Question 1

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 per-capita income and high interest rate simultaneously. 
C) a reduction in per-capita income 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 exchange rate. 
A) the economy can have low inflation and low unemployment simultaneously. 
B) the economy can have high per-capita income and high interest rate simultaneously. 
C) a reduction in per-capita income 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 exchange rate.

Question 2

The initial Phillips curve relationship implied that the opportunity cost of _____ was higher _____.

Accepted Answer

A) reducing unemployment;inflation 
B) increasing unemployment;inflation 
C) decreasing employment;interest rate 
D) increasing employment;deflation 
E) increasing employment;interest rate 
A) reducing unemployment;inflation 
B) increasing unemployment;inflation 
C) decreasing employment;interest rate 
D) increasing employment;deflation 
E) increasing employment;interest rate

Question 3

According to the rational expectations school,people base their expectations about inflation on:

Accepted Answer

A) the announcement of a change in policy. 
B) weighted averages of previous inflation rates,with the most distant getting the heaviest weight. 
C) all information available to them. 
D) changes in monetary policy only. 
E) changes in both monetary and fiscal policy. 
A) the announcement of a change in policy. 
B) weighted averages of previous inflation rates,with the most distant getting the heaviest weight. 
C) all information available to them. 
D) changes in monetary policy only. 
E) changes in both monetary and fiscal policy.

Question 4

According to economists of the rational expectations school,_____.

Accepted Answer

A) the passive approach must be adopted because they believe the economy is too complex 
B) individual forecasts about policies can never be right 
C) anticipated monetary policy can affect the output level 
D) discretionary policy can stabilize the economy 
E) discretionary policy should be completely avoided 
A) the passive approach must be adopted because they believe the economy is too complex 
B) individual forecasts about policies can never be right 
C) anticipated monetary policy can affect the output level 
D) discretionary policy can stabilize the economy 
E) discretionary policy should be completely avoided

Question 5

During inflation,the optimal discretionary fiscal policy would be _____.

Accepted Answer

A) to decrease taxes 
B) to increase government spending 
C) to decrease the reserve ratio 
D) to increase taxes 
E) to decrease the market interest rate 
A) to decrease taxes 
B) to increase government spending 
C) to decrease the reserve ratio 
D) to increase taxes 
E) to decrease the market interest rate

Question 6

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:

Accepted Answer

A) a policy to manipulate the aggregate supply is being used. 
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) a policy to manipulate the aggregate supply is being used. 
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 7

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) has 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. 
A) operates in an environment in which labor shortages drive up money wages,real wages,and prices. 
B) has 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.

Question 8

The selection of a new policy takes place during a period of time known as 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 9

_____,the time-inconsistency problem gets eliminated.

Accepted Answer

A) When an inflation or a recession is correctly anticipated 
B) When lags associated with monetary and fiscal policy are extremely short 
C) When discretionary macro policy is replaced with fixed policy rules which are well publicized 
D) When expectations about the economy adjust very slowly 
E) When the price level in an economy adjusts over time with changes in aggregate demand 
A) When an inflation or a recession is correctly anticipated 
B) When lags associated with monetary and fiscal policy are extremely short 
C) When discretionary macro policy is replaced with fixed policy rules which are well publicized 
D) When expectations about the economy adjust very slowly 
E) When the price level in an economy adjusts over time with changes in aggregate demand

Question 10

In its original form,the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

Accepted Answer

A) True 
 B)False

Question 11

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,the economy can attain equilibrium at potential output if:

Accepted Answer

A) the SRAS curve shifts to the left. 
B) the SRAS curve shifts to the right. 
C) money supply is increased. 
D) government spending is decreased. 
E) aggregate demand increases. 
A) the SRAS curve shifts to the left. 
B) the SRAS curve shifts to the right. 
C) money supply is increased. 
D) government spending is decreased. 
E) aggregate demand increases.

Question 12

The time-inconsistency problem is likely to arise in Cadmia if _____.

Accepted Answer

A) attempts are made to coordinate monetary policy with fiscal policy 
B) there is a lag between the announcement of a monetary policy and its implementation 
C) policy makers initially aim to keep the price level stable but do not follow through as promised 
D) policy makers do not allow enough time for a new policy to take effect 
E) there is a deep conflict among monetary policy makers 
A) attempts are made to coordinate monetary policy with fiscal policy 
B) there is a lag between the announcement of a monetary policy and its implementation 
C) policy makers initially aim to keep the price level stable but do not follow through as promised 
D) policy makers do not allow enough time for a new policy to take effect 
E) there is a deep conflict among monetary policy makers

Question 13

Economists of the rational expectations school:

Accepted Answer

A) have no confidence in the ability of workers and firms to observe and react to economic events. 
B) believe workers and firms behave the same regardless of what the Fed does. 
C) have great faith in the ability of monetary policy makers to maintain a full employment economy with stable prices. 
D) believe that effective monetary policy can shift the potential level of output to the right. 
E) believe workers and firms make decisions based on what they think monetary policy will be in the future. 
A) have no confidence in the ability of workers and firms to observe and react to economic events. 
B) believe workers and firms behave the same regardless of what the Fed does. 
C) have great faith in the ability of monetary policy makers to maintain a full employment economy with stable prices. 
D) believe that effective monetary policy can shift the potential level of output to the right. 
E) believe workers and firms make decisions based on what they think monetary policy will be in the future.

