Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

An important implication of the natural rate hypothesis is that regardless of concerns about __________, the government policy that results in __________ is generally the optimal long-run policy.

Accepted Answer

A) unemployment; low inflation 
B) inflation; low unemployment 
C) unemployment; low interest rates 
D) inflation; low interest rates 
E) inflation; a stable foreign exchange rate 
A) unemployment; low inflation 
B) inflation; low unemployment 
C) unemployment; low interest rates 
D) inflation; low interest rates 
E) inflation; a stable foreign exchange rate A

Question 3

Exhibit 17-1
 
-According to those who favor an active approach to policy, how can the economy shown in Exhibit 17-1 attain equilibrium at potential output?

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 should be increased. 
D) Either the money supply or government spending should be decreased. 
E) Aggregate demand should be decreased. 
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 should be increased. 
D) Either the money supply or government spending should be decreased. 
E) Aggregate demand should be decreased. C

Question 4

In total, the lags associated with discretionary policy can extend from the time a

Accepted Answer

A) problem occurs in the economy through the time it is recognized by the government 
B) problem is recognized by the government through the time an agreed-on policy is approved 
C) policy is approved through the time the policy is implemented 
D) policy is implemented through the time its impact is felt in the economy 
E) problem occurs in the economy through the time a corrective policy has an impact on the economy 
A) problem occurs in the economy through the time it is recognized by the government 
B) problem is recognized by the government through the time an agreed-on policy is approved 
C) policy is approved through the time the policy is implemented 
D) policy is implemented through the time its impact is felt in the economy 
E) problem occurs in the economy through the time a corrective policy has an impact on the economy

Question 5

The natural rate hypothesis claims that policy makers can have considerable success in reducing unemployment through monetary and fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

The long-run Phillips curve

Accepted Answer

A) represents the fact that inflation is consistent with many unemployment rates 
B) represents the fact that inflation will not influence unemployment in the long run 
C) has a negative slope because the short-run Phillips curve shifts up and to the left 
D) shows that expected inflation can never equal actual inflation 
E) shows that unemployment is a short run, but not a long run, phenomenon 
A) represents the fact that inflation is consistent with many unemployment rates 
B) represents the fact that inflation will not influence unemployment in the long run 
C) has a negative slope because the short-run Phillips curve shifts up and to the left 
D) shows that expected inflation can never equal actual inflation 
E) shows that unemployment is a short run, but not a long run, phenomenon

Question 7

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 8

If an economist of the rational expectations school were advising a policy maker, the advice most likely to be given would be:

Accepted Answer

A) Don't use discretionary policy if recognition lags are long. 
B) Don't use discretionary policy if activity lags are long. 
C) Don't use fiscal policy if effectiveness lags are long. 
D) Don't use monetary policy if implementation lags are long. 
E) Don't use discretionary policy. 
A) Don't use discretionary policy if recognition lags are long. 
B) Don't use discretionary policy if activity lags are long. 
C) Don't use fiscal policy if effectiveness lags are long. 
D) Don't use monetary policy if implementation lags are long. 
E) Don't use discretionary policy.

Question 9

An implementation lag is the time it takes

Accepted Answer

A) policy makers to decide what to do 
B) for the chosen policy to have its full impact on the economy 
C) to identify trouble in the economy and to assess its severity 
D) to put a selected policy into action 
E) before a policy's effects on the economy are noticed by ordinary people 
A) policy makers to decide what to do 
B) for the chosen policy to have its full impact on the economy 
C) to identify trouble in the economy and to assess its severity 
D) to put a selected policy into action 
E) before a policy's effects on the economy are noticed by ordinary people

Question 10

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

Question 11

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

Accepted Answer

A) both c and e 
B) little or no increase in GDP 
C) an increase in wages along with a dramatically falling price level 
D) a rapidly expanding economy 
E) a severe recession 
A) both c and e 
B) little or no increase in GDP 
C) an increase in wages along with a dramatically falling price level 
D) a rapidly expanding economy 
E) a severe recession

Question 12

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 13

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Accepted Answer

A) True 
 B)False

Question 16

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a contractionary gap.

Accepted Answer

A) True 
 B)False

Question 17

If we observe an economy adjusting to potential GDP as prices fall and real output increases,

Accepted Answer

A) it was experiencing an expansionary gap 
B) the correction involves a shift of the AD curve 
C) it was experiencing a contractionary gap 
D) self-correction is not the process that is occurring 
E) there are widespread labor shortages 
A) it was experiencing an expansionary gap 
B) the correction involves a shift of the AD curve 
C) it was experiencing a contractionary gap 
D) self-correction is not the process that is occurring 
E) there are widespread labor shortages

Question 18

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 19

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 20

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

Accepted Answer

A) its adoption would cost them their jobs 
B) no influential economists have yet come out in favor of it 
C) the Fed has to answer 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 and too changeable to make such a policy work consistently 
A) its adoption would cost them their jobs 
B) no influential economists have yet come out in favor of it 
C) the Fed has to answer 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 and too changeable to make such a policy work consistently

Exam 18: Macro Policy Debate: Active or Passive

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

An important implication of the natural rate hypothesis is that regardless of concerns about __________, the government policy that results in __________ is generally the optimal long-run policy.

Exhibit 17-1 -According to those who favor an active approach to policy, how can the economy shown in Exhibit 17-1 attain equilibrium at potential output?

In total, the lags associated with discretionary policy can extend from the time a

The natural rate hypothesis claims that policy makers can have considerable success in reducing unemployment through monetary and fiscal policy.

The long-run Phillips curve

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

If an economist of the rational expectations school were advising a policy maker, the advice most likely to be given would be:

An implementation lag is the time it takes

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

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

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

If self-correction causes prices to fall less than nominal wages, both output and real wages will decrease.

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

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a contractionary gap.

If we observe an economy adjusting to potential GDP as prices fall and real output increases,

The short-run Phillips curve portrays a(n)

Economists of the rational expectations school

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

The Art and Science of Economic Analysis

Understanding Graphs-Appendix

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Agregate Demand

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

Economic Development

Filters

An important implication of the natural rate hypothesis is that regardless of concerns about , the government policy that results in is generally the optimal long-run policy.