Exam 16: The Policy Debate: Active or Passive

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

Adaptive expectations is a school of thought that argues people form expectations based on all available information,including the likely future actions of government policy makers.

Opponents of inflation targets believe that:

The inflation associated with the oil embargoes of the 1970s illustrated the _____ of the downward-sloping Phillips curve in the long run,as unemployment _____ during this period.

According to the rational expectations school,if the Fed announces a policy of rapid growth in the money supply,but then puts the brakes on money expansion without any announcement,which of the following is likely to be the short-run result?

Which of the following is true of lags associated with discretionary policy?

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor a passive approach to policy,once the expansionary gap is eliminated,the economy will end up at:

According to the passive approach,discretionary fiscal or monetary policy can reduce the costs of an unstable economy.

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

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

Policy makers may not know that the economy is in a recession until six months after the recession starts;this phenomenon is known as the _____.

The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

According to the rational expectations theory,monetary policy is fully anticipated and therefore only affects:

Which of the following is a problem associated with an active policy such as a stimulus package?

As long as wage increases do not exceed labor productivity growth rates,a stable price level should be the result.

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

A credible policy designed to lower inflation is likely to push the economy into recession.

According to the rational expectations school,when the economy is operating at the potential output level,a temporary decrease in unemployment is possible through appropriate monetary policy-but only if workers and employers are aware in advance of the Fed's intentions.

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

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