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A) a decrease in profits, an increase in real output, and a decrease in the unemployment rate. B) a decrease in profits, a decrease in real output, and a decrease in the unemployment rate. C) a decrease in profits, a decrease in real output, and an increase in the unemployment rate. D) an increase in profits, an increase in real output, and a decrease in the unemployment rate.


A) a decrease in profits, an increase in real output, and a decrease in the unemployment rate.
B) a decrease in profits, a decrease in real output, and a decrease in the unemployment rate.
C) a decrease in profits, a decrease in real output, and an increase in the unemployment rate.
D) an increase in profits, an increase in real output, and a decrease in the unemployment rate.

E) C) and D)
F) B) and C)

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Refer to the graphs, where the subscripts on the labels denote years 1 and 2. From the graphs we can clearly conclude that the economy A) is not at full employment in either year. B) is at full employment in year 1 but not in year 2. C) is at full employment in year 2 but not in year 1. D) is at full employment in both years. Refer to the graphs, where the subscripts on the labels denote years 1 and 2. From the graphs we can clearly conclude that the economy


A) is not at full employment in either year.
B) is at full employment in year 1 but not in year 2.
C) is at full employment in year 2 but not in year 1.
D) is at full employment in both years.

E) A) and B)
F) C) and D)

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Refer to the graph. Economic growth driven by productivity and technology would be illustrated as a shift of A) A D _ { 1 } \text { to } A D _ { 2 } B) P _ { 1 } \text { to } P _ { 2 } C) \mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 1 } D) \mathrm { AS } _ { \mathrm { LR } 1 } \text { to } \mathrm { AS } _ { \mathrm { LR } 2 } Refer to the graph. Economic growth driven by productivity and technology would be illustrated as a shift of


A) AD1 to AD2A D _ { 1 } \text { to } A D _ { 2 }
B) P1 to P2P _ { 1 } \text { to } P _ { 2 }
C) AS2 to AS1\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 1 }
D) ASLR1 to ASLR2\mathrm { AS } _ { \mathrm { LR } 1 } \text { to } \mathrm { AS } _ { \mathrm { LR } 2 }

E) B) and C)
F) All of the above

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The traditional Phillips Curve suggests a trade-off between


A) price stability and income equality.
B) the level of unemployment and inflation.
C) unemployment and income equality.
D) economic growth and full employment.

E) None of the above
F) All of the above

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Inflation in the U.S. economy tends to be


A) a finite, one-time event resulting from a shock.
B) ongoing, as increases in aggregate demand generally exceed the increases in aggregate supply.
C) a finite, one-time event, as the Fed actively works to eliminate all inflation.
D) ongoing, as aggregate supply is continually shifting to the left.

E) All of the above
F) A) and B)

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Refer to the diagram. The natural rate of unemployment for this economy is A) 3 percent. B) 5 percent. C) 6 percent. D) 9 percent. Refer to the diagram. The natural rate of unemployment for this economy is


A) 3 percent.
B) 5 percent.
C) 6 percent.
D) 9 percent.

E) A) and C)
F) B) and C)

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Refer to the graphs. Growth of production capacity is shown by A) the shift from AB to CD only. B) the shift from X to Y only. C) both the shift from AB to CD and the shift from X to Y. D) both the shift from AB to CD and the shift from Y to X. Refer to the graphs. Growth of production capacity is shown by


A) the shift from AB to CD only.
B) the shift from X to Y only.
C) both the shift from AB to CD and the shift from X to Y.
D) both the shift from AB to CD and the shift from Y to X.

E) A) and B)
F) A) and C)

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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


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) A) and D)
F) B) and D)

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

A) True
B) False

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Refer to the diagram and assume the economy is initially at point b _ { 1 } . Which of the following Movements is consistent with the traditional Phillips Curve? A) the movement from b _ { 1 } \text { to } b _ { 2 } B) the movement from b _ { 1 } \text { to } c _ { 1 } C) the movement from c _ { 1 } \text { to } b _ { 2 } D) the movement from b _ { 2 } \text { to } b _ { 1 } Refer to the diagram and assume the economy is initially at point b1b _ { 1 } . Which of the following Movements is consistent with the traditional Phillips Curve?


A) the movement from b1 to b2b _ { 1 } \text { to } b _ { 2 }
B) the movement from b1 to c1b _ { 1 } \text { to } c _ { 1 }
C) the movement from c1 to b2c _ { 1 } \text { to } b _ { 2 }
D) the movement from b2 to b1b _ { 2 } \text { to } b _ { 1 }

E) B) and C)
F) C) and D)

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The economy enters the long-run once


A) nominal wages become equal to real wages.
B) real wages become equal to nominal wages.
C) sufficient time has elapsed for wage contracts to expire and nominal wages to adjust to output-price changes.
D) sufficient time has elapsed for real GDP to increase and unemployment to decrease as a consequence

E) All of the above
F) None of the above

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Government can push the unemployment rate below the natural rate only by


A) instituting supply-side economic policies.
B) producing a higher rate of inflation than people expect.
C) balancing the federal budget.
D) achieving zero inflation.

E) A) and B)
F) B) and D)

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What is supply-side economics?

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Supply-side economics is a vie...

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Refer to the Laffer Curve. A cut in the tax rate from T T _ { 2 } \text { to } T _ { 1 } would A) decrease tax revenues and support the views of supply-side economists. B) increase tax revenues and support the views of supply-side economists. C) increase tax revenues and support the views of mainstream economists. D) decrease tax revenues and support the views of mainstream economists. Refer to the Laffer Curve. A cut in the tax rate from T T2 to T1T _ { 2 } \text { to } T _ { 1 } would


A) decrease tax revenues and support the views of supply-side economists.
B) increase tax revenues and support the views of supply-side economists.
C) increase tax revenues and support the views of mainstream economists.
D) decrease tax revenues and support the views of mainstream economists.

E) A) and B)
F) A) and C)

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Equilibrium in the long run occurs when


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) A) and D)
F) A) and C)

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If government uses fiscal policy to restrain cost-push inflation, we can expect


A) the inflation rate to rise.
B) the unemployment rate to fall.
C) the aggregate demand curve to shift rightward.
D) tax-rate declines and increases in government spending.

E) A) and D)
F) B) and C)

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Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between A) b and d and that a decrease in tax rates will decrease tax revenues. B) 0 and b and that a decrease in tax rates will decrease tax revenues. C) 0 and b and that a decrease in tax rates will increase tax revenues. D) b and d and that a decrease in tax rates will increase tax revenues. Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between


A) b and d and that a decrease in tax rates will decrease tax revenues.
B) 0 and b and that a decrease in tax rates will decrease tax revenues.
C) 0 and b and that a decrease in tax rates will increase tax revenues.
D) b and d and that a decrease in tax rates will increase tax revenues.

E) A) and B)
F) A) and C)

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A) a movement from x _ { 1 } to x _ { 2 } in the short run, and the unemployment rate decreases, followed by a shift from x _ { 2 } to y _ { 1 } as nominal wages rise in the long run. B) a movement from x _ { 1 } to x _ { 3 } in the short run, and the unemployment rate decreases, followed by a shift from x _ { 3 } to x _ { 1 } as output rises in the long run. C) \text { a movement from } x _ { 1 } \text { to } y _ { 1 } \text { in the short run and back to } x _ { 1 } \text { in the long run. } D) \text { no change in the short run, but a shift from } x _ { 1 } \text { to } y _ { 1 } \text { in the long run. }


A) a movement from x1x _ { 1 } to x2x _ { 2 } in the short run, and the unemployment rate decreases, followed by a shift from x2x _ { 2 } to y1y _ { 1 } as nominal wages rise in the long run.
B) a movement from x1x _ { 1 } to x3x _ { 3 } in the short run, and the unemployment rate decreases, followed by a shift from x3x _ { 3 } to x1x _ { 1 } as output rises in the long run.
C)  a movement from x1 to y1 in the short run and back to x1 in the long run. \text { a movement from } x _ { 1 } \text { to } y _ { 1 } \text { in the short run and back to } x _ { 1 } \text { in the long run. }
D)  no change in the short run, but a shift from x1 to y1 in the long run. \text { no change in the short run, but a shift from } x _ { 1 } \text { to } y _ { 1 } \text { in the long run. }

E) B) and D)
F) B) and C)

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Refer to the diagram. Assume that nominal wages initially are set based on the price level P<sub>2</sub> and that the economy initially is operating at its full-employment level of output Q<sub>f</sub>. In the short run, demand-pull inflation could best be shown as A) a move from b to c on A \mathrm { AS } _ { 2 } B) a move from b to c to d. C) a change of aggregate supply from A \mathrm { AS } _ { 2 } \text { to } A S _ { 3 } \text {. } D) a move from b to d. Refer to the diagram. Assume that nominal wages initially are set based on the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the short run, demand-pull inflation could best be shown as


A) a move from b to c on A AS2\mathrm { AS } _ { 2 }
B) a move from b to c to d.
C) a change of aggregate supply from A AS2 to AS3. \mathrm { AS } _ { 2 } \text { to } A S _ { 3 } \text {. }
D) a move from b to d.

E) B) and C)
F) A) and C)

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A) v. B) x. C) t. D) y.


A) v.
B) x.
C) t.
D) y.

E) B) and C)
F) All of the above

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