Question 1

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 B

Question 2

The hypothesis that the economy tends toward the natural rate of unemployment in the long run is known as the

Accepted Answer

A) cyclical unemployment hypothesis 
B) full employment hypothesis 
C) natural rate hypothesis 
D) economic stability hypothesis 
E) policy ineffectiveness hypothesis 
A) cyclical unemployment hypothesis 
B) full employment hypothesis 
C) natural rate hypothesis 
D) economic stability hypothesis 
E) policy ineffectiveness hypothesis C

Question 3

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. E

Question 4

When self-correcting forces cure a recessionary gap,

Accepted Answer

A) money wages and real wages both increase 
B) money wages remain constant while real wages fall 
C) money wages and real wages both decrease 
D) money wages fall while real wages increase 
E) real wages must increase regardless of what happens to money wages 
A) money wages and real wages both increase 
B) money wages remain constant while real wages fall 
C) money wages and real wages both decrease 
D) money wages fall while real wages increase 
E) real wages must increase regardless of what happens to money wages

Question 5

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 6

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if

Accepted Answer

A) the policy is anticipated by workers and firms 
B) aggregate supply shifts to the left 
C) the economy is operating at or above its potential output level 
D) policy makers follow through on their previously announced plans 
E) the policy is totally unexpected 
A) the policy is anticipated by workers and firms 
B) aggregate supply shifts to the left 
C) the economy is operating at or above its potential output level 
D) policy makers follow through on their previously announced plans 
E) the policy is totally unexpected

Question 7

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 8

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?

Accepted Answer

A) The economy should be left to cure itself without government intervention. 
B) The Fed should sell U.S.government securities in its open-market operations. 
C) The Fed should raise the discount rate. 
D) Government purchases should increase. 
E) The Fed should raise the required reserve ratio. 
A) The economy should be left to cure itself without government intervention. 
B) The Fed should sell U.S.government securities in its open-market operations. 
C) The Fed should raise the discount rate. 
D) Government purchases should increase. 
E) The Fed should raise the required reserve ratio.

Question 9

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

Accepted Answer

A) activity lag 
B) decision-making lag 
C) effectiveness lag 
D) implementation lag 
E) recognition lag 
A) activity lag 
B) decision-making lag 
C) effectiveness lag 
D) implementation lag 
E) recognition lag

Question 10

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 11

Before discovering that the short-run Phillips curve does not show the true long-run situation,policy makers were successful in trying to bring the economy to the zero-inflation,zero-unemployment point on the short-run curve.

Accepted Answer

A) True 
 B)False

Question 12

Contrary to what the Phillips curve would have predicted,the U.S.economy in the 1970s experienced simultaneous increases in inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is consistent with an active approach to policy?

Accepted Answer

A) The natural rate of unemployment is uncertain. 
B) Wages and prices adjust relatively quickly. 
C) The short-run aggregate supply curve is slow to shift in the presence of a recessionary gap. 
D) The size of the multiplier is irrelevant. 
E) Self-correction lags are not a problem. 
A) The natural rate of unemployment is uncertain. 
B) Wages and prices adjust relatively quickly. 
C) The short-run aggregate supply curve is slow to shift in the presence of a recessionary gap. 
D) The size of the multiplier is irrelevant. 
E) Self-correction lags are not a problem.

Question 14

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 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

Exhibit 16-3  
-According to those who favor an active approach to policy,where will the economy in Exhibit 16-3 end up once the expansionary gap is eliminated?

Accepted Answer

A) point A 
B) point B 
C) point C 
D) either point B or C 
E) cannot tell from the information given 
A) point A 
B) point B 
C) point C 
D) either point B or C 
E) cannot tell from the information given

Question 17

Exhibit 16-4  
-In Exhibit 16-4,the natural rate of unemployment is

Accepted Answer

A) 2 percent because it occurs at the intersection of the curves 
B) 4 percent because it is the midpoint of the short-run curve 
C) 4 percent because it is on the long-run curve 
D) 8 percent because it is the most the economy can attain with high inflation 
E) 10 percent because it is the most the economy can attain 
A) 2 percent because it occurs at the intersection of the curves 
B) 4 percent because it is the midpoint of the short-run curve 
C) 4 percent because it is on the long-run curve 
D) 8 percent because it is the most the economy can attain with high inflation 
E) 10 percent because it is the most the economy can attain

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

Accepted Answer

A) True 
 B)False

Exam 17: Macro Policy Debate: Active or Passive

The long-run Phillips curve

The hypothesis that the economy tends toward the natural rate of unemployment in the long run is known as the

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

When self-correcting forces cure a recessionary gap,

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

Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if

Economist A.W.Phillips believed that

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 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

Those of the rational expectations school

Before discovering that the short-run Phillips curve does not show the true long-run situation,policy makers were successful in trying to bring the economy to the zero-inflation,zero-unemployment point on the short-run curve.

Contrary to what the Phillips curve would have predicted,the U.S.economy in the 1970s experienced simultaneous increases in inflation and unemployment.

Which of the following is consistent with an active approach to policy?

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

The time inconsistency problem arises when

Exhibit 16-3 -According to those who favor an active approach to policy,where will the economy in Exhibit 16-3 end up once the expansionary gap is eliminated?

Exhibit 16-4 -In Exhibit 16-4,the natural rate of unemployment is

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.

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

Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate 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

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

Filters