Question 1

To convey the point about supply-side economics, economist Arthur Laffer likened taxpayers to

Accepted Answer

A)  the ancient Greeks and the government to the ancient Romans.
B)  sea passengers on the Titanic and government to the icebergs.
C)  western pioneers in the United States and government to railroads.
D)  travelers through Sherwood Forest and the government to Robin Hood.E) A) and B)
F) A) and C)

Question 2

Which of the following is a true statement?

Accepted Answer

A)  There is a long-run trade-off between inflation and unemployment.
B)  There is no trade-off between inflation and unemployment in the short-run.
C)  The short-run Phillips Curve is horizontal.
D)  The long-run Phillips Curve is vertical.E) None of the above
F) All of the above

Question 3

The Laffer Curve shows the trade-off between the price level and tax rates.

Accepted Answer

A) True 
 B)False

Question 4

Assume that initially your nominal wage was $16 an hour and the price index was 100.If the price level increases to 105, then your

Accepted Answer

A)  real wage has increased to $21.
B)  real wage has decreased to $15.24.
C)  nominal wage has increased to $21.
D)  nominal wage has decreased to $15.24.E) A) and D)
F) A) and C)

Question 5

The Laffer Curve is a central concept in

Accepted Answer

A)  monetarism.
B)  Keynesianism.
C)  welfare economics.
D)  supply-side economics.E) A) and D)
F) B) and C)

Question 6

In the short-run, demand-pull inflation increases

Accepted Answer

A)  real wages, but in the long-run only nominal wages.
B)  nominal wages, but in the long-run only real wages.
C)  real output and the price level, but in the long-run only real output.
D)  real output and the price level, but in the long-run only the price level.E) None of the above
F) B) and D)

Question 7

Stagflation's demise during the 1980s resulted in a

Accepted Answer

A)  movement along the Phillips Curve toward less unemployment.
B)  movement along the Phillips Curve toward more inflation.
C)  shift in the Phillips Curve to the left.
D)  shift in the Phillips Curve to the right.E) C) and D)
F) B) and D)

Question 8

According to the simple extended AD-AS model, demand-pull inflation and cost-push inflation have the same effect on output in the long run.

Accepted Answer

A) True 
 B)False

Question 9

The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment,

Accepted Answer

A)  unemployment may actually increase because of the crowding-out effect.
B)  tax revenues may increase even though tax rates have been reduced.
C)  the inflation rate will increase.
D)  the natural rate of unemployment may fall.E) B) and C)
F) A) and D)

Question 10

Most economists think that

Accepted Answer

A)  supply-side effects of a tax cut exceed the demand-side effects.
B)  demand-side effects of a tax cut exceed the supply-side effects.
C)  demand-side and supply-side effects of a tax cut offset each other.
D)  there are only supply-side effects from a tax cut.E) B) and C)
F) A) and B)

Question 11

A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is associated with each inflation rate.

Accepted Answer

A) True 
 B)False

Question 12

In an aggregate demand-aggregate supply framework, fiscal policy that emphasizes cutting taxes as a means of improving incentives to work, save, and invest would be characterized primarily as a

Accepted Answer

A)  rightward shift of the aggregate demand curve.
B)  leftward shift of the aggregate demand curve.
C)  rightward shift of the long-run aggregate supply curve.
D)  leftward shift of the long-run aggregate supply curve.E) B) and D)
F) B) and C)

Question 13

The misery index is a measure of national economic discomfort that adds together a nation's

Accepted Answer

A)  saving and investment.
B)  budget deficit and public debt.
C)  unemployment rate and inflation rate.
D)  level of taxation with the amount of government spending.E) A) and B)
F) None of the above

Question 14

The adjustment mechanism that brings the economy to its long-run aggregate supply has to do with inflation expectations, whereas the adjustment to the long-run Phillips curve has to do with wage flexibility.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, if the price level decreases, then the economy's output level will

