Question 1

If an economy is at potential GDP and an expansionary policy is correctly anticipated, the result will be _____

Accepted Answer

A)  a short-run fall in output and employment. 
B)  little or no increase in GDP. 
C)  an increase in wages along with a dramatic fall in the price level. 
D)  a rapidly expanding economy. 
E)  a severe recession. 
A)  a short-run fall in output and employment. 
B)  little or no increase in GDP. 
C)  an increase in wages along with a dramatic fall in the price level. 
D)  a rapidly expanding economy. 
E)  a severe recession.

Question 2

Exhibit 16-2
  
-Exhibit 16.2 shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when _____

Accepted Answer

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

Question 3

One way of expressing the concept of the short-run Phillips curve is to say that _____

Accepted Answer

A)  One way of expressing the concept of the short-run Phillips curve is to say that _____ 
B)  nothing but good comes from reducing unemployment. 
C)  the cost of reducing inflation is lower unemployment. 
D)  aggregate supply and aggregate demand will always be equal at the potential output level. 
E)  the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment. 
A)  One way of expressing the concept of the short-run Phillips curve is to say that _____ 
B)  nothing but good comes from reducing unemployment. 
C)  the cost of reducing inflation is lower unemployment. 
D)  aggregate supply and aggregate demand will always be equal at the potential output level. 
E)  the best economic policy is one that attempts to make the rate of inflation equal to the rate of unemployment.

Question 4

From time to time, Fed officials have _____

Accepted Answer

A)  not had enough information to pursue an active policy. 
B)  used active intervention only if an economy was in recession. 
C)  used discretion to change the rules as circumstances changed. 
D)  taken actions to offset their current policy. 
E)  preferred to emphasize an active fiscal policy. 
A)  not had enough information to pursue an active policy. 
B)  used active intervention only if an economy was in recession. 
C)  used discretion to change the rules as circumstances changed. 
D)  taken actions to offset their current policy. 
E)  preferred to emphasize an active fiscal policy.

Question 5

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

Accepted Answer

A)  an increase in the unemployment rate 
B)  an increase in inflationary pressure 
C)  an increase in the market interest rate 
D)  a decrease in the market interest rate 
E)  a decrease in money demand 
A)  an increase in the unemployment rate 
B)  an increase in inflationary pressure 
C)  an increase in the market interest rate 
D)  a decrease in the market interest rate 
E)  a decrease in money demand

Question 6

Economist Alban William Phillips believed that _____

Accepted Answer

A)  the Fed should follow a policy rule because it does not know the lag structure. 
B)  the Fed should follow a policy rule to avoid monetary surprises. 
C)  there is an inverse relationship between inflation and unemployment. 
D)  private sector spending is inherently unstable. 
E)  government spending is inherently unstable. 
A)  the Fed should follow a policy rule because it does not know the lag structure. 
B)  the Fed should follow a policy rule to avoid monetary surprises. 
C)  there is an inverse relationship between inflation and unemployment. 
D)  private sector spending is inherently unstable. 
E)  government spending is inherently unstable.

Question 7

_____ states that in the long run, the economy tends toward the natural rate of unemployment.

Accepted Answer

A)  The nominal rate hypothesis 
B)  The real rate hypothesis 
C)  The natural rate hypothesis 
D)  The Taylor rule 
E)  The Phillips curve 
A)  The nominal rate hypothesis 
B)  The real rate hypothesis 
C)  The natural rate hypothesis 
D)  The Taylor rule 
E)  The Phillips curve

Question 8

The _____ lag is typically longer for fiscal policy than monetary policy.

Accepted Answer

A)  supply 
B)  cyclical 
C)  effectiveness 
D)  implementation 
E)  recognition 
A)  supply 
B)  cyclical 
C)  effectiveness 
D)  implementation 
E)  recognition

Question 9

Opponents of inflation targets say that _____

Accepted Answer

A)  such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases. 
B)  the Fed pays less attention to jobs and economic growth when it sets such targets. 
C)  the Fed pays more attention to jobs and economic growth when it sets such targets. 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases. 
E)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases. 
A)  such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases. 
B)  the Fed pays less attention to jobs and economic growth when it sets such targets. 
C)  the Fed pays more attention to jobs and economic growth when it sets such targets. 
D)  such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases. 
E)  such targets encourage firms to plan on a low and stable inflation rate and hold down price increases.

Question 10

The Fed currently targets _____

Accepted Answer

A)  the inflation rate. 
B)  the interest rate. 
C)  output. 
D)  employment. 
E)  monetary aggregates. 
A)  the inflation rate. 
B)  the interest rate. 
C)  output. 
D)  employment. 
E)  monetary aggregates.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 that 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 full employment in an economy with stable prices. 
D)  believe that effective monetary policy can shift the potential level of output to the right. 
E)  believe that 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 that 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 full employment in an economy with stable prices. 
D)  believe that effective monetary policy can shift the potential level of output to the right. 
E)  believe that workers and firms make decisions based on what they think monetary policy will be in the future.

