Question 1

According to the Laffer Curve, a cut in the tax rate from above the maximum-revenue rate to a rate lower than the maximum-revenue rate will

Accepted Answer

A)  decrease real GDP.
B)  increase tax revenues.
C)  decrease tax revenues.
D)  have no effect on tax revenues.E) A) and B)
F) B) and D)

Question 2

The automatic adjustment mechanism that makes the economy move toward the long-run Phillips Curve is

Accepted Answer

A)  expansionary fiscal or monetary policy.
B)  inflation expectations and wage adjustments.
C)  contractionary fiscal or monetary policy.
D)  increases in productivity over time.E) A) and C)
F) A) and B)

Question 3

The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand

Accepted Answer

A)  influences real output and employment in the long run, but not in the short run.
B)  influences real output and employment in the short run, but not in the long run.
C)  does not influence the price level in the short run or the long run but only real output and employment.
D)  does not influence real output and employment in the short run or the long run but only the price level.E) A) and D)
F) None of the above

Question 4

In the short run, the price level is assumed to be

Accepted Answer

A)  fixed, along with input prices.
B)  flexible, but input prices are not.
C)  flexible, along with input prices.
D)  fixed, but input prices are flexible.E) B) and C)
F) A) and C)

Question 5

A stable Phillips curve does not allow for the possibility of stagflation.

Accepted Answer

A) True 
 B)False

Question 6

A rightward and upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

Accepted Answer

A) True 
 B)False

Question 7

(Consider This)  Economist Arthur Laffer equated Robin Hood to

Accepted Answer

A)  government and equated the people passing through Sherwood Forest to taxpayers.
B)  charitable organizations and equated the people passing through Sherwood Forest to poor people.
C)  businesses and equated the people passing through Sherwood Forest to consumers.
D)  government and equated the people passing through Sherwood Forest to importers of goods and services.E) A) and B)
F) A) and C)

Question 8

Based on the long-run Phillips Curve, any rate of inflation is compatible in the long run with the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 9

If the government adopts a hands-off policy toward inflation, then the long run effects of cost-push inflation and demand-pull inflation are identical.

Accepted Answer

A) True 
 B)False

Question 10

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent.Should inflation actually be 6 percent, then

Accepted Answer

A)  nominal wages fall by 5 percent.
B)  real wages fall by 6 percent.
C)  nominal wages fall by 1 percent.
D)  real wages fall by 1 percent.E) A) and B)
F) A) and C)

Question 11

Given a Phillips Curve with stable and predictable inflation and unemployment rate trade-offs, it appears that

Accepted Answer

A)  an expansionary fiscal policy can shift the curve to the left.
B)  a tight money policy can shift the curve to the right.
C)  manipulating aggregate demand through fiscal and monetary policies has the effect of causing a movement along the curve.
D)  manipulating aggregate demand through fiscal and monetary policies has the effect of shifting the curve.E) None of the above
F) A) and D)

Question 12

The Phillips Curve shows a positive relationship between the rate of inflation and the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that the Consumer Price Index for a particular economy rose from 110 to 120 in year 1, 120 to 130 in year 2, and 130 to 140 in year 3.We could conclude that this economy is experiencing

Accepted Answer

A)  accelerating inflation.
B)  deflation.
C)  disinflation.
D)  a constant rate of inflation.E) None of the above
F) All of the above

Question 14

A shift in the Phillips Curve to the left will improve the short-run inflation-unemployment choices available to society.

Accepted Answer

A) True 
 B)False

Question 15

The traditional Phillips Curve showing a trade-off between inflation and unemployment is based on having a stable

Accepted Answer

A)  aggregate demand and a shifting short-run aggregate supply.
B)  short-run aggregate supply and a shifting aggregate demand.
C)  long-run aggregate supply and a shifting aggregate demand.
D)  aggregate demand and a shifting long-run aggregate supply.E) B) and D)
F) None of the above

Question 16

Statistical data for the 1970s and 1980s suggest that

Accepted Answer

A)  the Phillips Curve was stable.
B)  the Phillips Curve was unstable.
C)  low levels of unemployment were consistently associated with high rates of inflation.
D)  the inflation rate was highly stable.E) None of the above
F) A) and B)

Question 17

Equilibrium in the long run occurs when

Accepted Answer

A)  AD intersects the short-run AS, regardless of output level.
B)  AD intersects the short-run AS, regardless of price level.
C)  AD intersects the short-run and the long-run AS curves at the same point.
D)  the short-run AS curve intersects the long-run AS curve.E) B) and C)
F) A) and D)

Question 18

What will occur in the short run if there is cost-push inflation and the government adopts a hands-off approach to it?

Accepted Answer

A)  an increase in real output
B)  an inflationary spiral
C)  low unemployment and a loss of real output
D)  high unemployment and a loss of real outputE) A) and B)
F) A) and C)

Question 19

The short-run aggregate supply curve is vertical, and the long-run aggregate supply curve is horizontal.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the table.If the current tax rate is 60 percent, supply-side economists would advocate

Accepted Answer

A)  lowering tax rates to 20 percent, or lower if possible.
B)  lowering tax rates to 40 percent.
C)  keeping tax rates at 60 percent.
D)  raising tax rates to 80 percent.E) C) and D)
F) A) and C)

Exam 38: Extending the Analysis of Aggregate Supply

Suppose that the Consumer Price Index for a particular economy rose from 110 to 120 in year 1, 120 to 130 in year 2, and 130 to 140 in year 3.We could conclude that this economy is experiencing

Correct AnswerverifiedShow Answer

The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand

Correct AnswerverifiedShow Answer

Based on the long-run Phillips Curve, any rate of inflation is compatible in the long run with the natural rate of unemployment.

Correct AnswerverifiedShow Answer

A shift in the Phillips Curve to the left will improve the short-run inflation-unemployment choices available to society.

Correct AnswerverifiedShow Answer

Equilibrium in the long run occurs when

Correct AnswerverifiedShow Answer

Statistical data for the 1970s and 1980s suggest that

Correct AnswerverifiedShow Answer

A rightward and upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

Correct AnswerverifiedShow Answer

The Phillips Curve shows a positive relationship between the rate of inflation and the unemployment rate.

Correct AnswerverifiedShow Answer

(Consider This) Economist Arthur Laffer equated Robin Hood to

Correct AnswerverifiedShow Answer

Refer to the table.If the current tax rate is 60 percent, supply-side economists would advocate

Correct AnswerverifiedShow Answer

Given a Phillips Curve with stable and predictable inflation and unemployment rate trade-offs, it appears that

Correct AnswerverifiedShow Answer

In the short run, the price level is assumed to be

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve is vertical, and the long-run aggregate supply curve is horizontal.

Correct AnswerverifiedShow Answer

What will occur in the short run if there is cost-push inflation and the government adopts a hands-off approach to it?

Correct AnswerverifiedShow Answer

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent.Should inflation actually be 6 percent, then

Correct AnswerverifiedShow Answer

If the government adopts a hands-off policy toward inflation, then the long run effects of cost-push inflation and demand-pull inflation are identical.

Correct AnswerverifiedShow Answer

A stable Phillips curve does not allow for the possibility of stagflation.

Correct AnswerverifiedShow Answer

The traditional Phillips Curve showing a trade-off between inflation and unemployment is based on having a stable

Correct AnswerverifiedShow Answer

According to the Laffer Curve, a cut in the tax rate from above the maximum-revenue rate to a rate lower than the maximum-revenue rate will

Correct AnswerverifiedShow Answer

The automatic adjustment mechanism that makes the economy move toward the long-run Phillips Curve is

Correct AnswerverifiedShow Answer

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