Question 1

Some economists believe that when workers and firms come to expect an expansionary monetary policy and the resulting inflation,

Accepted Answer

A) they act so as to prevent the inflation from occurring 
B) their actions lead to a further increase in output 
C) the expansionary monetary policy will have no effect on either output or employment 
D) the monetary authority will be forced to cancel its planned expansionary policy 
E) both output and employment will increase even more than was originally planned 
A) they act so as to prevent the inflation from occurring 
B) their actions lead to a further increase in output 
C) the expansionary monetary policy will have no effect on either output or employment 
D) the monetary authority will be forced to cancel its planned expansionary policy 
E) both output and employment will increase even more than was originally planned

Question 2

Given the expected price level,policies for reaching potential GDP will work best if the money supply is

Accepted Answer

A) large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
B) large enough that prices at potential GDP are above expectations and firms can afford to hire workers 
C) small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
D) small,so that prices at potential GDP are above expectations and firms can afford to hire the workers 
E) exactly the size that makes prices equal to the prices people expected to prevail 
A) large,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
B) large enough that prices at potential GDP are above expectations and firms can afford to hire workers 
C) small,so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment 
D) small,so that prices at potential GDP are above expectations and firms can afford to hire the workers 
E) exactly the size that makes prices equal to the prices people expected to prevail

Question 3

In general,the Fed has not embraced a fixed-growth-rate monetary policy because

Accepted Answer

A) its adoption would cost them their jobs 
B) no influential economists have yet come out in favor of it 
C) the Fed has to answer to Congress,and Congress is not in favor of it 
D) the Fed prefers active fiscal policy 
E) they believe the economy is too complex and too changeable to make such a policy work consistently 
A) its adoption would cost them their jobs 
B) no influential economists have yet come out in favor of it 
C) the Fed has to answer to Congress,and Congress is not in favor of it 
D) the Fed prefers active fiscal policy 
E) they believe the economy is too complex and too changeable to make such a policy work consistently

Question 4

When self-correction works to eliminate an expansionary gap,

Accepted Answer

A) both money wages and real wages increase 
B) money wages increase while real wages decrease 
C) both money wages and real wages decrease 
D) money wages decrease while real wages increase 
E) money wages remain unchanged 
A) both money wages and real wages increase 
B) money wages increase while real wages decrease 
C) both money wages and real wages decrease 
D) money wages decrease while real wages increase 
E) money wages remain unchanged

Question 5

If the price level increases more rapidly than expected,

Accepted Answer

A) output will fall 
B) output will increase 
C) output will not change 
D) real wages will increase 
E) none of the above 
A) output will fall 
B) output will increase 
C) output will not change 
D) real wages will increase 
E) none of the above

Question 6

According to the passive policy maker's position,an expansionary gap will be eliminated because

Accepted Answer

A) the short-run aggregate supply will shift to the left 
B) the short-run aggregate supply will shift to the right 
C) rising prices will shift the aggregate demand to the left 
D) wages will fall relatively quickly 
E) aggregate demand will shift to the right as wages increase 
A) the short-run aggregate supply will shift to the left 
B) the short-run aggregate supply will shift to the right 
C) rising prices will shift the aggregate demand to the left 
D) wages will fall relatively quickly 
E) aggregate demand will shift to the right as wages increase

Question 7

If the price level increases by more than expected,output can be expected to decrease as a result.

Accepted Answer

A) True 
 B)False

Question 8

The short-run Phillips curve is based upon labor contracts that reflect a given expected

Accepted Answer

A) price level 
B) unemployment level 
C) money supply 
D) aggregate demand 
E) unemployment rate 
A) price level 
B) unemployment level 
C) money supply 
D) aggregate demand 
E) unemployment rate

Question 9

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 10

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 11

Exhibit 16-2  
-In Exhibit 16-2,the aggregate demand in the economy is represented by AD0 and the short run aggregate supply by SRAS120.If an active policy approach is followed to eliminate the recessionary gap,the economy will move from its current short-run equilibrium to _______.

Accepted Answer

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

Question 12

An important implication of the natural rate hypothesis is that the government policy that results in low inflation is generally the optimal long-run policy

Accepted Answer

A) only if there is no cyclical unemployment in the short run 
B) only if there is no structural unemployment in the short run 
C) regardless of concerns about unemployment 
D) regardless of concerns about currency exchange rates 
E) only if the dollar's exchange rate is stable 
A) only if there is no cyclical unemployment in the short run 
B) only if there is no structural unemployment in the short run 
C) regardless of concerns about unemployment 
D) regardless of concerns about currency exchange rates 
E) only if the dollar's exchange rate is stable

Question 13

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

Accepted Answer

A) people will believe the announcement since the conditions that created a need for the expansion are probably still in effect 
B) people will believe the announcement since they will believe that having failed to implement the expansion previously,the Fed still plans to do so 
C) people will not believe the announcement since they will believe that the conditions that created a need for the expansion must have changed in the meantime 
D) people will not believe the announcement since they will believe that having failed to implement the expansion previously,the Fed will probably fail again 
E) there will be more uncertainty about the Fed following through on the policies it announces 
A) people will believe the announcement since the conditions that created a need for the expansion are probably still in effect 
B) people will believe the announcement since they will believe that having failed to implement the expansion previously,the Fed still plans to do so 
C) people will not believe the announcement since they will believe that the conditions that created a need for the expansion must have changed in the meantime 
D) people will not believe the announcement since they will believe that having failed to implement the expansion previously,the Fed will probably fail again 
E) there will be more uncertainty about the Fed following through on the policies it announces