Question 13

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 exceed expectations and firms can afford to hire workers. 
C)  small, so that prices at potential GDP fall 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 exceed expectations and firms can afford to hire 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 exceed expectations and firms can afford to hire workers. 
C)  small, so that prices at potential GDP fall 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 exceed expectations and firms can afford to hire workers. 
E)  exactly the size that makes prices equal to the prices people expected to prevail.

Question 14

Current thinking on the Phillips curve suggests that it would be best for policy makers to _____

Accepted Answer

A)  focus on controlling unemployment. 
B)  stimulate permanent shifts in aggregate supply. 
C)  focus on controlling inflation. 
D)  stimulate permanent shifts in aggregate demand. 
E)  develop a two-pronged policy to control both unemployment and inflation. 
A)  focus on controlling unemployment. 
B)  stimulate permanent shifts in aggregate supply. 
C)  focus on controlling inflation. 
D)  stimulate permanent shifts in aggregate demand. 
E)  develop a two-pronged policy to control both unemployment and inflation.

Question 15

According to the rational expectations school, a correctly anticipated expansionary monetary policy will _____

Accepted Answer

A)  increase prices and real output. 
B)  increase real output only in the short run. 
C)  have no effect on prices or real output. 
D)  decrease prices and real output. 
E)  lead only to a higher price level. 
A)  increase prices and real output. 
B)  increase real output only in the short run. 
C)  have no effect on prices or real output. 
D)  decrease prices and real output. 
E)  lead only to a higher price level.

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

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.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following central banks does not have an explicit inflation target?

Accepted Answer

A)  the Bank of England 
B)  the Federal Reserve 
C)  the Swiss National Bank 
D)  the European Central Bank 
E)  the Reserve Bank of India 
A)  the Bank of England 
B)  the Federal Reserve 
C)  the Swiss National Bank 
D)  the European Central Bank 
E)  the Reserve Bank of India

Question 19

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

Accepted Answer

A) True 
 B)False

Question 20

If the Fed adopts an expansionary policy that is based on a misreading of the current economy, the Fed may be _____

Accepted Answer

A)  lowering the federal funds rate when a more appropriate course would be to raise it. 
B)  lowering the federal funds rate when a more appropriate course would be to lower it. 
C)  raising the federal funds rate when a more appropriate course would be to raise it. 
D)  raising the federal funds rate when a more appropriate course would be to lower it. 
E)  raising the federal funds rate when a more appropriate course would be to leave it unchanged. 
A)  lowering the federal funds rate when a more appropriate course would be to raise it. 
B)  lowering the federal funds rate when a more appropriate course would be to lower it. 
C)  raising the federal funds rate when a more appropriate course would be to raise it. 
D)  raising the federal funds rate when a more appropriate course would be to lower it. 
E)  raising the federal funds rate when a more appropriate course would be to leave it unchanged.

If an economy is at potential GDP and an expansionary policy is correctly anticipated, the result will be _____

Exhibit 16-2 -Exhibit 16.2 shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when _____

One way of expressing the concept of the short-run Phillips curve is to say that _____

From time to time, Fed officials have _____

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

Economist Alban William Phillips believed that _____

_____ states that in the long run, the economy tends toward the natural rate of unemployment.

The _____ lag is typically longer for fiscal policy than monetary policy.

Opponents of inflation targets say that _____

The Fed currently targets _____

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

Economists of the rational expectations school _____

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

Current thinking on the Phillips curve suggests that it would be best for policy makers to _____

According to the rational expectations school, a correctly anticipated expansionary monetary policy will _____

According to the rational expectations school, _____

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.

Which of the following central banks does not have an explicit inflation target?

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

If the Fed adopts an expansionary policy that is based on a misreading of the current economy, the Fed may be _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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: Macro Policy Debate: Active or Passive?

If an economy is at potential GDP and an expansionary policy is correctly anticipated, the result will be _____

Exhibit 16-2 -Exhibit 16.2 shows the price level, real GDP, and potential output for an economy. According to those who favor a passive approach to policy, the economy will attain equilibrium at potential output when _____

One way of expressing the concept of the short-run Phillips curve is to say that _____

From time to time, Fed officials have _____

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

Economist Alban William Phillips believed that _____

_____ states that in the long run, the economy tends toward the natural rate of unemployment.

The _____ lag is typically longer for fiscal policy than monetary policy.

Opponents of inflation targets say that _____

The Fed currently targets _____

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

Economists of the rational expectations school _____

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

Current thinking on the Phillips curve suggests that it would be best for policy makers to _____

According to the rational expectations school, a correctly anticipated expansionary monetary policy will _____

According to the rational expectations school, _____

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.

Which of the following central banks does not have an explicit inflation target?

The long-run Phillips curve suggests that changing the rate of unemployment in the economy has no impact on the inflation rate.

If the Fed adopts an expansionary policy that is based on a misreading of the current economy, the Fed may be _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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