Question 1

-Refer to the above diagram. Supply-side economists believe that tax rates are:

Accepted Answer

A)   such that an increase in tax rates will increase tax revenues.
B)   at some level below b.
C)   at some level above b.
D)   at d.E) None of the above
F) B) and C)

Question 2

The Phillips Curve suggests a tradeoff between:

Accepted Answer

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

Question 3

If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

Accepted Answer

A)   a deflationary spiral is likely to occur.
B)   an inflationary spiral is likely to occur.
C)   stagflation is likely to occur.
D)   the Phillips Curve is likely to shift inward.E) A) and D)
F) A) and C)

Question 4

If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur, then the:

Accepted Answer

A)   economy is operating in the short run.
B)   economy has entered the long run.
C)   unemployment rate will increase.
D)   inflation rate will decrease.E) B) and C)
F) C) and D)

Question 5

Which of the following most significantly contributed to the 1970s and early 1980s' stagflation?

Accepted Answer

A)   appreciation of the dollar
B)   a sharp drop in the prices of farm products
C)   a dramatic increase in energy prices
D)   rising productivity in manufacturingE) All of the above
F) B) and C)

Question 6

The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, the aggregate supply curve is vertical in the diagram because:

Accepted Answer

A)   nominal wages and other input prices are assumed to be fixed.
B)   real output level Qf is the potential level of output.
C)   price level increases produce perfectly offsetting changes in nominal wages and other input prices.
D)   higher than expected rates of actual inflation reduce real output only temporarily.E) B) and C)
F) B) and D)

Question 7

Based on the Laffer Curve, a cut in the tax rate from 100 percent to a point before the maximum level of tax revenue will:

Accepted Answer

A)   decrease real GDP.
B)   increase tax revenues.
C)   decrease tax revenues.
D)   have no effect on tax revenues.E) C) and D)
F) None of the above

Question 8

Assuming prices and wages are flexible, a recession will decrease the price level, which:

Accepted Answer

A)   raises nominal wages, and which eventually decreases the short-run aggregate supply curve, thus decreasing real output to its original level.
B)   raises nominal wages, and which eventually increases the short-run aggregate supply curve, thus increasing real output to its original level.
C)   reduces nominal wages, and which eventually decreases the short-run aggregate supply curve, thus decreasing real output to its original level.
D)   reduces nominal wages, and which eventually increases the short-run aggregate supply curve, thus increasing real output to its original level.E) C) and D)
F) A) and B)

Question 9

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) A) and D)
F) All of the above

Question 10

A rightward shift of the Phillips Curve suggests that:

Accepted Answer

A)   a higher rate of unemployment is associated with each inflation rate.
B)   a lower rate of unemployment is associated with each inflation rate.
C)   the aggregate supply curve has shifted to the right.
D)   the aggregate demand curve has shifted to the left.E) B) and D)
F) C) and D)

Question 11

2 to C2? A)  a tight monetary policy B)  a contractionary fiscal policy C)  an increase in aggregate demand D)  an increase in aggregate supply" class="answers-bank-image d-inline" rel="preload" >
-Refer to the above graph. What events would tend to move the economy from point B2 to C2?

Accepted Answer

A)   a tight monetary policy
B)   a contractionary fiscal policy
C)   an increase in aggregate demand
D)   an increase in aggregate supplyE) A) and D)
F) A) and C)

Question 12

-Refer to the above diagram for a specific economy. Which of the following best describes a decision by policymakers which moves this economy from point b to point a?

Accepted Answer

A)   Policymakers have instituted an expansionary money policy and/or a budgetary deficit, thereby accepting more unemployment to reduce the rate of inflation.
B)   Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting a higher rate of inflation to reduce unemployment.
C)   Policymakers have instituted an expansionary money and/or a budgetary deficit, thereby accepting a higher rate of inflation to reduce unemployment.
D)   Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting more unemployment to reduce the rate of inflation.E) B) and D)
F) All of the above

Question 13

The Laffer Curve is a central concept in:

Accepted Answer

A)   monetarism.
B)   Keynesianism.
C)   the expectation theory.
D)   supply-side economics.E) A) and D)
F) A) and C)

