Question 1

The privately held government debt is that portion of the national debt that

Accepted Answer

A)   must be paid off at some point in the future.
B)   is owed to domestic and foreign investors.
C)   cannot be refinanced by issuing new debt.
D)   is owned by agencies of the federal government.E) A) and C)
F) C) and D)

Question 2

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy)  is called

Accepted Answer

A)   the adaptive expectations hypothesis.
B)   the permanent income hypothesis.
C)   the rational expectations hypothesis.
D)   the Phillips curve.E) A) and D)
F) A) and C)

Question 3

Most economists believe that

Accepted Answer

A)   a monetary policy that achieves price stability will reduce uncertainty and provide the framework for strong economic growth.
B)   demand stimulus policies will reduce the long-term average rate of unemployment.
C)   expansionary monetary policy, if persistently followed, will reduce nominal interest rates.
D)   inflation is primarily the result of large budget deficits and other elements of expansionary fiscal policy.E) A) and D)
F) C) and D)

Question 4

According to the adaptive expectations hypothesis,

Accepted Answer

A)   inflation will cause the long-run unemployment rate to decline.
B)   the economic record during the current period strongly influences decision-maker expectations about the future.
C)   decision makers will consider the expected impact of policy changes when forming their expectations about the future rate of inflation.
D)   future inflation will adapt to conform with the expectations of decision makers.E) B) and C)
F) A) and D)

Question 5

As the large baby-boom generation moves into the retirement phase of life, this will

Accepted Answer

A)   make it easier for the federal government to finance its budget deficit because the baby-boomers will be the wealthiest generation  of retirees in American history.
B)   make it easier for the federal government to reduce spending because senior citizens do not spend much on consumption.
C)   make it more difficult for the federal government to finance its budget deficit because the retirement  of the baby-boomers will  mean more expenditures for Social Security and Medicare.
D)   not affect the federal deficit because there is no reason to expect that either federal spending or tax revenues will be influenced by the retirement of the baby-boomers.E) All of the above
F) C) and D)

Question 6

The index of leading indicators is

Accepted Answer

A)   an alphabetical listing of the most popular indicators in the economy for a given month.
B)   a composite index of indicators that provides information on the future direction of the economy.
C)   a measure of the level of aggregate output.
D)   a composite index designed to measure inflation.E) A) and D)
F) None of the above

Question 7

According to the rational expectations theory, expansionary monetary policy will

Accepted Answer

A)   reduce inflation.
B)   lead to inflation and the higher rate of inflation will be quickly anticipated.
C)   reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion.
D)   accelerate inflation in the short run, but in the long run the primary effect will be an increase in employment.E) A) and B)
F) B) and D)

Question 8

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom, activists' economic policy would call for

Accepted Answer

A)   a decrease in money supply growth and a tax increase.
B)   an increase in money supply growth and a shift toward a budget deficit.
C)   an increase in money supply growth and a tax decrease.
D)   a continuation of the policies already in place.E) C) and D)
F) B) and D)

Question 9

Under the rational expectations hypothesis, which of the following is the most likely effect of a shift to a more expansionary monetary policy?

Accepted Answer

A)   In the short run, the real rate of output will be unaffected, but in the long run, it will increase.
B)   In the short run, the real rate of output will increase, but in the long run, it will be unchanged.
C)   There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher.
D)   In the short run, the impact on the real rate of output is uncertain; in the long run, it will remain unchanged.E) A) and B)
F) C) and D)

Question 10

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase

Accepted Answer

A)   prices but not real output in the short run.
B)   real output but not prices in the short run.
C)   real output in the long run but not in the short run.
D)   real output in both the long run and the short run.E) A) and B)
F) B) and C)

Question 11

Explain the three lags that make it difficult to time changes in discretionary policy properly.

Accepted Answer

The recognition lag is the period betwee...

Question 12

The time period between when economic conditions change and when policy makers are aware of the change is called the

Accepted Answer

A)   index of leading indicators.
B)   administrative lag.
C)   recognition lag.
D)   impact lag.E) All of the above
F) A) and B)

Question 13

During the 1960s, most economists believed that expansionary macro-policy

Accepted Answer

A)   that caused inflation would permanently reduce unemployment.
B)   that caused inflation would permanently increase unemployment.
C)   could not be utilized to reduce unemployment.
D)   did not affect inflation.E) A) and B)
F) B) and C)

Question 14

If a country with a large government debt uses money creation to service and repay the debt, this will lead to

