Exam 18: Macro Policy Debate: Active or Passive

A) the economy is on the long-run Phillips curve
B) unemployment exceeds the natural rate
C) maintaining the existing unemployment rate will require increasing inflation in the long run
D) the actual rate will tend to fall toward the expected rate
E) unemployment will tend to decrease in the long run

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A) point a
B) point e
C) point c
D) point d
E) none of the above; the economy would remain at point b

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A) attempts are made to coordinate monetary policy throughout different time zones
B) there is a lag between the announcement of a monetary policy and the implementation of it
C) policy makers have an incentive to mislead people about their monetary policy intentions
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

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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

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A) reduced unemployment because aggregate demand increased
B) reduced unemployment because aggregate demand fell
C) increased unemployment because aggregate demand increased
D) increased unemployment because aggregate demand fell
E) increased unemployment because aggregate supply fell

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A) real wages would fall
B) output would fall
C) output would increase
D) output would increase, but only if nominal wages were increased more rapidly than prices
E) the expected inflation rate was less than the actual rate

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A) we don't have enough information to pursue an active policy
B) the economy is not in bad enough shape to require active intervention
C) then the Federal Reserve Board would be superfluous and we could eliminate a large bureaucracy
D) people render active policy ineffective by figuring out what it's going to be and taking actions to offset it
E) they prefer to put their major emphasis on an active fiscal policy

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A) Each of the following would eliminate the time inconsistency problem.
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) None of the above.

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A) never be maintained below the natural rate
B) be maintained below the natural rate only at the cost of higher taxes
C) be maintained below the natural rate while maintaining a constant low inflation rate
D) be maintained below the natural rate only at the cost of ever-increasing inflation
E) be maintained below the natural rate only at the cost of ever-increasing federal budget deficits

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A) monetarism
B) Keynesianism
C) the use of fiscal policy
D) the use of monetary policy
E) a passive approach to policy

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A) Unemployment is probably at the natural rate.
B) The unemployment rate must be rising.
C) The unemployment rate must be below the natural rate.
D) The unemployment rate is probably above the natural rate.
E) Aggregate output must be increasing.

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A) Both the price level and the level of real GDP would be higher in the long run with the activist solution.
B) Both the price level and the level of real GDP would be lower in the long run with the activist solution.
C) The price level would be higher and the level of real GDP would be lower in the long run with the activist solution.
D) Only the price level would be lower in the long run with the activist solution.
E) Only the price level would be higher in the long run with the activist solution.

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A) largely independent of the level of aggregate supply stimulus provided by fiscal or monetary policy
B) largely independent of the level of aggregate demand stimulus provided by fiscal or monetary policy
C) dependent on the level of aggregate supply stimulus provided by fiscal or monetary policy
D) dependent on the level of aggregate demand stimulus provided by fiscal or monetary policy
E) dependent on the size of the federal budget deficit or surplus

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A) cut taxes
B) increase government spending
C) reduce interest rates
D) increase the money supply
E) do nothing

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A) the less macro policy can influence unemployment
B) the better discretionary policy can be expected to work
C) the slower the adjustment of the short-run Phillips curve
D) the stronger the case for active policy
E) none of the above

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