Question 1

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:​

Accepted Answer

A) a short-run fall in output and employment. 
B) little or no increase in GDP. 
C) an increase in wages along with a dramatic fall in the price level. 
D) a rapidly expanding economy. 
E) a severe recession. 
A) a short-run fall in output and employment. 
B) little or no increase in GDP. 
C) an increase in wages along with a dramatic fall in the price level. 
D) a rapidly expanding economy. 
E) a severe recession.

Question 2

In general,the Fed has not embraced a fixed-growth-rate monetary policy because:​

Accepted Answer

A) its adoption would lead to a decrease in the employment rate in the U.S.economy . 
B) no influential economists have come out in favor of it. 
C) the Fed has to report to Congress,and Congress is not in favor of it. 
D) the Fed prefers active fiscal policy. 
E) they believe the economy is too complex to make such a policy work consistently. 
A) its adoption would lead to a decrease in the employment rate in the U.S.economy . 
B) no influential economists have come out in favor of it. 
C) the Fed has to report to Congress,and Congress is not in favor of it. 
D) the Fed prefers active fiscal policy. 
E) they believe the economy is too complex to make such a policy work consistently.

Question 3

Adaptive expectations is a school of thought that argues people form expectations based on all available information,including the likely future actions of government policy makers.​

Accepted Answer

A) True 
 B)False

Question 4

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:​

Accepted Answer

A) short-run aggregate supply curve before active policy shifts the aggregate demand curve. 
B) short-run aggregate supply curve only after active policy shifts the aggregate demand curve. 
C) short-run aggregate supply curve more than active policy shifts the aggregate demand curve. 
D) short-run aggregate supply curve less than active policy shifts the aggregate demand curve. 
E) short-run aggregate supply curve in a direction opposite the shift in the aggregate demand curve 
A) short-run aggregate supply curve before active policy shifts the aggregate demand curve. 
B) short-run aggregate supply curve only after active policy shifts the aggregate demand curve. 
C) short-run aggregate supply curve more than active policy shifts the aggregate demand curve. 
D) short-run aggregate supply curve less than active policy shifts the aggregate demand curve. 
E) short-run aggregate supply curve in a direction opposite the shift in the aggregate demand curve

Question 5

According to the rational expectations approach ,if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output,then people will not be able to anticipate the effects of this policy on the price level,unemployment,and the real output level.​

Accepted Answer

A) True 
 B)False

Question 6

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.​

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The main policy conclusion of the rational expectations school is that:​

Accepted Answer

A) fiscal policy lags are so long and variable that such policy is worthless,but monetary policy can be helpful. 
B) monetary policy lags are so long and variable that such policy is worthless,but fiscal policy can be helpful. 
C) both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households. 
D) both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers. 
E) neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers. 
A) fiscal policy lags are so long and variable that such policy is worthless,but monetary policy can be helpful. 
B) monetary policy lags are so long and variable that such policy is worthless,but fiscal policy can be helpful. 
C) both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households. 
D) both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers. 
E) neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers.

Question 9

Suppose 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 10

Along the long-run Phillips curve,the economy is at an unemployment level that corresponds to an output level lower than the potential output level.​

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is likely to dampen economic fluctuations in a country?​

Accepted Answer

A) A regressive income tax 
B) An increase in tax rates 
C) A decrease in tax rates 
D) An increase in money supply 
E) Unemployment insurance 
A) A regressive income tax 
B) An increase in tax rates 
C) A decrease in tax rates 
D) An increase in money supply 
E) Unemployment insurance

Question 12

An economy experiencing an expansionary gap:​

Accepted Answer

A) operates in an environment in which labor shortages drive up money wages,real wages,and prices. 
B) has an excess supply of labor due to rising money wages and prices. 
C) will self-correct as rising money wages decrease faster than rising prices. 
D) will experience rising money wages and prices but falling real wages. 
E) will have excessive involuntary unemployment. 
A) operates in an environment in which labor shortages drive up money wages,real wages,and prices. 
B) has an excess supply of labor due to rising money wages and prices. 
C) will self-correct as rising money wages decrease faster than rising prices. 
D) will experience rising money wages and prices but falling real wages. 
E) will have excessive involuntary unemployment.

Question 13

Which of the following would correspond to a 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 money supply curve shifts rightward for a given money demand curve. 
E) Both the money demand and the money 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 money supply curve shifts rightward for a given money demand curve. 
E) Both the money demand and the money supply curves shift leftward.

Question 14

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is:​ ​
Figure 16.3
​

Accepted Answer

A) 2 percent. 
B) 1 percent. 
C) 4 percent. 
D) 8 percent. 
E) 10 percent. 
A) 2 percent. 
B) 1 percent. 
C) 4 percent. 
D) 8 percent. 
E) 10 percent.

Question 15

After the 1960s,the short-run Phillips curve based on U.S.economic data:​

Accepted Answer

A) began shifting inward. 
B) began shifting outward. 
C) did not shift at all. 
D) became virtually horizontal. 
E) became virtually vertical. 
A) began shifting inward. 
B) began shifting outward. 
C) did not shift at all. 
D) became virtually horizontal. 
E) became virtually vertical.