Accepted Answer

A)   lower interest rates.
B)   an appreciation of the nation's currency in the foreign exchange market.
C)   inflation, higher interest rates, and a financial crisis.
D)   rapid economic growth, as the expansionary monetary policy stimulates the economy and generates the additional tax revenue to service the larger debt.E) B) and D)
F) A) and C)

Question 15

Computer forecasting models have

Accepted Answer

A)   been able to forecast changes in the growth rate of real GDP with considerable accuracy.
B)   had only limited success predicting turns in key economic variables such as real GDP.
C)   been able to accurately forecast the future direction of inflation but not real GDP.
D)   been able to accurately forecast the future direction of real GDP but not inflation.E) B) and D)
F) B) and C)

Question 16

The effectiveness of monetary policy as a stabilization tool is limited by

Accepted Answer

A)   activist economists, who exert pressure on politicians.
B)   the inability to forecast the future and time policy changes in a stabilizing manner.
C)   Congressional attempts to offset changes in monetary policy with modifications in fiscal policy.
D)   the inability of the Federal Reserve to alter the money supply.E) C) and D)
F) All of the above

Question 17

Why did many economists during the 1960s and 1970s  believe that expansionary macroeconomic policy that resulted in inflation would reduce the rate of unemployment?

Accepted Answer

A)   They failed to realize that the expansionary policy would stimulate aggregate demand.
B)   They failed to realize that the expansionary policy would reduce real interest rates.
C)   They failed to incorporate expectations into their analysis.
D)   They thought that money growth would simply lead to a proportional increase in the price level.E) B) and C)
F) A) and D)

Question 18

The variables in the index of leading indicators are included in the index because

Accepted Answer

A)   they are good indicators of the current rate of inflation.
B)   they generally lag behind turns in the business cycle.
C)   of their tendency to lead (or predict)  turns in the business cycle.
D)   they are good indicators of the current state of the economy.E) A) and B)
F) All of the above

Question 19

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Accepted Answer

A)   expansionary monetary policy
B)   expansionary fiscal policy
C)   price stability
D)   a balanced federal budgetE) A) and B)
F) A) and C)

Question 20

Which of the following is likely to push the federal debt increasingly higher in the coming decades?

Accepted Answer

A)   a strong rebound from the economic weakness of 2008-2015
B)   increased expenditures on the Social Security and Medicare programs
C)   an increase in tax revenues as the baby boom generation retires
D)   increased political pressure to balance federal budgetsE) A) and D)
F) A) and C)

Exam 15: Stabilization Policy, Output, and Employment

The time period between when economic conditions change and when policy makers are aware of the change is called the

Correct AnswerverifiedShow Answer

The index of leading indicators is

Correct AnswerverifiedShow Answer

Which of the following is likely to push the federal debt increasingly higher in the coming decades?

Correct AnswerverifiedShow Answer

Under the rational expectations hypothesis, which of the following is the most likely effect of a shift to a more expansionary monetary policy?

Correct AnswerverifiedShow Answer

During the 1960s, most economists believed that expansionary macro-policy

Correct AnswerverifiedShow Answer

Explain the three lags that make it difficult to time changes in discretionary policy properly.

Correct AnswerverifiedThe recognition lag is the period betwee...View AnswerShow Answer

If the index of leading indicators and other forecasting devices suggested that the economy is moving into an inflationary boom, activists' economic policy would call for

Correct AnswerverifiedShow Answer

According to the rational expectations theory, expansionary monetary policy will

Correct AnswerverifiedShow Answer

The privately held government debt is that portion of the national debt that

Correct AnswerverifiedShow Answer

According to the adaptive expectations hypothesis,

Correct AnswerverifiedShow Answer

Which of the following is most important for the achievement of long-term prosperity and strong economic growth?

Correct AnswerverifiedShow Answer

The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called

Correct AnswerverifiedShow Answer

Why did many economists during the 1960s and 1970s believe that expansionary macroeconomic policy that resulted in inflation would reduce the rate of unemployment?

Correct AnswerverifiedShow Answer

The effectiveness of monetary policy as a stabilization tool is limited by

Correct AnswerverifiedShow Answer

If a country with a large government debt uses money creation to service and repay the debt, this will lead to

Correct AnswerverifiedShow Answer

The variables in the index of leading indicators are included in the index because

Correct AnswerverifiedShow Answer

As the large baby-boom generation moves into the retirement phase of life, this will

Correct AnswerverifiedShow Answer

Computer forecasting models have

Correct AnswerverifiedShow Answer

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase

Correct AnswerverifiedShow Answer

Most economists believe that

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The recognition lag is the period betwee...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified