Question 1

The inflation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the:

Accepted Answer

A)   Relationship between the unemployment rate and the rate of inflation to remain stable, predictable, and exhibited a clear tradeoff
B)   Relationship between the unemployment rate and the rate of inflation to be similar to that found during the 1960 and 1969 period
C)   Phillips Curve to shift to the right
D)   Phillips Curve to shift to the leftE) B) and D)
F) A) and B)

Question 2

If cost-push inflation occurs and the government adopts a "hands-off" policy approach, then according to the simple extended AD-AS model, in the long run the economy will:

Accepted Answer

A)   Get back to where it started from
B)   Get stuck with high unemployment
C)   Experience an inflationary spiral
D)   Have a higher price levelE) None of the above
F) A) and B)

Question 3

The misery index is a measure of national economic discomfort that adds together a nation's:

Accepted Answer

A)   Saving and investment
B)   Budget deficit and public debt
C)   Unemployment rate and inflation rate
D)   Level of taxation with the amount of government spendingE) None of the above
F) A) and B)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Inflation in the short run is most likely to result from a(n) :

Accepted Answer

A)   Increase in aggregate demand or aggregate supply
B)   Decrease in aggregate demand or aggregate supply
C)   Increase in aggregate demand or a decrease in aggregate supply
D)   Decrease in aggregate demand or an increase in aggregate supplyE) A) and B)
F) All of the above

Question 6

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

Accepted Answer

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 GDPE) A) and D)
F) B) and C)

Question 7

Stagflation's demise during the 1980s resulted in a:

Accepted Answer

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 rightE) A) and C)
F) None of the above

Question 8

The traditional Phillips Curve showing a tradeoff between inflation and unemployment is based on having a stable:

Accepted Answer

A)   Aggregate demand and a shifting short-run aggregate supply
B)   Short-run aggregate supply and a shifting aggregate demand
C)   Long-run aggregate supply and a shifting aggregate demand
D)   Aggregate demand and a shifting long-run aggregate supplyE) A) and D)
F) None of the above

Question 9

In the long run, the economy will always move towards full employment.

Accepted Answer

A) True 
 B)False

Question 10

Which action will tend to decrease aggregate supply according to supply-side economists?

Accepted Answer

A)   A decrease in government spending
B)   An increase in the stock of capital
C)   A decrease in the money supply
D)   An increase in marginal tax ratesE) None of the above
F) B) and C)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

1 and AS1 and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that aggregate: A)  Demand would increase to AD2 and aggregate supply would increase to AS2 B)  Demand would increase to AD2 and aggregate supply would remain at AS1 C)  Supply would increase to AS2 and aggregate demand would remain at AD1 D)  Demand would remain at AD1 and aggregate supply would remain at AS1" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. If the economy is initially at equilibrium at the intersection of AD1 and AS1 and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that aggregate:

Accepted Answer

A)   Demand would increase to AD2 and aggregate supply would increase to AS2
B)   Demand would increase to AD2 and aggregate supply would remain at AS1
C)   Supply would increase to AS2 and aggregate demand would remain at AD1
D)   Demand would remain at AD1 and aggregate supply would remain at AS1E) None of the above
F) A) and C)

Question 13

Refer to the graph above. An expansion of the economy's production possibilities can, by itself:

Accepted Answer

A)   Never cause inflation
B)   Never cause price level to fall
C)   Cause a decrease in real output
D)   Cause a decrease in employment levelE) A) and C)
F) A) and B)

Question 14

From the perspective of supply-side economists, a cut in tax rates will:

Accepted Answer

A)   Increase output but will increase the budget deficit
B)   Increase unemployment but will reduce the budget deficit
C)   Reduce unemployment but will increase the budget deficit
D)   Reduce unemployment and also reduce the budget deficitE) B) and D)
F) B) and C)

Question 15

2. It is possible for the government to reduce the unemployment rate and move the economy to C2 if: A)  Expected inflation remains at 4% B)  Expected inflation becomes 8% C)  Actual inflation remains at 4% D)  Actual inflation is at 12%" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume the economy is at the initial position of B2. It is possible for the government to reduce the unemployment rate and move the economy to C2 if:

Accepted Answer

A)   Expected inflation remains at 4%
B)   Expected inflation becomes 8%
C)   Actual inflation remains at 4%
D)   Actual inflation is at 12%E) A) and D)
F) B) and D)

Question 16

2, then the tax rate should be set at: A)  T2 or T3 B)  T2 only C)  T4 only D)  T2 or T4" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. If the government wants to collect tax revenues equal to R2, then the tax rate should be set at:

