Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

One often-cited rationale for a fixed-growth-rate monetary policy is that

Accepted Answer

A) it is too expensive to pay a staff to continually make adjustments in policy 
B) although it's possible to determine what's happening in the economy,it's not possible to determine what to do about it 
C) it is not possible to determine with any certainty what's happening in the economy,so it's easy to make a mistake with active policy 
D) we know that the economy is increasing at a fixed rate year after year,so a fixed rate of growth in the money supply is justified 
E) then the Federal Reserve would be superfluous and we could eliminate one large bureaucracy 
A) it is too expensive to pay a staff to continually make adjustments in policy 
B) although it's possible to determine what's happening in the economy,it's not possible to determine what to do about it 
C) it is not possible to determine with any certainty what's happening in the economy,so it's easy to make a mistake with active policy 
D) we know that the economy is increasing at a fixed rate year after year,so a fixed rate of growth in the money supply is justified 
E) then the Federal Reserve would be superfluous and we could eliminate one large bureaucracy

Question 3

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

Accepted Answer

A) focus on controlling unemployment 
B) stimulate permanent shifts in aggregate supply 
C) focus on controlling inflation 
D) stimulate permanent shifts in aggregate demand 
E) develop a two-pronged policy to control both unemployment and inflation 
A) focus on controlling unemployment 
B) stimulate permanent shifts in aggregate supply 
C) focus on controlling inflation 
D) stimulate permanent shifts in aggregate demand 
E) develop a two-pronged policy to control both unemployment and inflation

Question 4

An implementation lag is the time it takes

Accepted Answer

A) policy makers to decide what to do 
B) for the chosen policy to have its full impact on the economy 
C) to identify trouble in the economy and to assess its severity 
D) to put a selected policy into action 
E) before a policy's effects on the economy are noticed by ordinary people 
A) policy makers to decide what to do 
B) for the chosen policy to have its full impact on the economy 
C) to identify trouble in the economy and to assess its severity 
D) to put a selected policy into action 
E) before a policy's effects on the economy are noticed by ordinary people

Question 5

Exhibit 16-2  
-In Exhibit 16-2,the aggregate demand in the economy is represented by AD1 and the short run aggregate supply by SRAS110.If an active policy approach is used,the economy will move from its current short-run equilibrium to point _____.

Accepted Answer

A) A 
B) B 
C) C 
D) E 
E) F 
A) A 
B) B 
C) C 
D) E 
E) F

Question 6

A Phillips curve shows the relationship between

Accepted Answer

A) the price level and the number of workers unemployed 
B) the inflation rate and the unemployment rate 
C) the unemployment rate and the level of GDP 
D) the inflation rate and the supply of money 
E) the inflation rate and the level of government spending 
A) the price level and the number of workers unemployed 
B) the inflation rate and the unemployment rate 
C) the unemployment rate and the level of GDP 
D) the inflation rate and the supply of money 
E) the inflation rate and the level of government spending

Question 7

Probably the most significant implication of the natural rate of unemployment hypothesis is that

Accepted Answer

A) the natural rate of inflation tends toward zero 
B) long-run policy should be directed toward controlling inflation rather than unemployment 
C) the natural rate of unemployment can be reduced by accepting worsening inflation 
D) the natural rate of unemployment is consistent only with a zero inflation rate in the long run 
E) tax cuts stimulate the economy and lower inflation 
A) the natural rate of inflation tends toward zero 
B) long-run policy should be directed toward controlling inflation rather than unemployment 
C) the natural rate of unemployment can be reduced by accepting worsening inflation 
D) the natural rate of unemployment is consistent only with a zero inflation rate in the long run 
E) tax cuts stimulate the economy and lower inflation

Question 8

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 9

According to rational expectations theory,people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 10

According to the natural rate hypothesis,

Accepted Answer

A) government policy makers can influence the tradeoff between inflation and unemployment in the long run but not in the short run 
B) government policy makers can target both stable interest rates and a stable money supply in the long run but not in the short run 
C) government policy makers can target both stable interest rates and a stable money supply in the short run but not in the long run 
D) the economy tends toward the natural rate of unemployment only when the government provides the appropriate demand stimulus 
E) government policy makers can influence the tradeoff between inflation and unemployment in the short run but not in the long run 
A) government policy makers can influence the tradeoff between inflation and unemployment in the long run but not in the short run 
B) government policy makers can target both stable interest rates and a stable money supply in the long run but not in the short run 
C) government policy makers can target both stable interest rates and a stable money supply in the short run but not in the long run 
D) the economy tends toward the natural rate of unemployment only when the government provides the appropriate demand stimulus 
E) government policy makers can influence the tradeoff between inflation and unemployment in the short run but not in the long run

