Question 1

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 2

Along the long-run Phillips curve,

Accepted Answer

A) the economy is at an unemployment level that corresponds to the potential output level 
B) expectations have not fully adjusted 
C) policy makers can have lower inflation only with higher unemployment 
D) a cut in taxes will lower inflation 
E) a tax cut will increase unemployment 
A) the economy is at an unemployment level that corresponds to the potential output level 
B) expectations have not fully adjusted 
C) policy makers can have lower inflation only with higher unemployment 
D) a cut in taxes will lower inflation 
E) a tax cut will increase unemployment

Question 3

Those who favor a passive approach to policy think that all of the following conditions will allow the economy to bring itself out of a recessionary gap except one. Which is the exception?

Accepted Answer

A) lower real wages 
B) a shortage of labor 
C) lower production costs 
D) a lower expected price level 
E) a rightward shift in the short-run aggregate supply curve 
A) lower real wages 
B) a shortage of labor 
C) lower production costs 
D) a lower expected price level 
E) a rightward shift in the short-run aggregate supply curve

Question 4

If the advice of those who favor a passive approach to policy is correct, how would a recessionary gap eventually close?

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 upward along the aggregate demand 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 upward along the aggregate demand curve.

Question 5

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

Accepted Answer

A) True 
 B)False

Question 6

Those of the rational expectations school

Accepted Answer

A) favor monetary rules because they believe we know too little about how the economy works 
B) favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed 
C) are those who favor an "active approach" to policy and therefore reject monetary rules 
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy 
E) neither oppose nor favor monetary rules 
A) favor monetary rules because they believe we know too little about how the economy works 
B) favor monetary rules so that workers and firms do not get any unanticipated surprises from the Fed 
C) are those who favor an "active approach" to policy and therefore reject monetary rules 
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy 
E) neither oppose nor favor monetary rules

Question 7

According to the natural rate hypothesis, the economy tends toward

Accepted Answer

A) the natural rate of unemployment in the long run 
B) the natural rate of unemployment in the short run 
C) potential output in the short run 
D) zero inflation in the long run 
E) a stable tradeoff between inflation and unemployment in the long run 
A) the natural rate of unemployment in the long run 
B) the natural rate of unemployment in the short run 
C) potential output in the short run 
D) zero inflation in the long run 
E) a stable tradeoff between inflation and unemployment in the long run

Question 8

The long-run Phillips curve is located at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 9

An economy in which actual GDP exceeds potential GDP means that

Accepted Answer

A) wages and prices must fall 
B) self-correcting forces will shift the SRAS curve to the left 
C) self-correcting forces will shift the AD curve to the left 
D) inflation will occur when AD shifts to the left 
E) unemployment is likely to be unusually high 
A) wages and prices must fall 
B) self-correcting forces will shift the SRAS curve to the left 
C) self-correcting forces will shift the AD curve to the left 
D) inflation will occur when AD shifts to the left 
E) unemployment is likely to be unusually high

Question 10

An economy in which actual GDP is $10 billion below potential GDP

Accepted Answer

A) is experiencing an expansionary gap 
B) will have the short run aggregate supply shifting outward, if the passive approach is correct 
C) will typically have the short-run aggregate supply curve shifting to the left 
D) will likely have falling prices but rising wages 
E) will experience stagflation (i.e., rising prices and falling output) 
A) is experiencing an expansionary gap 
B) will have the short run aggregate supply shifting outward, if the passive approach is correct 
C) will typically have the short-run aggregate supply curve shifting to the left 
D) will likely have falling prices but rising wages 
E) will experience stagflation (i.e., rising prices and falling output)

Question 11

If inflationary expectations increase, we can infer that

Accepted Answer

A) unemployment is above the natural rate 
B) the economy is not on the long-run Phillips curve 
C) the short-run Phillips curve is shifting to the left 
D) output is below potential GDP 
E) the unemployment rate is at the natural rate 
A) unemployment is above the natural rate 
B) the economy is not on the long-run Phillips curve 
C) the short-run Phillips curve is shifting to the left 
D) output is below potential GDP 
E) the unemployment rate is at the natural rate

Question 12

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 13

The long run Phillip's curve is a horizontal line at the country's natural rate of inflation.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a potential problem with active policy for policy makers?

