Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Inflation target refers to the commitment of central bankers to keep inflation below a certain rate for the next year or two.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

If rational expectations cause people's price expectations to be generally correct,active policy will influence the price level but not output.

Accepted Answer

A) True 
 B)False

Question 6

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 7

An implementation lag is the time it takes:

Accepted Answer

A) for 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) for 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 8

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) the discretionary fiscal policy cannot be used to help the economy since it leads to inflation. 
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) the discretionary fiscal policy cannot be used to help the economy since it leads to inflation.

Question 9

During the period _____,the short-run Phillips curve for the United States was farthest from the origin.

Accepted Answer

A) 1960 to 1964 
B) 1964 to 1969 
C) 1970 to 1973 
D) 1974 to 1983 
E) 1984 to 1989 
A) 1960 to 1964 
B) 1964 to 1969 
C) 1970 to 1973 
D) 1974 to 1983 
E) 1984 to 1989

Question 10

The country of Glassen has experienced an expansionary gap for the last three years.The advocates of passive policy are likely to suggest a policy which causes _____.

Accepted Answer

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

Question 11

An increase in the expected inflation rate will:

Accepted Answer

A) shift the short-run Phillips curve upward and to the right. 
B) shift the short-run Phillips curve downward and to the left. 
C) not shift the short-run Phillips curve unless the unemployment rate changes. 
D) cause the unemployment rate associated with each inflation rate to decrease. 
E) tend to increase production unless the actual inflation rate also increases. 
A) shift the short-run Phillips curve upward and to the right. 
B) shift the short-run Phillips curve downward and to the left. 
C) not shift the short-run Phillips curve unless the unemployment rate changes. 
D) cause the unemployment rate associated with each inflation rate to decrease. 
E) tend to increase production unless the actual inflation rate also increases.

Question 12

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 13

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.

Accepted Answer

A) True 
 B)False

Question 14

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

Accepted Answer

A) Cutting taxes 
B) Increasing government spending 
C) Reducing interest rates 
D) Increasing the money supply 
E) Doing nothing 
A) Cutting taxes 
B) Increasing government spending 
C) Reducing interest rates 
D) Increasing the money supply 
E) Doing nothing

Question 15

An anti-inflation policy that involves announcing and executing tough measures to stop inflation is called _____.

Accepted Answer

A) cold turkey 
B) red tape 
C) a pork-barrel policy 
D) chokehold 
E) time-inconsistency 
A) cold turkey 
B) red tape 
C) a pork-barrel policy 
D) chokehold 
E) time-inconsistency

Question 16

The theorists of the rational expectations school:

Accepted Answer

A) favor monetary rules because they believe individuals 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 reject monetary rules. 
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy. 
E) do not believe in implementing discretionary policies. 
A) favor monetary rules because they believe individuals 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 reject monetary rules. 
D) oppose any monetary rules because they believe rules impede the natural self-correcting mechanism of the economy. 
E) do not believe in implementing discretionary policies.

Question 17

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.

Accepted Answer

A) True 
 B)False

Question 18

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) automatic stabilizers cannot be used to help the economy since monetary policy lags are short. 
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) automatic stabilizers cannot be used to help the economy since monetary policy lags are short.

Question 19

For an economy to eliminate inflation once people have begun to anticipate it,_____.

Accepted Answer

A) a passive policy approach must be followed 
B) the monetary authorities must announce their decisions 
C) actual inflation must be greater than anticipated inflation 
D) cold turkey solutions that lead to further inflation must be avoided 
E) a recession will have to be endured until expectations have been reduced 
A) a passive policy approach must be followed 
B) the monetary authorities must announce their decisions 
C) actual inflation must be greater than anticipated inflation 
D) cold turkey solutions that lead to further inflation must be avoided 
E) a recession will have to be endured until expectations have been reduced

Question 20

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.

Accepted Answer

A) the economy was experiencing an expansionary gap 
B) there is a labor surplus 
C) the economy was experiencing a recessionary gap 
D) self-correction is not the process that is occurring 
E) there are widespread labor shortages 
A) the economy was experiencing an expansionary gap 
B) there is a labor surplus 
C) the economy was experiencing a recessionary gap 
D) self-correction is not the process that is occurring 
E) there are widespread labor shortages

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

Inflation target refers to the commitment of central bankers to keep inflation below a certain rate for the next year or two.

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.

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

If rational expectations cause people's price expectations to be generally correct,active policy will influence the price level but not output.

The immediate effects of a discretionary increase in government spending are represented by a:

An implementation lag is the time it takes:

Those who favor an active approach to policy believe that:

During the period _____,the short-run Phillips curve for the United States was farthest from the origin.

The country of Glassen has experienced an expansionary gap for the last three years.The advocates of passive policy are likely to suggest a policy which causes _____.

An increase in the expected inflation rate will:

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.

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

An anti-inflation policy that involves announcing and executing tough measures to stop inflation is called _____.

The theorists of the rational expectations school:

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.

Those who favor a passive approach to policy believe that:

For an economy to eliminate inflation once people have begun to anticipate it,_____.

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

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

International Finance

Economic Development

Filters

Exam 16: The Policy Debate: Active or Passive

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

Inflation target refers to the commitment of central bankers to keep inflation below a certain rate for the next year or two.

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.

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

If rational expectations cause people's price expectations to be generally correct,active policy will influence the price level but not output.

The immediate effects of a discretionary increase in government spending are represented by a:

An implementation lag is the time it takes:

Those who favor an active approach to policy believe that:

During the period _____,the short-run Phillips curve for the United States was farthest from the origin.

The country of Glassen has experienced an expansionary gap for the last three years.The advocates of passive policy are likely to suggest a policy which causes _____.

An increase in the expected inflation rate will:

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.

Advocates of an active approach think that only when unemployment is high,the natural adjustments of wages and prices can be effective.

In the event of a recession,which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?

An anti-inflation policy that involves announcing and executing tough measures to stop inflation is called _____.

The theorists of the rational expectations school:

The country of Erbia has been experiencing high unemployment over a period of seven years.A likely outcome of such a situation is that potential GDP will fall.

Those who favor a passive approach to policy believe that:

For an economy to eliminate inflation once people have begun to anticipate it,_____.

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

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

International Finance

Economic Development

Filters