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Evaluate the Laffer curve from today's perspective.

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Today, there is general agreement that t...

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A) A S _ { 2 } B) A S _ {1 } C) a vertical line at Q _ { f } . D) a vertical line at Q _ { 1 }


A) AS2A S _ { 2 }
B) AS1A S _ {1 }
C) a vertical line at Qf.Q _ { f } .
D) a vertical line at Q1Q _ { 1 }

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

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A rightward shift of the traditional Phillips Curve would suggest that


A) the productivity of labor increased.
B) the rate of inflation is now higher at each rate of unemployment.
C) cost-push inflation decreased.
D) the rate of inflation is now lower at each rate of unemployment.

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

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What is the Phillips curve? What concept does it illustrate?

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The Phillips curve is a curve showing th...

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The last few years of the 1990s in the United States were characterized by


A) low inflation and high unemployment.
B) stagflation.
C) low inflation and low unemployment.
D) a high misery index.

E) None of the above
F) A) and D)

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The long-run aggregate supply curve stays in a fixed position over time.

A) True
B) False

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The short-run aggregate supply curve intersects the long-run aggregate supply curve at


A) a constant price level.
B) the potential level of real output.
C) the equilibrium level of aggregate demand.
D) the point where real GDP equals nominal GDP.

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

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When the economy is experiencing cost-push inflation, an inflationary spiral is likely to result when the government adopts a hands-off policy.

A) True
B) False

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The diagram is the basis for explaining A) the traditional Phillips Curve. B) the long-run Phillips Curve. C) how central planning can make full employment and price level stability compatible goals. D) new policies for eliminating unemployment. The diagram is the basis for explaining


A) the traditional Phillips Curve.
B) the long-run Phillips Curve.
C) how central planning can make full employment and price level stability compatible goals.
D) new policies for eliminating unemployment.

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

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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, costpush inflation could best be shown as A) a leftward shift of aggregate supply from A \mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 3 } B) a move from b to c on A \mathrm { AS } _ { 2 }. C) a move from b to c to d. D) a move from b to f 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, costpush inflation could best be shown as


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

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

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Stagflation's demise during the 1980s resulted in a


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

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Refer to the diagram and assume that prices and wages are flexible both upward and downward in the economy. In the extended AD-AS model, A) demand-pull inflation would involve a rightward shift of curve A, followed by a rightward shift of curve C. B) cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C. C) recession would involve a leftward shift of curve A, followed by leftward shifts of curves C and D. D) recession could be caused by either a leftward shift of curve A or a leftward shift of curve C. Refer to the diagram and assume that prices and wages are flexible both upward and downward in the economy. In the extended AD-AS model,


A) demand-pull inflation would involve a rightward shift of curve A, followed by a rightward shift of curve C.
B) cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C.
C) recession would involve a leftward shift of curve A, followed by leftward shifts of curves C and D.
D) recession could be caused by either a leftward shift of curve A or a leftward shift of curve C.

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

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Refer to the diagram and assume that prices and wages are flexible both upward and downward in the economy. In the extended AD-AS model, A) demand-pull inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C. B) cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C. C) recession would involve a leftward shift of curve A, followed by a leftward shift of curve C. D) recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C. Refer to the diagram and assume that prices and wages are flexible both upward and downward in the economy. In the extended AD-AS model,


A) demand-pull inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C.
B) cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C.
C) recession would involve a leftward shift of curve A, followed by a leftward shift of curve C.
D) recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C.

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

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Adverse aggregate supply shocks would result in


A) a lower rate of inflation and a higher rate of unemployment.
B) a higher rate of inflation and a lower rate of unemployment.
C) a lower rate of inflation and a lower rate of unemployment.
D) a higher rate of inflation and a higher rate of unemployment.

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

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Other things equal, a decrease in the price level will


A) shift the aggregate supply curve to the left.
B) shift the aggregate demand curve to the left.
C) cause a movement up a short-run aggregate supply curve.
D) cause a movement down an aggregate supply curve.

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

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A) lower nominal wages and a shift in the short-run aggregate supply curve from A \mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } B) higher nominal wages and a shift in the short-run aggregate supply curve from A \mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {. } C) lower nominal wages and a movement from equilibrium point X _ { 1 } to equilibrium point x _ { 2 } D) higher nominal wages and a movement from equilibrium point x _ { 1 } to equilibrium point x _ { 2 }


A) lower nominal wages and a shift in the short-run aggregate supply curve from A AS1 to AS2\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 }
B) higher nominal wages and a shift in the short-run aggregate supply curve from A AS1 to AS2. \mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {. }
C) lower nominal wages and a movement from equilibrium point X1X _ { 1 } to equilibrium point
x2x _ { 2 }
D) higher nominal wages and a movement from equilibrium point x1x _ { 1 } to equilibrium point
x2x _ { 2 }

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

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The long run aggregate supply curve is upward-sloping because real wages eventually change by the same amount as changes in the price level.

A) True
B) False

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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


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) All of the above
F) None of the above

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Which is a basic proposition of supply-side economics?


A) The Federal Reserve should target the federal funds rate rather than the money supply.
B) Tax-hikes on business reduce productivity and output and reduce aggregate supply.
C) Low marginal tax rates reduce incentives to work, saving, and investment.
D) Transfer payments increase incentives to work.

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

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The Laffer Curve indicates that lower tax rates will increase output.

A) True
B) False

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