Question 14

1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as: A)  a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2. B)  a move from d to b to a. C)  a shift of aggregate supply from AS1 to AS2 followed by a shift of aggregate demand from AD1 to AD2. D)  a move from a to d." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as:

Accepted Answer

A)   a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2.
B)   a move from d to b to a.
C)   a shift of aggregate supply from AS1 to AS2 followed by a shift of aggregate demand from AD1 to AD2.
D)   a move from a to d.E) A) and B)
F) B) and C)

Question 15

The Laffer Curve underlies the contention that lower tax rates need not reduce tax revenues.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

1, C1, B2, C2, B3, C3, and B4. B)  a line connecting points C1, C2, and C3. C)  a line connecting points B1, B2, B3, and B4. D)  a line connecting points B1 and C1." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above graph. The long-run relationship between the rate of inflation and the unemployment rate is represented by:

Accepted Answer

A)   the zigzag line connecting points B1, C1, B2, C2, B3, C3, and B4.
B)   a line connecting points C1, C2, and C3.
C)   a line connecting points B1, B2, B3, and B4.
D)   a line connecting points B1 and C1.E) A) and B)
F) A) and C)

Question 18

The economy enters the long run once:

Accepted Answer

A)   nominal wages become real wages.
B)   real wages become nominal wages.
C)   input prices start to change from being inflexible to fully flexible.
D)   sufficient time has elapsed for real GDP to increase and unemployment to decrease.E) None of the above
F) B) and D)

Question 19

In the long run, demand-pull inflation:

Accepted Answer

A)   increases unemployment.
B)   decreases nominal wages.
C)   decreases real output.
D)   increases the price level.E) A) and B)
F) A) and C)

Question 20

A rightward shift of The Phillips Curve would suggest that:

Accepted Answer

A)   the productivity of labour increased.
B)   each higher rate of inflation is now associated with a higher rate of unemployment than previously.
C)   cost-push inflation decreased.
D)   a lower rate of inflation is now associated with each rate of unemployment than previously.E) A) and B)
F) A) and D)

Exam 15: Long-Run Macroeconomic Adjustments

-Refer to the above diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as:

Correct AnswerverifiedShow Answer

The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, the aggregate supply curve is vertical in the diagram because:

Correct AnswerverifiedShow Answer

The economy enters the long run once:

Correct AnswerverifiedShow Answer

The Phillips Curve suggests a tradeoff between:

Correct AnswerverifiedShow Answer

-Refer to the above graph. What events would tend to move the economy from point B2 to C2?

Correct AnswerverifiedShow Answer

Assuming prices and wages are flexible, a recession will decrease the price level, which:

Correct AnswerverifiedShow Answer

A rightward shift of The Phillips Curve would suggest that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A rightward shift of the Phillips Curve suggests that:

Correct AnswerverifiedShow Answer

Which of the following most significantly contributed to the 1970s and early 1980s' stagflation?

Correct AnswerverifiedShow Answer

The Laffer Curve underlies the contention that lower tax rates need not reduce tax revenues.

Correct AnswerverifiedShow Answer

The Laffer Curve is a central concept in:

Correct AnswerverifiedShow Answer

Statistical data for the 1970s and 1980s suggest that:

Correct AnswerverifiedShow Answer

-Refer to the above diagram for a specific economy. Which of the following best describes a decision by policymakers which moves this economy from point b to point a?

Correct AnswerverifiedShow Answer

-Refer to the above diagram. Supply-side economists believe that tax rates are:

Correct AnswerverifiedShow Answer

If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur, then the:

Correct AnswerverifiedShow Answer

Based on the Laffer Curve, a cut in the tax rate from 100 percent to a point before the maximum level of tax revenue will:

Correct AnswerverifiedShow Answer

-Refer to the above graph. The long-run relationship between the rate of inflation and the unemployment rate is represented by:

Correct AnswerverifiedShow Answer

In the long run, demand-pull inflation:

Correct AnswerverifiedShow Answer

If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

Correct AnswerverifiedShow Answer

-Refer to the above diagram. The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁. In the long run, demand-pull inflation is best shown as:

Correct Answer
verified

The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁. In the long run, the aggregate supply curve is vertical in the diagram because:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

-Refer to the above graph. What events would tend to move the economy from point B₂ to C₂?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified