Question 1

The effectiveness lag for monetary policy is short.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the economy had been operating along a given short-run Phillips curve for several years and then experienced a year of stagflation.The year of stagflation would

Accepted Answer

A) be represented as a move upward along the short-run Phillips curve 
B) be represented as a move downward along the short-run Phillips curve 
C) be represented as a point above the short-run Phillips curve 
D) be represented as a point below the short-run Phillips curve 
E) correspond to the origin 
A) be represented as a move upward along the short-run Phillips curve 
B) be represented as a move downward along the short-run Phillips curve 
C) be represented as a point above the short-run Phillips curve 
D) be represented as a point below the short-run Phillips curve 
E) correspond to the origin

Question 3

Advocates of the passive approach to government economic policy believe that the self-correcting forces of the economy can be counted on to effectively correct imbalances in the economy.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 16-3  
-According to those who favor an active approach to policy,how can the economy shown in Exhibit 16-3 attain equilibrium at potential output?

Accepted Answer

A) The SRAS curve will shift to the left. 
B) The SRAS curve will shift to the right. 
C) Either the money supply or government spending should be increased. 
D) Either the Fed or the government will act to decrease aggregate demand. 
E) Aggregate demand should be increased. 
A) The SRAS curve will shift to the left. 
B) The SRAS curve will shift to the right. 
C) Either the money supply or government spending should be increased. 
D) Either the Fed or the government will act to decrease aggregate demand. 
E) Aggregate demand should be increased.

Question 5

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 6

The Fed is not completely independent because

Accepted Answer

A) Congress could rewrite the laws that created the Fed 
B) it relies heavily on Congressional appropriations 
C) the president sits on the Board of Governors 
D) Congress must approve any new monetary policy 
E) the president must approve any new monetary policy 
A) Congress could rewrite the laws that created the Fed 
B) it relies heavily on Congressional appropriations 
C) the president sits on the Board of Governors 
D) Congress must approve any new monetary policy 
E) the president must approve any new monetary policy

Question 7

The Federal Reserve

Accepted Answer

A) is not considered one of the more independent central banks 
B) is insulated from politics by the staggered 14-year appointments of Board members and by having its own source of income 
C) is more concerned with generating income than it is with achieving price stability 
D) is answerable to Congress and must do its bidding 
E) is answerable to the President and must do his bidding 
A) is not considered one of the more independent central banks 
B) is insulated from politics by the staggered 14-year appointments of Board members and by having its own source of income 
C) is more concerned with generating income than it is with achieving price stability 
D) is answerable to Congress and must do its bidding 
E) is answerable to the President and must do his bidding

Question 8

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 9

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

Accepted Answer

A) both c and e 
B) little or no increase in GDP 
C) an increase in wages along with a dramatically falling price level 
D) a rapidly expanding economy 
E) a severe recession 
A) both c and e 
B) little or no increase in GDP 
C) an increase in wages along with a dramatically falling price level 
D) a rapidly expanding economy 
E) a severe recession

Question 10

In the 1992 presidential campaign,candidate Al Gore advocated a more active role for government in economic policy than did candidate George W.Bush

Accepted Answer

A) True 
 B)False

Question 11

The unemployment rate can remain below the natural rate,but only

Accepted Answer

A) in the long run 
B) with continuous deflation 
C) with a continuously increasing inflation rate 
D) with a series of adverse supply shocks 
E) if the money supply is constant 
A) in the long run 
B) with continuous deflation 
C) with a continuously increasing inflation rate 
D) with a series of adverse supply shocks 
E) if the money supply is constant

Question 12

The active approach to monetary policy involves predetermined rules that are followed virtually without exception.

Accepted Answer

A) True 
 B)False

Question 13

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 14

All of the following are true along a long-run Phillips curve except one.Which is the exception?

Accepted Answer

A) unemployment is at the natural rate 
B) employers and workers have the time and ability to adjust fully to unexpected changes in aggregate demand 
C) the only choices for policy makers are different levels of inflation 
D) inflation and unemployment are inversely related 
E) changes in aggregate demand will have no effect in the long run on unemployment 
A) unemployment is at the natural rate 
B) employers and workers have the time and ability to adjust fully to unexpected changes in aggregate demand 
C) the only choices for policy makers are different levels of inflation 
D) inflation and unemployment are inversely related 
E) changes in aggregate demand will have no effect in the long run on unemployment

Question 15

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

Accepted Answer

A) True 
 B)False

Question 16

Discretionary policy advocates believe

Accepted Answer

A) both c and d 
B) that self-correction forces work slowly 
C) that rules are effective in changing output 
D) in rational expectations 
E) none of the above 
A) both c and d 
B) that self-correction forces work slowly 
C) that rules are effective in changing output 
D) in rational expectations 
E) none of the above

Question 17

Problems facing active policy decisions include

Accepted Answer

A) both c and d 
B) all of the following 
C) timing problems related to lags and self-correction 
D) that the natural unemployment rate is uncertain 
E) the self-correcting forces in the economy don't work well 
A) both c and d 
B) all of the following 
C) timing problems related to lags and self-correction 
D) that the natural unemployment rate is uncertain 
E) the self-correcting forces in the economy don't work well

Question 18

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Exam 17: Macro Policy Debate: Active or Passive

The effectiveness lag for monetary policy is short.

Suppose the economy had been operating along a given short-run Phillips curve for several years and then experienced a year of stagflation.The year of stagflation would

Advocates of the passive approach to government economic policy believe that the self-correcting forces of the economy can be counted on to effectively correct imbalances in the economy.

Exhibit 16-3 -According to those who favor an active approach to policy,how can the economy shown in Exhibit 16-3 attain equilibrium at potential output?

Advocates of the passive approach to government economic policy believe that the government should lower tax rates when there is a recessionary gap.

The Fed is not completely independent because

The Federal Reserve

Economists of the rational expectations school

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

In the 1992 presidential campaign,candidate Al Gore advocated a more active role for government in economic policy than did candidate George W.Bush

The unemployment rate can remain below the natural rate,but only

The active approach to monetary policy involves predetermined rules that are followed virtually without exception.

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

All of the following are true along a long-run Phillips curve except one.Which is the exception?

Both those who favor an active approach as well as those who favor a passive approach to policy believe that the economy can suffer from extreme and long-lasting swings in real GDP.

Discretionary policy advocates believe

Problems facing active policy decisions include

The short-run Phillips curve is drawn for a given expected inflation rate and so it shifts as inflation expectations change.

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

An increase in the expected inflation rate will

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

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