Exam 18: Macro Policy Debate: Active or Passive

Which of the following lags reduces the effectiveness of active policy?

The long-run Phillips curve

Exhibit 17-2 -According to those who favor an active approach to policy, how can the economy shown in Exhibit 17-2 attain equilibrium at potential output?

Some economists believe that in the long run the unemployment rate is independent of the inflation rate and so the Phillips curve becomes a vertical line.

The time it takes for a new policy to register its full impact on the economy after it has been put in force is known as the

The natural rate hypothesis states that in the long run,

According to the rational expectations theory, monetary policy is fully anticipated and therefore only affects

The __________ lag is typically longer for fiscal policy than monetary policy.

The reason why self-correction works to close a recessionary gap is because

In the early 1960s, the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the tradeoffs between

One reason that long time lags hamper the effectiveness of economic policy is that

Time required __________ is not a time lag associated with using discretionary policy to correct an economic problem.

If the price level increases more rapidly than expected,

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

Suppose that in 2004 the Fed announced a policy of rapid growth in the money supply, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, the most likely result is that

A major problem in the conduct of macroeconomic policy is the time it takes to decide how to deal with the problem the economy is experiencing.

If an economy adjusts to potential GDP accompanied by a rising price level and a falling output level,

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

Exhibit 17-4 -Consider Exhibit 17-4. If the economy is initially at point c and aggregate demand increases, the economy will (in the long run)

Those who favor a passive approach to policy often argue that changes in prices and wages will shift the short-run aggregate supply curve