SOLVED

1) Economists use ________ to forecast economic activity and to evaluate policy options. A) macroeconometric models B) educated guesses C) cost-benefit analysis D) constrained discretion 2) Forecasts based on the extrapolation of observed trends and relationships are likely to be accurate, if ________. A) changes in expectations are properly considered B) policy actions are anticipated C) economic behavior is guided by rational expectations D) policy changes are understood to be permanent 3) Robert Lucas spurred the rational expectations revolution in ________. A) the 1960s B) the 1970s C) the 2000s D) the 1880s 4) The danger in using data to estimate the consequences of a proposed policy is that ________. A) the data can reveal only the benefits of a policy, while estimating the policy’s costs is important, also B) policies change so often that data can never reveal which policies are the cause of which consequences C) the public’s expectations about the policy might influence the data, making the policy seem more or less appropriate than is actually the case D) the proposed policy, if implemented, might cause unforeseeable changes in the relationships that were in operation when the data were produced 5) An economic policy has a decent chance of working as intended, if ________. A) the policy causes no change in expectations B) if mistaken expectations are not very costly C) the rationale behind the policy is well-understood by the public D) expectations are formed in the same way by both the public and the policymakers 6) According to the Lucas critique, what is the proper way to evaluate a proposal that reduces government borrowing by raising taxes and reducing government spending? 1) The time-inconsistency problem involves the ________. A) difficulties of traveling across time zones. B) tendency to deviate from good long-run plans in the short-run. C) use of adaptive expectations in building an economic model. D) time lag between the implementation of policy and its ultimate and complete results. 2) The tendency to deviate from sound long-run plans in the short-run is known as ________. A) the failure of adaptive expectations. B) the failure of rational expectations. C) the time inconsistency problem. D) the NIMBY, or not in my backyard problem. 3) Which of the following is most consistent with the time-inconsistency problem? A) while it is ten o’clock in the morning in Chicago, it will be eleven o’clock in New York City. B) a monetary policy action that is implemented in January will not begin to influence economic variables for several months. C) a parent who acquiesces to a child’s demand just to keep them quiet in a public setting. D) an economic model with adaptive expectations.