Macro 231 Quiz27e7

In the United States, the most recent use of wage and price controls occurred during the

Nixon Administration

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal and monetary policy to cause output real incomes and employment to be rising prior to elections

According to rational expectations theory which of the following is the best approach to lower the inflation rate?

Preannounced stable government policies

Which of the following statements is true?

All of these

Under the rational expectations hypothesis which of the following is the most likely short-run effect of a move to expansionary monetary policy?

A higher general level of prices but no change in real output.

According to adaptive expectations theory, which of the following would be the long-run result of expansionary monetary and fiscal policies

All of these

This school of thought argues that because people anticipate the consequences of announced government policy and incorporate these anticipated consequences into their present decision making, people end up undermining the government policy. What is it?

Rational Expectations

Suppose the economy in Exhibit 17-4 is at point E 1, and the Fed increases the money supply. If people have rational expectations, then the economy will move

directly to point B

When people use recent information to gradually adjust their forecasts of inflation they are said to have

adaptive expectations

The proponent of adaptive expectations believe that

all of these are true

As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD 1 to AD 2 will cause the price level to move

directly from 100 to 110 and then remain at 110

Experience with the Phillips curve since the 1970's has shown that the

curve is not stable

As shown in Exhibit 17-2, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD 1 to AD 2 will cause the economy to move

from E1 to E2 initially and then eventually move to E3

The belief that the government can do absolutely nothing in either the short run or long run to reduce the unemployment rate, because people will anticipate the governments actions, is held by the

rational expectations school

According to the Phillips curve, a more expansionary macro-policy that causes inflation to be greater will

reduce unemployment

the natural rate hypothesis argues that the economy will

self-correct to the natural rate of unemployment

Under the natural rate hypothesis expansionary monetary and fiscal policies can at best produce a

short run change in the unemployment rate

Under adaptive expectations, the short term effect of an unanticipated shift to a more expansionary macroeconomic ploy will be a

temporary reduction to the unemployment rate

In Exhibit 17-1 when the unemployment rate goes from 3 percent to 9 percent

the inflation rate goes from 8 percent to 3 percent.

According to theory of rational expectations

workers' wage demands include anticipated inflation