CHAPTER 36 - Chapter36 FiveDebates overMacroeconomicPolicy...

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Chapter 36 Five Debates over Macroeconomic Policy 1. Stabilization policy is useful because a. there is no reason for society to suffer through  the booms and  busts of the business cycle. b. the economy  would  stabilize itself too quickly without  government  intervention. c. there are significant lags due to the nature  of the political process. d. All of the above are correct. ANSWER: a there is no reason for society to suffer through  the booms and  busts of the business cycle. SECTION: 1 OBJECTIVE: 1 2. The Federal Reserve will tend  to tighten  monetary  policy when a. interest rates are rising too rapidly. b. it thinks the unemployment  rate is too high. c. the growth  rate of real GDP is quite sluggish. d. it thinks inflation is too high today, or will become too high in the future. ANSWER: d it thinks inflation is too high today, or will become too high in the future. SECTION: 1 OBJECTIVE: 1 3. If the Federal Reserve loosened  monetary  policy today  because it believed  a recession was going to  hit the economy  in about  one year, this is an indication that the Fed a. is undertaking  an inappropriate monetary  policy. b. recognizes the problem  of lags. c. recognizes the fact that money is neutral. d. is conducting  a procyclical monetary  policy. ANSWER: b recognizes the problem  of lags. SECTION: 1 OBJECTIVE: 1 4. When economists say that there is a time lag in the effect of monetary  policy, they mean  that a. it takes time to observe the effects of fiscal policy on the economy. b. the Fed takes awhile to figure out what  it wants to do. c. the Congress takes awhile to figure out what  it wants to do. d. it takes time to observe the effects of monetary  policy on the economy. ANSWER: d it takes time to observe the effects of monetary  policy on the economy. SECTION: 1 OBJECTIVE: 1 5. The outcome of monetary  policy can never be certain because a. unemployment  is always changing. b. the concept of a natural rate of unemployment  is still not accepted  by all policy actions. c. the slope of the AS curve is never clear. d. time lags disrupt  policy planning. ANSWER: d time lags disrupt  policy planning. SECTION: 1 OBJECTIVE: 1 213
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214    Chapter 36/Five Debates over Macroeconomic Policy 6. Time inconsistency occurs when  what  currently seems best for today  and  tomorrow a. is not best for tomorrow. b. is not best for today. c.
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CHAPTER 36 - Chapter36 FiveDebates overMacroeconomicPolicy...

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