Question 11

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 12

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

Accepted Answer

A) before active policy shifts the aggregate demand curve 
B) only after active policy shifts the aggregate demand curve 
C) more than active policy shifts the aggregate demand curve 
D) less than active policy shifts the aggregate demand curve 
E) in a direction opposite to the shift in the aggregate demand curve caused by active policy 
A) before active policy shifts the aggregate demand curve 
B) only after active policy shifts the aggregate demand curve 
C) more than active policy shifts the aggregate demand curve 
D) less than active policy shifts the aggregate demand curve 
E) in a direction opposite to the shift in the aggregate demand curve caused by active policy

Question 13

If prices and wages are not flexible,an adverse supply shock is most likely to be followed by

Accepted Answer

A) a rightward shift of the aggregate supply curve 
B) a rightward shift of the aggregate demand curve 
C) a leftward shift of the aggregate supply curve 
D) a leftward shift of the aggregate demand curve 
E) persistent unemployment 
A) a rightward shift of the aggregate supply curve 
B) a rightward shift of the aggregate demand curve 
C) a leftward shift of the aggregate supply curve 
D) a leftward shift of the aggregate demand curve 
E) persistent unemployment

Question 14

Those who favor a passive approach to policy believe that

Accepted Answer

A) discretionary monetary policy can be used to help the economy since monetary policy lags are short 
B) discretionary fiscal policy can be used to help the economy since fiscal policy lags are short 
C) lags associated with implementing policies are too long and unstable for discretionary policy to be effective 
D) despite the lags involved,implementing discretionary policy is preferable to inaction 
E) none of the above 
A) discretionary monetary policy can be used to help the economy since monetary policy lags are short 
B) discretionary fiscal policy can be used to help the economy since fiscal policy lags are short 
C) lags associated with implementing policies are too long and unstable for discretionary policy to be effective 
D) despite the lags involved,implementing discretionary policy is preferable to inaction 
E) none of the above

Question 15

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 16

Exhibit 16-1  
-According to those who favor an active approach to policy,where will the economy in Exhibit 16-1 end up when it achieves its potential output?

Accepted Answer

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

Question 17

A policy to increase aggregate demand to cure a recessionary gap may succeed; however,inflation is a likely result.

Accepted Answer

A) True 
 B)False

Question 18

An economy experiencing an expansionary gap

Accepted Answer

A) operates in an environment in which labor shortages drive up money wages,real wages,and prices 
B) results in an excess supply of labor due to rising money wages and prices 
C) will self-correct as rising money wages decrease faster than rising prices 
D) will experience rising money wages and prices but falling real wages 
E) will have excessive involuntary unemployment (e.g.,cyclical unemployment) 
A) operates in an environment in which labor shortages drive up money wages,real wages,and prices 
B) results in an excess supply of labor due to rising money wages and prices 
C) will self-correct as rising money wages decrease faster than rising prices 
D) will experience rising money wages and prices but falling real wages 
E) will have excessive involuntary unemployment (e.g.,cyclical unemployment)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not consistent with a self-correcting economy?

Accepted Answer

A) Market forces work relatively well in pushing the economy to potential GDP. 
B) Prices and wages are flexible. 
C) A recessionary gap is corrected through falling wages and prices. 
D) The short-run aggregate supply tends to shift until it intersects aggregate demand at potential GDP. 
E) An active approach to a recession or depression. 
A) Market forces work relatively well in pushing the economy to potential GDP. 
B) Prices and wages are flexible. 
C) A recessionary gap is corrected through falling wages and prices. 
D) The short-run aggregate supply tends to shift until it intersects aggregate demand at potential GDP. 
E) An active approach to a recession or depression.

Exam 17: Macro Policy Debate: Active or Passive

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

One often-cited rationale for a fixed-growth-rate monetary policy is that

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

An implementation lag is the time it takes

Exhibit 16-2 -In Exhibit 16-2,the aggregate demand in the economy is represented by AD1 and the short run aggregate supply by SRAS110.If an active policy approach is used,the economy will move from its current short-run equilibrium to point _____.

A Phillips curve shows the relationship between

Probably the most significant implication of the natural rate of unemployment hypothesis is that

If the actual inflation rate exceeds the expected inflation rate,

According to rational expectations theory,people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

According to the natural rate hypothesis,

According to the rational expectations school,

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

If prices and wages are not flexible,an adverse supply shock is most likely to be followed by

Those who favor a passive approach to policy believe that

Along the long-run Phillips curve,

Exhibit 16-1 -According to those who favor an active approach to policy,where will the economy in Exhibit 16-1 end up when it achieves its potential output?

A policy to increase aggregate demand to cure a recessionary gap may succeed; however,inflation is a likely result.

An economy experiencing an expansionary gap

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

Which of the following is not consistent with a self-correcting economy?

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

Exhibit 16-2 -In Exhibit 16-2,the aggregate demand in the economy is represented by AD₁ and the short run aggregate supply by SRAS₁₁₀.If an active policy approach is used,the economy will move from its current short-run equilibrium to point _____.