econ final ch 23

Activists of the policies believe that A) the self-correcting mechanism through wage and price adjustment is very slow. B) wages and prices are sticky. C) the government needs to pursue active policy to eliminate high unemployment when it develops. D) all of the above.

d

Because fiscal and monetary policies in the United States were too expansionary from 1965 through 1973, the U.S. suffered A) demand-pull inflation. B) cost-push inflation, as workers sought higher wages in order to keep up with inflation. C) both demand-pull and cost-push inflation. D) neither demand-pull nor cost-push inflation.

a

Policy makers cannot achieve both price stability and economic activity stability when facing A) temporary supply shocks. B) permanent supply shocks. C) demand shocks. D) all of the above.

a

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment, this can set the stage for a higher rate of money growth and A) cost-push inflation. B) demand-pull inflation. C) cost-pull inflation. D) demand-push inflation

b

The existence of information and implementation lags prevents policy makers from making instantaneous adjustment of policies to change aggregate demand, thereby strengthening the case for A) supply-side policy. B) nonactive policy. C) active monetary policy. D) demand-management policy.

b

Theoretically, one can distinguish a demand-pull inflation from a cost-push inflation by comparing A) how fast prices rise relative to wages. B) the unemployment rate with its natural rate level. C) when prices rise relative to wages. D) government debt to real GDP.

b

When output is below potential and the policy rate has hit the floor of zero, the resulting fall in inflation leads to ________ real interest rates, which ________ output further, which causes inflation to fall further. A) lower; increase B) higher; depress C) higher; increase D) lower; depress

b

If workers do not believe that policymakers are serious about fighting inflation, they are most likely to push for higher wages, which will ________ aggregate ________ and lead to unemployment or inflation or both, everything else held constant. A) decrease; demand B) increase; demand C) decrease; supply D) increase; supply

c

Once the zero lower bound has been reached, policies that will restore output to its potential level include. A) an even more expansionary monetary policy to push interest rates lower B) a reduction in credit standards to make loans more available to riskier borrowers C) regulatory and tax policies aimed at creating opportunities for investors thus increasing autonomous investment spending D) all of the above

c

If the economy suffers a permanent negative supply shock because there is an increase in regulations that permanently reduce the level of potential output, then A) potential output falls. B) inflation increases C) the short-run aggregate supply curve shifts upward. D) all of the above.

d

If workers believe that government policymakers will increase aggregate demand to avoid a politically unpopular increase in unemployment when workers demand higher wages, then workers will not fear higher unemployment and their wage demands will result in A) demand-pull inflation. B) hyperinflation. C) deflation. D) cost-push inflation.

d

Those who argue against an active policy use which of the following arguments A) government action can introduce distortions into the economy that are worse than the damage policy makers are aiming to prevent. B) the unpredictability of government action introduces uncertainty into economic decision-making that creates large costs of its own. C) the price signals of free markets create incentives that cause economic agents to act in ways that restore a long run, more-optimal and sustainable equilibrium. D) all of the above.

d

Those who opposed the recent fiscal stimulus package argue that A) fiscal stimulus via government spending has not been shown to have worked in either the New Deal program nor in Japan. B) permanent tax reductions accompanied by a reduction in the number of government workers has been shown to be more effective than the recent fiscal stimulus package of government spending increases and small temporary tax cuts. C) increased government spending is likely to increase firms and households' expected future tax rates, thus negating the expansionary impact of government spending. D) all of the above.

d

When the economy is hit by a negative demand shock and the central bank does not respond by changing the autonomous component of monetary policy, then the long run equilibrium will eventually be reached where A) inflation will be lower. B) output will be at its potential. C) output will be lower. D) inflation will not change. E) both A and B.

e