CH27 Macro Quiz

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.

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

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

adaptive expectations

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

all of these

Which of the following statements is true?

all of these

The proponents of adaptive expectations believe that:

all of these are true

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

curve is not stable

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

nixon administration

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

The belief that the government can do absolutely nothing in either the short run or the long run to reduce the unemployment rate, because people will anticipate the government's 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 policy will be a:

temporary reduction in the unemployment rate.

According to the theory of rational expectations,

workers' wage demands include anticipated inflation.