Question 1

Economist A. W. 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 2

Which of the following would eliminate the time inconsistency problem?

Accepted Answer

A) Each of the following would eliminate the time inconsistency problem. 
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) None of the above. 
A) Each of the following would eliminate the time inconsistency problem. 
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) None of the above.

Question 3

According to the natural rate hypothesis, unemployment can

Accepted Answer

A) never be maintained below the natural rate 
B) be maintained below the natural rate only at the cost of higher taxes 
C) be maintained below the natural rate while maintaining a constant low inflation rate 
D) be maintained below the natural rate only at the cost of ever-increasing inflation 
E) be maintained below the natural rate only at the cost of ever-increasing federal budget deficits 
A) never be maintained below the natural rate 
B) be maintained below the natural rate only at the cost of higher taxes 
C) be maintained below the natural rate while maintaining a constant low inflation rate 
D) be maintained below the natural rate only at the cost of ever-increasing inflation 
E) be maintained below the natural rate only at the cost of ever-increasing federal budget deficits

Question 4

In the long run, how would an active approach to a recessionary gap differ from a passive approach to policy?

Accepted Answer

A) Both the price level and the level of real GDP would be higher in the long run with the activist solution. 
B) Both the price level and the level of real GDP would be lower in the long run with the activist solution. 
C) The price level would be higher and the level of real GDP would be lower in the long run with the activist solution. 
D) Only the price level would be lower in the long run with the activist solution. 
E) Only the price level would be higher in the long run with the activist solution. 
A) Both the price level and the level of real GDP would be higher in the long run with the activist solution. 
B) Both the price level and the level of real GDP would be lower in the long run with the activist solution. 
C) The price level would be higher and the level of real GDP would be lower in the long run with the activist solution. 
D) Only the price level would be lower in the long run with the activist solution. 
E) Only the price level would be higher in the long run with the activist solution.

Question 5

If the actual inflation rate exceeds the expected inflation rate,

Accepted Answer

A) the economy is on 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 on 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 6

Exhibit 17-3
  
-In Exhibit 17-3, if the economy started near point b, and government purchases increased, we would expect the economy in the short run to move to

Accepted Answer

A) point a 
B) point e 
C) point c 
D) point d 
E) none of the above; the economy would remain at point b 
A) point a 
B) point e 
C) point c 
D) point d 
E) none of the above; the economy would remain at point b

Question 7

In general, the faster inflationary expectations adjust,

Accepted Answer

A) the less macro policy can influence unemployment 
B) the better discretionary policy can be expected to work 
C) the slower the adjustment of the short-run Phillips curve 
D) the stronger the case for active policy 
E) none of the above 
A) the less macro policy can influence unemployment 
B) the better discretionary policy can be expected to work 
C) the slower the adjustment of the short-run Phillips curve 
D) the stronger the case for active policy 
E) none of the above

Question 8

According to the natural rate hypothesis, the natural rate of unemployment is

Accepted Answer

A) largely independent of the level of aggregate supply stimulus provided by fiscal or monetary policy 
B) largely independent of the level of aggregate demand stimulus provided by fiscal or monetary policy 
C) dependent on the level of aggregate supply stimulus provided by fiscal or monetary policy 
D) dependent on the level of aggregate demand stimulus provided by fiscal or monetary policy 
E) dependent on the size of the federal budget deficit or surplus 
A) largely independent of the level of aggregate supply stimulus provided by fiscal or monetary policy 
B) largely independent of the level of aggregate demand stimulus provided by fiscal or monetary policy 
C) dependent on the level of aggregate supply stimulus provided by fiscal or monetary policy 
D) dependent on the level of aggregate demand stimulus provided by fiscal or monetary policy 
E) dependent on the size of the federal budget deficit or surplus

Question 9

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Accepted Answer

A) True 
 B)False

Question 10

Problems facing active policy decisions include

Accepted Answer

A) both c and d 
B) all of the following 
C) timing problems related to lags and self-correction 
D) that the natural unemployment rate is uncertain 
E) the self-correcting forces in the economy don't work well 
A) both c and d 
B) all of the following 
C) timing problems related to lags and self-correction 
D) that the natural unemployment rate is uncertain 
E) the self-correcting forces in the economy don't work well

