Question 1

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

Accepted Answer

A) True 
 B)False

Question 2

The short-run Phillips curve shows that

Accepted Answer

A) the economy can have low inflation and low unemployment simultaneously 
B) the economy can have high inflation and high unemployment simultaneously 
C) a reduction in unemployment comes at the expense of lower inflation 
D) a reduction in unemployment comes at the expense of higher inflation 
E) a reduction in inflation comes at the expense of lower unemployment 
A) the economy can have low inflation and low unemployment simultaneously 
B) the economy can have high inflation and high unemployment simultaneously 
C) a reduction in unemployment comes at the expense of lower inflation 
D) a reduction in unemployment comes at the expense of higher inflation 
E) a reduction in inflation comes at the expense of lower unemployment

Question 3

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

Accepted Answer

A) True 
 B)False

Question 4

According to the natural rate hypothesis,the natural rate of unemployment is

Accepted Answer

A) largely independent of the level of aggregate supply stimulus provided by fiscal or monetary policy 
B) largely independent of the level of aggregate demand stimulus provided by fiscal or monetary policy 
C) dependent on the level of aggregate supply stimulus provided by fiscal or monetary policy 
D) dependent on the level of aggregate demand stimulus provided by fiscal or monetary policy 
E) dependent on the size of the federal budget deficit or surplus 
A) largely independent of the level of aggregate supply stimulus provided by fiscal or monetary policy 
B) largely independent of the level of aggregate demand stimulus provided by fiscal or monetary policy 
C) dependent on the level of aggregate supply stimulus provided by fiscal or monetary policy 
D) dependent on the level of aggregate demand stimulus provided by fiscal or monetary policy 
E) dependent on the size of the federal budget deficit or surplus

Question 5

Along the short-run Phillips curve,when the unemployment rate goes down,

Accepted Answer

A) unemployment benefit payments go up 
B) prices go down 
C) the Phillips curve shifts outward 
D) the inflation rate goes up 
E) there is no change in the rate of inflation 
A) unemployment benefit payments go up 
B) prices go down 
C) the Phillips curve shifts outward 
D) the inflation rate goes up 
E) there is no change in the rate of inflation

Question 6

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 7

The long-run Phillips curve is

Accepted Answer

A) downward-sloping 
B) vertical 
C) upward-sloping 
D) horizontal 
E) U-shaped 
A) downward-sloping 
B) vertical 
C) upward-sloping 
D) horizontal 
E) U-shaped

Question 8

Suppose a recession surprises economic forecasters,who did not see it coming.Which type of lag is that?

Accepted Answer

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

Question 9

A new policy is actually put in force during 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

Exhibit 16-5  
-Consider Exhibit 16-5.If the economy is initially at point c and aggregate demand increases,the economy will (in the long run)

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 11

The time it takes to identify and examine the nature and seriousness of an economic problem is 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 12

Exhibit 16-5  
-If the economy in Exhibit 16-5 is initially at point c and aggregate demand decreases,the economy will (in the long run)

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 13

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

Accepted Answer

A) the will to reject sound policy if it gets in the way of political considerations 
B) the ability to estimate the economy's potential level of output 
C) the ability to predict what would happen without intervention 
D) an assortment of effective tools of discretionary policy 
E) the ability to achieve effective cooperation between fiscal and monetary policy makers 
A) the will to reject sound policy if it gets in the way of political considerations 
B) the ability to estimate the economy's potential level of output 
C) the ability to predict what would happen without intervention 
D) an assortment of effective tools of discretionary policy 
E) the ability to achieve effective cooperation between fiscal and monetary policy makers

Question 14

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.Which of the following represents the short-run equilibrium in the economy?

Accepted Answer

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

Question 15

On the Phillips curve graph,the immediate effects of a discretionary increase in government spending are represented by a

Accepted Answer

A) rightward shift of the aggregate demand curve 
B) leftward shift of the aggregate demand curve 
C) rightward shift of the Phillips curve 
D) leftward shift of the Phillips curve 
E) movement along the Phillips curve 
A) rightward shift of the aggregate demand curve 
B) leftward shift of the aggregate demand curve 
C) rightward shift of the Phillips curve 
D) leftward shift of the Phillips curve 
E) movement along the Phillips curve

Question 16

Those who favor an active approach to policy believe that

Accepted Answer

A) discretionary monetary policy cannot be used to help the economy since monetary policy lags are long 
B) discretionary fiscal policy cannot be used to help the economy since fiscal policy lags are long 
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 cannot be used to help the economy since monetary policy lags are long 
B) discretionary fiscal policy cannot be used to help the economy since fiscal policy lags are long 
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 17

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 18

Exhibit 16-1  
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 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.

Question 19

The short-run Phillips curve portrays a(n)

Accepted Answer

A) direct relationship between total employment and the inflation rate 
B) inverse relationship between inflation and total employment 
C) direct relationship between the unemployment rate and the inflation rate 
D) inverse relationship between the unemployment rate and the inflation rate 
E) inverse relationship between the price level and the unemployment rate 
A) direct relationship between total employment and the inflation rate 
B) inverse relationship between inflation and total employment 
C) direct relationship between the unemployment rate and the inflation rate 
D) inverse relationship between the unemployment rate and the inflation rate 
E) inverse relationship between the price level and the unemployment rate

Question 20

An economy that self-corrects a recessionary gap will experience falling nominal wages,falling prices and increasing employment.

Accepted Answer

A) True 
 B)False

Exam 17: Macro Policy Debate: Active or Passive

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

The short-run Phillips curve shows that

One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

According to the natural rate hypothesis,the natural rate of unemployment is

Along the short-run Phillips curve,when the unemployment rate goes down,

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 _______.

The long-run Phillips curve is

Suppose a recession surprises economic forecasters,who did not see it coming.Which type of lag is that?

A new policy is actually put in force during the

Exhibit 16-5 -Consider Exhibit 16-5.If the economy is initially at point c and aggregate demand increases,the economy will (in the long run)

The time it takes to identify and examine the nature and seriousness of an economic problem is the

Exhibit 16-5 -If the economy in Exhibit 16-5 is initially at point c and aggregate demand decreases,the economy will (in the long run)

An effective policy of governmental intervention in the economy requires all of the following except one.Which is the exception?

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.Which of the following represents the short-run equilibrium in the economy?

On the Phillips curve graph,the immediate effects of a discretionary increase in government spending are represented by a

Those who favor an active approach to policy believe that

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.

Exhibit 16-1 -According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-1 attain equilibrium at potential output?

The short-run Phillips curve portrays a(n)

An economy that self-corrects a recessionary gap will experience falling nominal wages,falling prices and increasing employment.

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 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 _______.

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.Which of the following represents the short-run equilibrium in the economy?