Accepted Answer

A)  increase initially, but then fall back again.
B)  increase.
C)  decrease.
D)  stay the same.E) A) and C)
F) None of the above

Question 16

A senator states, "We need to cut taxes in order to increase incentives to work and produce, so that we can pull the nation out of this economic slump." A mainstream economist who is a critic of this policy would likely reply that

Accepted Answer

A)  rather than cutting taxes, there should be a decrease in government spending to address the problem.
B)  rather than cutting taxes, monetary policy should become tighter to control the inflation rate.
C)  increasing government spending is a surer way to increase production and pull the nation out of this economic slump.
D)  cutting taxes will only reduce output further and aggravate the situation.E) None of the above
F) All of the above

Question 17

Which of the following is a true statement?

Accepted Answer

A)  Under normal conditions, there is a short-run trade-off between inflation and unemployment.
B)  There is a long-run trade-off between inflation and unemployment.
C)  The short-run Phillips Curve is vertical.
D)  The long-run Phillips Curve is horizontal.E) A) and B)
F) A) and C)

Question 18

Supply-side economists contend that the system of taxation in the United States

Accepted Answer

A)  creates incentives to save and invest.
B)  creates disincentives to work.
C)  generates maximum tax revenue.
D)  reduces the effects of cost-push inflation.E) A) and C)
F) A) and B)

Question 19

The short-run aggregate supply curve is upsloping because higher price levels

Accepted Answer

A)  lower interest rates and encourage firms to invest and produce more.
B)  create incentives to expand output when resource prices are unresponsive to price-level changes.
C)  encourage importation of foreign goods.
D)  create an expectation among producers of still higher price levels.E) A) and D)
F) B) and D)

Question 20

Supply-side economist Arthur Laffer has argued that

Accepted Answer

A)  there is no empirically proven relationship between tax rates and incentives.
B)  large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.
C)  the only way to eliminate inflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations.
D)  large cuts in income taxes will increase aggregate demand more than aggregate supply.E) B) and C)
F) A) and B)

Exam 38: Extending the Analysis of Aggregate Supply

Most economists think that

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In the short-run, demand-pull inflation increases

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Stagflation's demise during the 1980s resulted in a

Correct AnswerverifiedShow Answer

The Laffer Curve shows the trade-off between the price level and tax rates.

Correct AnswerverifiedShow Answer

The Laffer Curve is a central concept in

Correct AnswerverifiedShow Answer

In an aggregate demand-aggregate supply framework, fiscal policy that emphasizes cutting taxes as a means of improving incentives to work, save, and invest would be characterized primarily as a

Correct AnswerverifiedShow Answer

The misery index is a measure of national economic discomfort that adds together a nation's

Correct AnswerverifiedShow Answer

A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is associated with each inflation rate.

Correct AnswerverifiedShow Answer

In the long run, if the price level decreases, then the economy's output level will

Correct AnswerverifiedShow Answer

Assume that initially your nominal wage was $16 an hour and the price index was 100.If the price level increases to 105, then your

Correct AnswerverifiedShow Answer

A senator states, "We need to cut taxes in order to increase incentives to work and produce, so that we can pull the nation out of this economic slump." A mainstream economist who is a critic of this policy would likely reply that

Correct AnswerverifiedShow Answer

Supply-side economists contend that the system of taxation in the United States

Correct AnswerverifiedShow Answer

Supply-side economist Arthur Laffer has argued that

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve is upsloping because higher price levels

Correct AnswerverifiedShow Answer

According to the simple extended AD-AS model, demand-pull inflation and cost-push inflation have the same effect on output in the long run.

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

Correct AnswerverifiedShow Answer

The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment,

Correct AnswerverifiedShow Answer

The adjustment mechanism that brings the economy to its long-run aggregate supply has to do with inflation expectations, whereas the adjustment to the long-run Phillips curve has to do with wage flexibility.

Correct AnswerverifiedShow Answer

To convey the point about supply-side economics, economist Arthur Laffer likened taxpayers to

Correct AnswerverifiedShow Answer

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