Question 11

The rational expectations school advocates

Accepted Answer

A) monetarism 
B) Keynesianism 
C) the use of fiscal policy 
D) the use of monetary policy 
E) a passive approach to policy 
A) monetarism 
B) Keynesianism 
C) the use of fiscal policy 
D) the use of monetary policy 
E) a passive approach to policy

Question 12

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 13

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

Accepted Answer

A) we don't have enough information to pursue an active policy 
B) the economy is not in bad enough shape to require active intervention 
C) then the Federal Reserve Board would be superfluous and we could eliminate a large bureaucracy 
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 put their major emphasis on an active fiscal policy 
A) we don't have enough information to pursue an active policy 
B) the economy is not in bad enough shape to require active intervention 
C) then the Federal Reserve Board would be superfluous and we could eliminate a large bureaucracy 
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 put their major emphasis on an active fiscal policy

Question 14

The inflation associated with the oil embargoes of the 1970s resulted in

Accepted Answer

A) reduced unemployment because aggregate demand increased 
B) reduced unemployment because aggregate demand fell 
C) increased unemployment because aggregate demand increased 
D) increased unemployment because aggregate demand fell 
E) increased unemployment because aggregate supply fell 
A) reduced unemployment because aggregate demand increased 
B) reduced unemployment because aggregate demand fell 
C) increased unemployment because aggregate demand increased 
D) increased unemployment because aggregate demand fell 
E) increased unemployment because aggregate supply fell

Question 15

The time inconsistency problem arises when

Accepted Answer

A) attempts are made to coordinate monetary policy throughout different time zones 
B) there is a lag between the announcement of a monetary policy and the implementation of it 
C) policy makers have an incentive to mislead people about their monetary policy intentions 
D) policy makers do not allow enough time for a new policy to take effect 
E) there is a deep conflict among monetary policy makers 
A) attempts are made to coordinate monetary policy throughout different time zones 
B) there is a lag between the announcement of a monetary policy and the implementation of it 
C) policy makers have an incentive to mislead people about their monetary policy intentions 
D) policy makers do not allow enough time for a new policy to take effect 
E) there is a deep conflict among monetary policy makers

Question 16

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 17

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Accepted Answer

A) cut taxes 
B) increase government spending 
C) reduce interest rates 
D) increase the money supply 
E) do nothing 
A) cut taxes 
B) increase government spending 
C) reduce interest rates 
D) increase the money supply 
E) do nothing

Question 18

The long-run Phillips curve is

Accepted Answer

A) downward-sloping 
B) vertical 
C) upward-sloping 
D) horizontal 
E) U-shaped 
A) downward-sloping 
B) vertical 
C) upward-sloping 
D) horizontal 
E) U-shaped

Question 19

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent,

Accepted Answer

A) real wages would fall 
B) output would fall 
C) output would increase 
D) output would increase, but only if nominal wages were increased more rapidly than prices 
E) the expected inflation rate was less than the actual rate 
A) real wages would fall 
B) output would fall 
C) output would increase 
D) output would increase, but only if nominal wages were increased more rapidly than prices 
E) the expected inflation rate was less than the actual rate

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 18: Macro Policy Debate: Active or Passive

Economist A. W. Phillips believed that

Which of the following would eliminate the time inconsistency problem?

According to the natural rate hypothesis, unemployment can

In the long run, how would an active approach to a recessionary gap differ from a passive approach to policy?

If the actual inflation rate exceeds the expected inflation rate,

Exhibit 17-3 -In Exhibit 17-3, if the economy started near point b, and government purchases increased, we would expect the economy in the short run to move to

In general, the faster inflationary expectations adjust,

According to the natural rate hypothesis, the natural rate of unemployment is

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Problems facing active policy decisions include

The rational expectations school advocates

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

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

The inflation associated with the oil embargoes of the 1970s resulted in

The time inconsistency problem arises when

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

In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

The long-run Phillips curve is

If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent,

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

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

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