Question 16

_____,the time-inconsistency problem gets eliminated.​

Accepted Answer

A) When an inflation or a recession is correctly anticipated 
B) When lags associated with monetary and fiscal policy are extremely short 
C) When discretionary macro policy is replaced with fixed policy rules which are well publicized 
D) When expectations about the economy adjust very slowly 
E) When the price level in an economy adjusts over time with changes in aggregate demand 
A) When an inflation or a recession is correctly anticipated 
B) When lags associated with monetary and fiscal policy are extremely short 
C) When discretionary macro policy is replaced with fixed policy rules which are well publicized 
D) When expectations about the economy adjust very slowly 
E) When the price level in an economy adjusts over time with changes in aggregate demand

Question 17

Which of the following is not consistent with a self-correcting economy?​

Accepted Answer

A) Falling wages that correct a recessionary gap 
B) Falling prices that correct a recessionary gap 
C) Rising prices that correct an expansionary gap 
D) Tendency of the short-run aggregate supply to shift until it intersects aggregate demand at potential GDP 
E) An active approach to a recession or depression 
A) Falling wages that correct a recessionary gap 
B) Falling prices that correct a recessionary gap 
C) Rising prices that correct an expansionary gap 
D) Tendency of the short-run aggregate supply to shift until it intersects aggregate demand at potential GDP 
E) An active approach to a recession or depression

Question 18

If an active approach is followed in closing an expansionary gap,_____.​

Accepted Answer

A) the aggregate demand curve would shift rightward 
B) the aggregate demand curve would shift leftward 
C) the short-run aggregate supply curve would shift rightward 
D) the short-run aggregate supply curve would shift leftward 
E) there would be a movement up and to the left along the short-run supply curve 
A) the aggregate demand curve would shift rightward 
B) the aggregate demand curve would shift leftward 
C) the short-run aggregate supply curve would shift rightward 
D) the short-run aggregate supply curve would shift leftward 
E) there would be a movement up and to the left along the short-run supply curve

Question 19

According to the passive approach,discretionary fiscal or monetary policy can reduce the costs of an unstable economy.​

Accepted Answer

A) True 
 B)False

Question 20

Which of the following central banks does not have an explicit inflation target?​

Accepted Answer

A) The Bank of England 
B) The Federal Reserve 
C) Swiss National Bank 
D) European Central Bank 
E) The Reserve Bank of India 
A) The Bank of England 
B) The Federal Reserve 
C) Swiss National Bank 
D) European Central Bank 
E) The Reserve Bank of India

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:

In general,the Fed has not embraced a fixed-growth-rate monetary policy because:

Adaptive expectations is a school of thought that argues people form expectations based on all available information,including the likely future actions of government policy makers.

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:

According to the rational expectations approach ,if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output,then people will not be able to anticipate the effects of this policy on the price level,unemployment,and the real output level.

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

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

The main policy conclusion of the rational expectations school is that:

Suppose 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 _____.

Along the long-run Phillips curve,the economy is at an unemployment level that corresponds to an output level lower than the potential output level.

Which of the following is likely to dampen economic fluctuations in a country?

An economy experiencing an expansionary gap:

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

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is: Figure 16.3

After the 1960s,the short-run Phillips curve based on U.S.economic data:

_____,the time-inconsistency problem gets eliminated.

Which of the following is not consistent with a self-correcting economy?

If an active approach is followed in closing an expansionary gap,_____.

According to the passive approach,discretionary fiscal or monetary policy can reduce the costs of an unstable economy.

Which of the following central banks does not have an explicit inflation target?

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

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:​

In general,the Fed has not embraced a fixed-growth-rate monetary policy because:​

Adaptive expectations is a school of thought that argues people form expectations based on all available information,including the likely future actions of government policy makers.​

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:​

According to the rational expectations approach ,if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output,then people will not be able to anticipate the effects of this policy on the price level,unemployment,and the real output level.​

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.​

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

The main policy conclusion of the rational expectations school is that:​

Suppose 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 _____.​

Along the long-run Phillips curve,the economy is at an unemployment level that corresponds to an output level lower than the potential output level.​

Which of the following is likely to dampen economic fluctuations in a country?​

An economy experiencing an expansionary gap:​

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

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is:​ ​ Figure 16.3 ​

After the 1960s,the short-run Phillips curve based on U.S.economic data:​

_____,the time-inconsistency problem gets eliminated.​

Which of the following is not consistent with a self-correcting economy?​

If an active approach is followed in closing an expansionary gap,_____.​

According to the passive approach,discretionary fiscal or monetary policy can reduce the costs of an unstable economy.​

Which of the following central banks does not have an explicit inflation target?​

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

If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:

In general,the Fed has not embraced a fixed-growth-rate monetary policy because:

Adaptive expectations is a school of thought that argues people form expectations based on all available information,including the likely future actions of government policy makers.

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the:

According to the rational expectations approach ,if policy makers consistently stimulate aggregate demand when real output falls below the economy's potential output,then people will not be able to anticipate the effects of this policy on the price level,unemployment,and the real output level.

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

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

The main policy conclusion of the rational expectations school is that:

Suppose 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 _____.

Along the long-run Phillips curve,the economy is at an unemployment level that corresponds to an output level lower than the potential output level.

Which of the following is likely to dampen economic fluctuations in a country?

An economy experiencing an expansionary gap:

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

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.The figure shows that the natural rate of unemployment is: Figure 16.3

After the 1960s,the short-run Phillips curve based on U.S.economic data:

_____,the time-inconsistency problem gets eliminated.

Which of the following is not consistent with a self-correcting economy?

If an active approach is followed in closing an expansionary gap,_____.

According to the passive approach,discretionary fiscal or monetary policy can reduce the costs of an unstable economy.

Which of the following central banks does not have an explicit inflation target?