Question 14

If a passive approach is followed in closing an expansionary gap,_____.

Accepted Answer

A) restrictive fiscal policy would be used 
B) restrictive monetary policy would be used 
C) the short-run aggregate supply curve would shift to the right 
D) the price level would decrease in the long run 
E) an economy would experience inflationary pressure 
A) restrictive fiscal policy would be used 
B) restrictive monetary policy would be used 
C) the short-run aggregate supply curve would shift to the right 
D) the price level would decrease in the long run 
E) an economy would experience inflationary pressure

Question 15

Which of the following statements supports the passive approach to close a recessionary gap?

Accepted Answer

A) It is likely that policies will be subject to time lags. 
B) Prolonged unemployment may cause the economy's potential real GDP to fall. 
C) Workers' skills may grow rusty during a prolonged recession. 
D) It is likely that unemployed workers will drop out of the labor force. 
E) Firms may neglect their capital stock during a prolonged recession. 
A) It is likely that policies will be subject to time lags. 
B) Prolonged unemployment may cause the economy's potential real GDP to fall. 
C) Workers' skills may grow rusty during a prolonged recession. 
D) It is likely that unemployed workers will drop out of the labor force. 
E) Firms may neglect their capital stock during a prolonged recession.

Question 16

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 17

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____.

Accepted Answer

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

Question 18

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 19

In the early 1960s,the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the trade-offs between:

Accepted Answer

A) aggregate supply and aggregate demand. 
B) interest rate and investment. 
C) inflation and unemployment. 
D) monetary and fiscal policy. 
E) rule-making and discretionary policy. 
A) aggregate supply and aggregate demand. 
B) interest rate and investment. 
C) inflation and unemployment. 
D) monetary and fiscal policy. 
E) rule-making and discretionary policy.

Question 20

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.

The short-run Phillips curve shows that:

The initial Phillips curve relationship implied that the opportunity cost of _ was higher _.

According to the rational expectations school,people base their expectations about inflation on:

According to economists of the rational expectations school,_____.

During inflation,the optimal discretionary fiscal policy would be _____.

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:

An economy experiencing an expansionary gap:

The selection of a new policy takes place during a period of time known as the _____.

_____,the time-inconsistency problem gets eliminated.

In its original form,the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,the economy can attain equilibrium at potential output if:

The time-inconsistency problem is likely to arise in Cadmia if _____.

Economists of the rational expectations school:

If a passive approach is followed in closing an expansionary gap,_____.

Which of the following statements supports the passive approach to close a recessionary gap?

According to the rational expectations school,_____.

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____.

The rational expectations school advocates:

In the early 1960s,the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the trade-offs between:

The short-run Phillips curve portrays a(n):

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

The short-run Phillips curve shows that:

The initial Phillips curve relationship implied that the opportunity cost of _____ was higher _____.

According to the rational expectations school,people base their expectations about inflation on:

According to economists of the rational expectations school,_____.

During inflation,the optimal discretionary fiscal policy would be _____.

If the price level in an economy rises and its output level decreases as it gravitates toward its potential GDP,then:

An economy experiencing an expansionary gap:

The selection of a new policy takes place during a period of time known as the _____.

_____,the time-inconsistency problem gets eliminated.

In its original form,the Phillips curve depicted a situation in which an economy could reduce its unemployment rate by holding the inflation rate steady.

The figure below shows the price level,real GDP,and the potential output for an economy.According to those who favor an active approach to policy,the economy can attain equilibrium at potential output if:

The time-inconsistency problem is likely to arise in Cadmia if _____.

Economists of the rational expectations school:

If a passive approach is followed in closing an expansionary gap,_____.

Which of the following statements supports the passive approach to close a recessionary gap?

According to the rational expectations school,_____.

The time it takes for the Fed's purchase of government securities to ultimately change aggregate demand is called the _____.

The rational expectations school advocates:

In the early 1960s,the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the trade-offs between:

The short-run Phillips curve portrays a(n):

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

The initial Phillips curve relationship implied that the opportunity cost of _ was higher _.