural rate. 
D) The unemployment rate is probably above the natural rate. 
E) Aggregate output must be increasing.

Question 17

Which of the following is consistent with an active approach to policy?​

Accepted Answer

A) The natural rate of unemployment being uncertain 
B) Wages and prices being relatively quick to adjust 
C) The short-run aggregate supply curve being slow to shift in the presence of a recessionary gap 
D) The size of the multiplier being irrelevant 
E) The aggregate demand curve being slow to shift in the presence of a recessionary gap 
A) The natural rate of unemployment being uncertain 
B) Wages and prices being relatively quick to adjust 
C) The short-run aggregate supply curve being slow to shift in the presence of a recessionary gap 
D) The size of the multiplier being irrelevant 
E) The aggregate demand curve being slow to shift in the presence of a recessionary gap

Question 18

Those who favor an active approach to policy believe that:​

Accepted Answer

A) discretionary monetary policy cannot be used to help the economy since monetary policy lags are long. 
B) discretionary fiscal policy cannot be used to help the economy since fiscal policy lags are long. 
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) the discretionary fiscal policy cannot be used to help the economy since it leads to inflation. 
A) discretionary monetary policy cannot be used to help the economy since monetary policy lags are long. 
B) discretionary fiscal policy cannot be used to help the economy since fiscal policy lags are long. 
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) the discretionary fiscal policy cannot be used to help the economy since it leads to inflation.

Question 19

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,the economy can attain equilibrium at potential output if:​ ​
Figure 16.2
​

Accepted Answer

A) the SRAS curve shifts to the left. 
B) the SRAS curve shifts to the right. 
C) money supply is increased. 
D) government spending is decreased. 
E) aggregate demand increases. 
A) the SRAS curve shifts to the left. 
B) the SRAS curve shifts to the right. 
C) money supply is increased. 
D) government spending is decreased. 
E) aggregate demand increases.

Question 20

According to the 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

Economists of the rational expectations school:

If the short-run equilibrium output of the United States exceeds the potential output,the Fed:

As long as wage increases do not exceed labor productivity growth rates,a stable price level should be the result.

Discretionary policy advocates believe:

An economy that self-corrects an expansionary gap will experience stagflation.

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

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

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

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

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,once the expansionary gap is eliminated,the economy will end up at: Figure 16.2

If the actual inflation rate exceeds the expected inflation rate,then:

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:

Before discovering that the short-run Phillips curve does not show the true long-run situation,policy makers were successful in trying to bring the economy to the zero-inflation,zero-unemployment point on the short-run curve.

According to the active policy approach,the elimination of a recessionary policy _____.

Which of the following is true about rational expectations?

Suppose we observe several years of falling inflation rates for an economy.Which of the following would best explain this phenomenon?

Which of the following is consistent with an active approach to policy?

Those who favor an active approach to policy believe that:

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,the economy can attain equilibrium at potential output if: Figure 16.2

According to the rational expectations theory,people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

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

Economists of the rational expectations school:​

If the short-run equilibrium output of the United States exceeds the potential output,the Fed:​

As long as wage increases do not exceed labor productivity growth rates,a stable price level should be the result.​

Discretionary policy advocates believe:​

An economy that self-corrects an expansionary gap will experience stagflation.​

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.​

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

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

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?​

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,once the expansionary gap is eliminated,the economy will end up at:​ ​ Figure 16.2 ​

If the actual inflation rate exceeds the expected inflation rate,then:​

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:​

Before discovering that the short-run Phillips curve does not show the true long-run situation,policy makers were successful in trying to bring the economy to the zero-inflation,zero-unemployment point on the short-run curve.​

According to the active policy approach,the elimination of a recessionary policy _____.​

Which of the following is true about rational expectations?​

Suppose we observe several years of falling inflation rates for an economy.Which of the following would best explain this phenomenon?​

Which of the following is consistent with an active approach to policy?​

Those who favor an active approach to policy believe that:​

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,the economy can attain equilibrium at potential output if:​ ​ Figure 16.2 ​

According to the rational expectations theory,people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.​

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

Economists of the rational expectations school:

If the short-run equilibrium output of the United States exceeds the potential output,the Fed:

As long as wage increases do not exceed labor productivity growth rates,a stable price level should be the result.

Discretionary policy advocates believe:

An economy that self-corrects an expansionary gap will experience stagflation.

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

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

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

Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?

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,once the expansionary gap is eliminated,the economy will end up at: Figure 16.2

If the actual inflation rate exceeds the expected inflation rate,then:

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:

Before discovering that the short-run Phillips curve does not show the true long-run situation,policy makers were successful in trying to bring the economy to the zero-inflation,zero-unemployment point on the short-run curve.

According to the active policy approach,the elimination of a recessionary policy _____.

Which of the following is true about rational expectations?

Suppose we observe several years of falling inflation rates for an economy.Which of the following would best explain this phenomenon?

Which of the following is consistent with an active approach to policy?

Those who favor an active approach to policy believe that:

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,the economy can attain equilibrium at potential output if: Figure 16.2

According to the rational expectations theory,people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.