Question 14

According to those who favor a passive approach to policy,a recessionary gap will be eliminated because

Accepted Answer

A) prices and wages rise rapidly 
B) prices and wages are flexible 
C) the aggregate demand curve will shift to the right 
D) the economy automatically slows down 
E) the aggregate demand curve will shift to the left 
A) prices and wages rise rapidly 
B) prices and wages are flexible 
C) the aggregate demand curve will shift to the right 
D) the economy automatically slows down 
E) the aggregate demand curve will shift to the left

Question 15

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

Accepted Answer

A) all of the following are correct 
B) an active approach to correcting a recessionary gap is being used 
C) an active approach to correcting an expansionary gap is being used 
D) a passive approach to correcting a recessionary gap is being used 
E) a passive approach to correcting an expansionary gap is being used 
A) all of the following are correct 
B) an active approach to correcting a recessionary gap is being used 
C) an active approach to correcting an expansionary gap is being used 
D) a passive approach to correcting a recessionary gap is being used 
E) a passive approach to correcting an expansionary gap is being used

Question 16

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 17

Exhibit 16-5  
-If the economy in Exhibit 16-5 is initially at point c and aggregate demand is stable,the economy will

Accepted Answer

A) move toward point a 
B) move toward point b 
C) stay at point c 
D) move toward point d 
E) move toward point f 
A) move toward point a 
B) move toward point b 
C) stay at point c 
D) move toward point d 
E) move toward point f

Question 18

After the 1960s,the short-run Phillips curve based on U.S.economic data

Accepted Answer

A) began shifting inward 
B) began shifting outward 
C) shifted little or none at all 
D) became virtually horizontal 
E) became virtually vertical 
A) began shifting inward 
B) began shifting outward 
C) shifted little or none at all 
D) became virtually horizontal 
E) became virtually vertical

Question 19

According to the rational expectations school,which of the following can affect the levels of output and employment?

Accepted Answer

A) an expansionary monetary policy,if it is fully anticipated 
B) a contractionary monetary policy,if it is fully anticipated 
C) monetary policy that is unanticipated 
D) fiscal policy that is anticipated 
E) the Fed's announcement of no change in monetary policy 
A) an expansionary monetary policy,if it is fully anticipated 
B) a contractionary monetary policy,if it is fully anticipated 
C) monetary policy that is unanticipated 
D) fiscal policy that is anticipated 
E) the Fed's announcement of no change in monetary policy

Question 20

When policy makers have an incentive to announce one policy to shape expectations but then pursue a different policy once those expectations have been formed and acted on,there is

Accepted Answer

A) no problem; this is normal behavior 
B) policy credibility 
C) a time-inconsistency problem 
D) rational expectation 
E) None of the answers is correct 
A) no problem; this is normal behavior 
B) policy credibility 
C) a time-inconsistency problem 
D) rational expectation 
E) None of the answers is correct

Exam 17: Macro Policy Debate: Active or Passive

Some economists believe that when workers and firms come to expect an expansionary monetary policy and the resulting inflation,

Given the expected price level,policies for reaching potential GDP will work best if the money supply is

In general,the Fed has not embraced a fixed-growth-rate monetary policy because

When self-correction works to eliminate an expansionary gap,

If the price level increases more rapidly than expected,

According to the passive policy maker's position,an expansionary gap will be eliminated because

If the price level increases by more than expected,output can be expected to decrease as a result.

The short-run Phillips curve is based upon labor contracts that reflect a given expected

The time inconsistency problem occurs when

The rational expectations school advocates

Exhibit 16-2 -In Exhibit 16-2,the aggregate demand in the economy is represented by AD0 and the short run aggregate supply by SRAS120.If an active policy approach is followed to eliminate the recessionary gap,the economy will move from its current short-run equilibrium to _______.

An important implication of the natural rate hypothesis is that the government policy that results in low inflation is generally the optimal long-run policy

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

According to those who favor a passive approach to policy,a recessionary gap will be eliminated because

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

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

Exhibit 16-5 -If the economy in Exhibit 16-5 is initially at point c and aggregate demand is stable,the economy will

After the 1960s,the short-run Phillips curve based on U.S.economic data

According to the rational expectations school,which of the following can affect the levels of output and employment?

When policy makers have an incentive to announce one policy to shape expectations but then pursue a different policy once those expectations have been formed and acted on,there is

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Introduction to Macroeconomics

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Baggregate Expenditure and Aggregate Demand

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Exhibit 16-2 -In Exhibit 16-2,the aggregate demand in the economy is represented by AD₀ and the short run aggregate supply by SRAS₁₂₀.If an active policy approach is followed to eliminate the recessionary gap,the economy will move from its current short-run equilibrium to _______.