Chap017 - Chapter 17 - Policy Chapter 17 Policy Multiple...

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Chapter 17 - Policy Chapter 17 Policy Multiple Choice Questions 1. Formulating an appropriate policy response to an economic disturbance is difficult since policy makers are often unsure about a. The timing and magnitude of the effects of a proposed policy measure b. Whether a disturbance is temporary or permanent c. How the economy really works d. How a proposed policy measure affects people's expectations E . All of the above Difficulty: Easy 2. Policies designed to stabilize economic activity are handicapped by a. Incomplete information about the way the economy works b. Uncertainty about the length or magnitude of a disturbance c. Lags or delays between the time a decision is made and the time it begins to affect economic behavior d. Incomplete information about the way expectations are formed and how expectations affect responses to policies E . All of the above Difficulty: Easy 3. If a central bank believes that an economic disturbance will negatively affect GDP in the current quarter but will have little permanent effect, then it should a. Sharply lower interest rates immediately to mitigate the effects of the disturbance b. Sharply lower interest rates immediately and let financial markets know that they will be raised again next quarter c. Undertake large open market sales now with the intention of making open market purchases later on D . Sit on its hands since any policy action would destabilize the economy further e. None of the above Difficulty: Medium 17-1
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Chapter 17 - Policy 4. Designing successful economic stabilization policy is difficult since policy makers a. Never assume that an economic disturbance is temporary b. Do not have enough policy tools to deal with economic disturbances C . Do not know the expectations of consumers and firms d. Cannot adjust the automatic stabilizers e. All of above Difficulty: Medium 5. Economic disturbances are likely to be caused by a. Wars b. Changes in government spending or tax policies c. Economic policies designed to win elections d. Major innovations that require large amounts of investment E . All of the above Difficulty: Easy 6. Stabilization policy is affected by inside lags, which are a. Longer for monetary policy than for fiscal policy b. Made up of the recognition, decision, and discretionary lags C . Made up of the recognition, decision, and action lags d. The length of time it takes for a policy to affect the economy after its implementation e. Caused by bureaucrats inside the government Difficulty: Medium 7. The inside lag is defined as the length of time it takes a. To recognize that a disturbance has occurred b. For automatic stabilizers to mitigate a disturbance c. For a policy to affect the economy after its implementation D . To recognize that a disturbance has occurred and formulate and implement an appropriate policy response to it e. For a policy measure to be implemented after the administration decided on this policy Difficulty: Easy 17-2
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Chapter 17 - Policy 8. The outside lag is defined as the length of time it takes
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This note was uploaded on 12/05/2011 for the course ECON 201 taught by Professor Dr.matin during the Spring '09 term at Charleston.

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Chap017 - Chapter 17 - Policy Chapter 17 Policy Multiple...

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