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Exam 37: Extending the Analysis of Aggregate Supply

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Question 31

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An adverse aggregate supply shock could result from:

A) a sharp rise in productivity.
B) a rapid rise in oil prices.
C) a decline in wages.
D) an appreciation of the dollar.

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

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Question 32

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Supply-side economist Arthur Laffer has argued that:

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

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Question 33

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Which of the following is a true statement?

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

The natural rate of unemployment:

An adverse aggregate supply shock:

The traditional Phillips Curve suggests a trade-off between:

A rightward shift of the traditional Phillips Curve would suggest that:

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

(Consider This) The ideas of economist Arthur Laffer became the centerpiece for tax policy during the:

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

The short-run aggregate supply curve shifts to the left when nominal wages rise in response to price level increases.

Which of the following is a true statement?

There is no trade-off between unemployment and inflation in the long run.

In the extended aggregate demand-aggregate supply model:

In 1993 the federal government boosted income tax rates.The change in tax revenue that occurred in the seven years that followed:

Disinflation occurs when:

Answer the question on the basis of the following economic data for a hypothetical economy: $\begin{array}{c}\begin{array}{c}\\\\\\\text { Year } \\\hline 1997 \\1998 \\1999 \\2000\end{array}\begin{array}{c}\text {Average}\\\text {Hourly}\\\text {Wage}\\\underline{\text {Rates}}\\\$ 6.40 \\6.72\\7.24\\8.02\end{array}\begin{array}{c}\\\text {Index of}\\\text { Industrial}\\\underline{\text {Production}}\\197\\199\\196\\192\end{array}\begin{array}{c}\\\\\text {Unemployment}\\\underline{\text {Rate}}\\ 5.5 \% \\5.8\\7.2\\8.3\end{array}\begin{array}{c}\\\text {Price}\\\text {Level}\\\underline{\text {Index}}\\130\\133\\139\\147\end{array}\begin{array}{c}\\\text {Rate of}\\\text { Increase in}\\\underline{\text {Productivity}}\\3.0 \% \\2.9\\3.1\\2.8\end{array}\end{array}$ Refer to the given data.It would be the appropriate stabilization policy to raise interest rates,raise taxes,and reduce government expenditures.

Answer the question on the basis of the following economic data for a hypothetical economy: $\begin{array}{c}\begin{array}{c}\\\\\\\text { Year } \\\hline 1997 \\1998 \\1999 \\2000\end{array}\begin{array}{c}\text {Average}\\\text {Hourly}\\\text {Wage}\\\underline{\text {Rates}}\\\$ 6.40 \\6.72\\7.24\\8.02\end{array}\begin{array}{c}\\\text {Index of}\\\text { Industrial}\\\underline{\text {Production}}\\197\\199\\196\\192\end{array}\begin{array}{c}\\\\\text {Unemployment}\\\underline{\text {Rate}}\\ 5.5 \% \\5.8\\7.2\\8.3\end{array}\begin{array}{c}\\\text {Price}\\\text {Level}\\\underline{\text {Index}}\\130\\133\\139\\147\end{array}\begin{array}{c}\\\text {Rate of}\\\text { Increase in}\\\underline{\text {Productivity}}\\3.0 \% \\2.9\\3.1\\2.8\end{array}\end{array}$ Refer to the given data.There is evidence that cost-push inflationary pressure is present in this economy.

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