Accepted Answer

A)   T2 or T3
B)   T2 only
C)   T4 only
D)   T2 or T4E) B) and C)
F) C) and D)

Question 17

In the short run, if the actual rate of inflation is lower than the expected rate, then:

Accepted Answer

A)   Nominal wages will rise, profits will fall, and unemployment will rise
B)   Nominal wages will fall, profits will rise, and unemployment will fall
C)   Nominal wages will rise, profits will rise, and unemployment will fall
D)   Nominal wages will fall, profits will fall, and unemployment will riseE) A) and B)
F) None of the above

Question 18

Assume that initially your nominal wage was $16 an hour and the price index was 100. If the price level increases to 105, then your:

Accepted Answer

A)   Real wage has increased to $21
B)   Real wage has decreased to $15.24
C)   Nominal wage has increased to $21
D)   Nominal wage has decreased to $15.24E) A) and B)
F) A) and C)

Question 19

2. An increase in aggregate demand with no corresponding change in inflation expectations and wage rates will tend to: A)  Temporarily move the economy to point B3 B)  Temporarily move the economy to point C2 C)  Temporarily move the economy to point C1 D)  Have no effect in shifting the economy from point B2" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume the economy is at the initial position of B2. An increase in aggregate demand with no corresponding change in inflation expectations and wage rates will tend to:

Accepted Answer

A)   Temporarily move the economy to point B3
B)   Temporarily move the economy to point C2
C)   Temporarily move the economy to point C1
D)   Have no effect in shifting the economy from point B2E) B) and D)
F) A) and C)

Question 20

Consider the following national data: tax revenues as a percent of GDP: 25 percent; government spending as a percent of GDP: 31 percent; unemployment rate: 9 percent; inflation rate: 6 percent. What is the misery index for this nation?

Accepted Answer

A)   15 percent
B)   31 percent
C)   34 percent
D)   53 percentE) All of the above
F) A) and D)

Exam 18: Extending the Analysis of Aggregate Supply

Stagflation's demise during the 1980s resulted in a:

Correct AnswerverifiedShow Answer

Inflation in the short run is most likely to result from a(n) :

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the graph above. If the government wants to collect tax revenues equal to R2, then the tax rate should be set at:

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume the economy is at the initial position of B2. It is possible for the government to reduce the unemployment rate and move the economy to C2 if:

Correct AnswerverifiedShow Answer

The traditional Phillips Curve showing a tradeoff between inflation and unemployment is based on having a stable:

Correct AnswerverifiedShow Answer

From the perspective of supply-side economists, a cut in tax rates will:

Correct AnswerverifiedShow Answer

The inflation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the:

Correct AnswerverifiedShow Answer

Assume that initially your nominal wage was $16 an hour and the price index was 100. If the price level increases to 105, then your:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If cost-push inflation occurs and the government adopts a "hands-off" policy approach, then according to the simple extended AD-AS model, in the long run the economy will:

Correct AnswerverifiedShow Answer

Refer to the graph above. An expansion of the economy's production possibilities can, by itself:

Correct AnswerverifiedShow Answer

Which action will tend to decrease aggregate supply according to supply-side economists?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, the economy will always move towards full employment.

Correct AnswerverifiedShow Answer

Consider the following national data: tax revenues as a percent of GDP: 25 percent; government spending as a percent of GDP: 31 percent; unemployment rate: 9 percent; inflation rate: 6 percent. What is the misery index for this nation?

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume the economy is at the initial position of B2. An increase in aggregate demand with no corresponding change in inflation expectations and wage rates will tend to:

Correct AnswerverifiedShow Answer

In the short run, if the actual rate of inflation is lower than the expected rate, then:

Correct AnswerverifiedShow Answer

Refer to the graph above. If the economy is initially at equilibrium at the intersection of AD1 and AS1 and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that aggregate:

Correct AnswerverifiedShow Answer

The misery index is a measure of national economic discomfort that adds together a nation's:

Correct AnswerverifiedShow Answer

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Refer to the graph above. If the government wants to collect tax revenues equal to R₂, then the tax rate should be set at:

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Refer to the graph above. Assume the economy is at the initial position of B₂. It is possible for the government to reduce the unemployment rate and move the economy to C₂ if:

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Refer to the graph above. Assume the economy is at the initial position of B₂. An increase in aggregate demand with no corresponding change in inflation expectations and wage rates will tend to:

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Refer to the graph above. If the economy is initially at equilibrium at the intersection of AD₁ and AS₁ and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that aggregate:

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