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Refer to the diagram. Point b would not be permanent because the A) economy would move from b to a on PC \mathrm { PC } _ { 1 } . B) short-run Phillips Curve would shift from PC \mathrm { PC } _ { 1 } \text { to } \mathrm { PC } _ { 2 } and unemployment would increase to The natural rate at c. C) economy would immediately move from b to c to d. D) economy would move from b directly to d. Refer to the diagram. Point b would not be permanent because the


A) economy would move from b to a on PC PC1.\mathrm { PC } _ { 1 } .
B) short-run Phillips Curve would shift from PC PC1 to PC2\mathrm { PC } _ { 1 } \text { to } \mathrm { PC } _ { 2 } and unemployment would increase to
The natural rate at c.
C) economy would immediately move from b to c to d.
D) economy would move from b directly to d.

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

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Refer to the diagram for a specific economy. An increase in aggregate demand will A) shift this curve to the right. B) shift this curve to the left. C) move this economy down and to the right along the curve. D) move this economy up and to the left along the curve. Refer to the diagram for a specific economy. An increase in aggregate demand will


A) shift this curve to the right.
B) shift this curve to the left.
C) move this economy down and to the right along the curve.
D) move this economy up and to the left along the curve.

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

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In terms of aggregate supply, a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the


A) long run.
B) short run.
C) immediate market period.
D) very long run.

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

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Which of the following is a true statement?


A) There is a long-run trade-off between inflation and unemployment.
B) There is no trade-off between inflation and unemployment in the long run.
C) The short-run Phillips Curve is horizontal.
D) The long-run Phillips Curve is horizontal.

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

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Statistical data for the 1970s and 1980s suggest that


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

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The traditional Phillips Curve shows the


A) direct correlation between the rate of inflation and the unemployment rate.
B) inverse correlation between the rate of inflation and the rate of unemployment.
C) direct correlation between the short-run and long-run aggregate supply.
D) inverse correlation between the short-run and long-run aggregate supply.

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

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Refer to the graph. Assume the economy is at the initial position of B _ { 2 } . It is possible for the Government to reduce the unemployment rate and move the economy to C2 if A) expected in?ation remains at 4 percent. B) expected in?ation becomes 8 percent. C) actual in?ation remains at 4 percent. D) actual in?ation is at 12 percent. Refer to the graph. Assume the economy is at the initial position of B2B _ { 2 } . It is possible for the Government to reduce the unemployment rate and move the economy to C2 if


A) expected in?ation remains at 4 percent.
B) expected in?ation becomes 8 percent.
C) actual in?ation remains at 4 percent.
D) actual in?ation is at 12 percent.

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

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(Last Word) Do tax increases reduce real GDP?

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Yes, a study by Christina Romer and Davi...

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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.

A) True
B) False

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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.


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) C) and D)
F) None of the above

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The graph describes the notion that as tax rates rise from zero percent, tax revenues will A) increase at first, but then decline eventually as tax rates continue rising. B) decrease at first, but then increase eventually as tax rates continue rising. C) rise higher and higher. D) fall lower and lower until they shrink to zero. The graph describes the notion that as tax rates rise from zero percent, tax revenues will


A) increase at first, but then decline eventually as tax rates continue rising.
B) decrease at first, but then increase eventually as tax rates continue rising.
C) rise higher and higher.
D) fall lower and lower until they shrink to zero.

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

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Refer to the graph. If tax rates are between b and d, then supply-side economists are of the opinion that a(n) A) increase in tax revenues will increase tax rates. B) decrease in tax rates will increase tax revenues. C) increase in tax rates will increase tax revenues. D) decrease in tax revenues will decrease tax rates. Refer to the graph. If tax rates are between b and d, then supply-side economists are of the opinion that a(n)


A) increase in tax revenues will increase tax rates.
B) decrease in tax rates will increase tax revenues.
C) increase in tax rates will increase tax revenues.
D) decrease in tax revenues will decrease tax rates.

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

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Refer to the graph. Suppose that the economy is at an initial equilibrium where the AD A D _ { 1 } \text { and } A S _ { 1 } curves intersect. Demand-pull in?ation in the long run can best be illustrated as a shift of A) \mathrm { AS } _ { 1 } \text { to } \mathrm { AS }_2 \text {, and back again to } \mathrm { AS } _\text {1}. B) A D _ { 1 } \text { to } A D _ { 2 } \text {, and back again to } A D _ { 1 } \text {. } C) \mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {, consequently making } A D _ { 1 } \text { shift to } A D _ { 2 } D) \mathrm { AD } _ { 1 } \text { to } A \mathrm { D } _ { 2 } \text {, consequently making } \mathrm { AS } _ { 1 } \text { shift to } \mathrm { AS } _ { 2 } \text {. } Refer to the graph. Suppose that the economy is at an initial equilibrium where the AD AD1 and AS1A D _ { 1 } \text { and } A S _ { 1 } curves intersect. Demand-pull in?ation in the long run can best be illustrated as a shift of


A) AS1 to AS2, and back again to AS1.\mathrm { AS } _ { 1 } \text { to } \mathrm { AS }_2 \text {, and back again to } \mathrm { AS } _\text {1}.
B) AD1 to AD2, and back again to AD1. A D _ { 1 } \text { to } A D _ { 2 } \text {, and back again to } A D _ { 1 } \text {. }
C) AS1 to AS2, consequently making AD1 shift to AD2\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {, consequently making } A D _ { 1 } \text { shift to } A D _ { 2 }
D) AD1 to AD2, consequently making AS1 shift to AS2. \mathrm { AD } _ { 1 } \text { to } A \mathrm { D } _ { 2 } \text {, consequently making } \mathrm { AS } _ { 1 } \text { shift to } \mathrm { AS } _ { 2 } \text {. }

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

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According to the simple extended AD-AS model, if the economy is in a recession, prices and nominal wages will eventually fall and the short-run aggregate supply curve will increase, so that real output returns to its full-employment level in the long run.

A) True
B) False

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

A) True
B) False

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In the long run, if the price level increases, then nominal wages and other input prices will


A) also rise, so firms will reduce their output level.
B) also rise, so firms will not change their output level.
C) not change, so firms will not change their output level.
D) decrease, so firms will increase their output level.

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

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Rightward and upward shifts of the Phillips Curve in the 1970s and early 1980s were caused by


A) adverse shocks to aggregate supply.
B) adverse shocks to aggregate demand.
C) an increase in the misery index.
D) the Vietnam War.

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

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According to the simple extended AD-AS model, cost-push inflation does not last in the long run if the government leaves the economy alone.

A) True
B) False

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Demand-pull inflation and cost-push inflation are identical concepts because both involve lower unemployment rates and rising prices.

A) True
B) False

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


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) B) and C)
F) None of the above

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