Accepted Answer

A) predicting what would happen with a passive approach 
B) lacking the tools needed to achieve the desired result quickly 
C) not predicting the effects of an active policy on the economy's key performance measures 
D) fiscal and monetary policy makers not working together 
E) failing to implement the appropriate policy because of political obstacles 
A) predicting what would happen with a passive approach 
B) lacking the tools needed to achieve the desired result quickly 
C) not predicting the effects of an active policy on the economy's key performance measures 
D) fiscal and monetary policy makers not working together 
E) failing to implement the appropriate policy because of political obstacles

Question 15

If high unemployment lasts a long time, it could cause potential real GDP to fall.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the economy had been operating along a given short-run Phillips curve for several years and then experienced a year of stagflation. The year of stagflation would

Accepted Answer

A) be represented as a move upward along the short-run Phillips curve 
B) be represented as a move downward along the short-run Phillips curve 
C) be represented as a point above the short-run Phillips curve 
D) be represented as a point below the short-run Phillips curve 
E) correspond to the origin 
A) be represented as a move upward along the short-run Phillips curve 
B) be represented as a move downward along the short-run Phillips curve 
C) be represented as a point above the short-run Phillips curve 
D) be represented as a point below the short-run Phillips curve 
E) correspond to the origin

Question 17

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

Accepted Answer

A) True 
 B)False

Question 18

The time inconsistency problem occurs when

Accepted Answer

A) all of the following occur 
B) expectations are slow to adjust to reality, causing output to vary in the short run 
C) public officials' reelection goals generate short-term economic gains at the expense of long-term inflation 
D) execution lags are shorter than self-correction lags 
E) policy makers execute one type of policy after influencing the public to anticipate another type 
A) all of the following occur 
B) expectations are slow to adjust to reality, causing output to vary in the short run 
C) public officials' reelection goals generate short-term economic gains at the expense of long-term inflation 
D) execution lags are shorter than self-correction lags 
E) policy makers execute one type of policy after influencing the public to anticipate another type

Question 19

According to the rational expectations school,

Accepted Answer

A) on average people have very little idea of what to expect from government policy makers 
B) people form expectations by focusing only on the private sector 
C) changes in the expected price level shift the aggregate demand curve 
D) people do not consider likely government policies when forming expectations, choosing to remain rationally ignorant 
E) people form expectations, in part, by considering the probable future actions of government policy makers 
A) on average people have very little idea of what to expect from government policy makers 
B) people form expectations by focusing only on the private sector 
C) changes in the expected price level shift the aggregate demand curve 
D) people do not consider likely government policies when forming expectations, choosing to remain rationally ignorant 
E) people form expectations, in part, by considering the probable future actions of government policy makers

Question 20

Exhibit 17-1
 
-According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-1 attain equilibrium at potential output?

Accepted Answer

A) The SRAS curve will shift to the left. 
B) Real wages will fall shifting the SRAS curve 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) Real wages will fall shifting the SRAS curve 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.

Exam 18: Macro Policy Debate: Active or Passive

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

Along the long-run Phillips curve,

Those who favor a passive approach to policy think that all of the following conditions will allow the economy to bring itself out of a recessionary gap except one. Which is the exception?

If the advice of those who favor a passive approach to policy is correct, how would a recessionary gap eventually close?

The wage rate considered acceptable to workers engaged in collective bargaining will be determined in part by what monetary policy workers expect in the near future.

Those of the rational expectations school

According to the natural rate hypothesis, the economy tends toward

The long-run Phillips curve is located at the natural rate of unemployment.

An economy in which actual GDP exceeds potential GDP means that

An economy in which actual GDP is $10 billion below potential GDP

If inflationary expectations increase, we can infer that

An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.

The long run Phillip's curve is a horizontal line at the country's natural rate of inflation.

Which of the following is not a potential problem with active policy for policy makers?

If high unemployment lasts a long time, it could cause potential real GDP to fall.

Suppose the economy had been operating along a given short-run Phillips curve for several years and then experienced a year of stagflation. The year of stagflation would

As people come to expect higher inflation, the long-run Phillips curve shifts leftward.

The time inconsistency problem occurs when

According to the rational expectations school,

Exhibit 17-1 -According to those who favor a passive approach to policy, how will the economy shown in Exhibit 17-1 attain equilibrium at potential output?

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