Exam 18: Macro Policy Debate: Active or Passive

According to the rational expectations school, which of the following can affect the levels of output and employment?

If the economy were in a recession, which of the following policies would a person who favors an active approach to policy be most likely to support?

The formulation of active policy is

Which of the following is true about the long-run Phillips curve?

The early Phillips curve showed a tradeoff between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

When self-correction works to eliminate an expansionary gap,

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

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

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

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

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.

A Phillips curve shows the relationship between

In its original form, the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

The inflation associated with the oil embargoes of the 1970s illustrated the __________ of the downward-sloping Phillips curve in the long run, as unemployment __________.

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?

According to the rational expectations school, if the Fed announces a policy of rapid growth in the money supply, but then puts the brakes on money expansion without any announcement, the short-run result is likely to be

Suppose a recession surprises economic forecasters, who did not see it coming. Which type of lag is that?

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

According to the rational expectations model, the only time active policy has an impact on aggregate output is when

An important implication of the natural rate hypothesis is that the government policy that results in low inflation is generally the optimal long-run policy