Question 1

Aggregate supply shocks will:

Accepted Answer

A)  move the economy along the Phillips Curve toward less unemployment.
B)  move the economy along the Phillips Curve toward less inflation.
C)  shift the Phillips Curve to the left.
D)  shift the Phillips Curve to the right.E) A) and D)
F) B) and D)

Question 2

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

Accepted Answer

A)  demand more rapidly than aggregate supply.
B)  demand less rapidly than aggregate supply.
C)  supply more rapidly than aggregate demand.
D)  supply less rapidly than aggregate demand.E) None of the above
F) A) and D) C

Question 3

A criticism of cuts in marginal tax rates is that they fail to:

Accepted Answer

A)  decrease disinflation in the economy.
B)  decrease demand-pull inflation in the economy.
C)  increase aggregate supply more rapidly than aggregate demand.
D)  increase aggregate demand more rapidly than aggregate supply.E) A) and C)
F) C) and D)

Question 4

1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a: A) leftward shift of the aggregate supply curve from AS1 to AS2. B) rightward shift of the aggregate demand curve from AD1 to AD2. C) move from d to b to a. D) move from d directly to a." 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.Cost-push inflation in the short run is best represented as a:

Accepted Answer

A)  leftward shift of the aggregate supply curve from AS1 to AS2.
B)  rightward shift of the aggregate demand curve from AD1 to AD2.
C)  move from d to b to a.
D)  move from d directly to a.E) A) and B)
F) A) and C)

Question 5

2 and that the economy initially is operating at its full-employment level of output Qf.In terms of this diagram, the long-run aggregate supply curve: A) is AS2. B) is a vertical line extending from Qf upward through e, b, and d. C) may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. D) is a horizontal line extending from P2 rightward through f, b, and g." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf.In terms of this diagram, the long-run aggregate supply curve:

Accepted Answer

A)  is AS2.
B)  is a vertical line extending from Qf upward through e, b, and d.
C)  may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3.
D)  is a horizontal line extending from P2 rightward through f, b, and g.E) All of the above
F) C) and D)

Question 6

Supply-side economists criticize non supply-side economists for:

Accepted Answer

A)  not recognizing the possibility of cost-push inflation.
B)  focusing macroeconomic policy mainly on aggregate demand.
C)  assuming that households and businesses form rational expectations about complex economic matters.
D)  neglecting to note the severe impacts of budget deficits on investment spending.E) A) and B)
F) B) and D)

Question 7

In terms of aggregate supply, the difference between the long run and the short run is that in the long run:

Accepted Answer

A)  the price level is variable.
B)  employment is variable.
C)  real output is variable.
D)  nominal wages and other input prices are variable.E) A) and B)
F) A) and C)

Question 8

Refer to the diagram given below. 2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will: A) shift the aggregate supply curve from AS2 to AS3. B) increase the real output from Q1 to Q2. C) shift the aggregate supply curve from AS2 to AS1. D) increase the real output from Qf to Q2." class="answers-bank-image d-inline" rel="preload" > Assume that nominal wages are initially set on the basis of the price level P2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will:

Accepted Answer

A)  shift the aggregate supply curve from AS2 to AS3.
B)  increase the real output from Q1 to Q2.
C)  shift the aggregate supply curve from AS2 to AS1.
D)  increase the real output from Qf to Q2.E) B) and D)
F) A) and C)

Question 9

The long-run Phillips Curve is vertical at:

Accepted Answer

A)  price level.
B)  the natural rate of unemployment.
C)  every level of real GDP.
D)  the rate of maximum taxation.E) None of the above
F) All of the above

Question 10

With demand-pull inflation in the long-run AD-AS model, there is:

Accepted Answer

A)  a decrease in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve.
B)  an increase in aggregate demand that eventually increases nominal wages and causes an increase in the short-run aggregate supply curve.
C)    an increase in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve
D)  an increase in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve.E) None of the above
F) All of the above C  ,D

Question 11

Refer to the graph below.The effects of stagflation, in the short run, are best represented by a shift from: 1 to AD2 given a stable AS1curve, an increase in the price level from P1to P2, and a fall in output from Q1 to Q2. B) AD2 to AD1 given a stable AS1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. C) AS1 to AS2 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. D) AS2 to AS1 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  AD1 to AD2 given a stable AS1curve, an increase in the price level from P1to P2, and a fall in output from Q1 to Q2.
B)  AD2 to AD1 given a stable AS1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2.
C)  AS1 to AS2 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2.
D)  AS2 to AS1 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2.E) None of the above
F) B) and C)

Question 12

In the short run, demand-pull inflation increases:

Accepted Answer

A)  real wages, but in the long run only nominal wages.
B)  nominal wages, but in the long run only real wages.
C)  real output and the price level, but in the long-run only real output.
D)  real output and the price level, but in the long-run only the price level.E) All of the above
F) C) and D) D

Question 13

Demand-pull inflation and cost-push inflation are identical concepts because both entail rising nominal wages and rising prices.

Accepted Answer

A) True 
 B)False

Question 14

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 15

1 and AS1 curves intersect, demand-pull inflation in the short run can best be represented by a shift from: A) AS1 to AS3. B) AD1 to AD2. C) AS1 to AS2. D) AD2 to AD1." class="answers-bank-image d-inline" rel="preload" > Refer to the above graph.Given that the economy is at an initial equilibrium where the AD1 and AS1 curves intersect, demand-pull inflation in the short run can best be represented by a shift from:

Accepted Answer

A)  AS1 to AS3.
B)  AD1 to AD2.
C)  AS1 to AS2.
D)  AD2 to AD1.E) All of the above
F) B) and C)

Question 16

In the long-run firms respond to the lower profits by reducing their nominal wage increases.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

The Phillips Curve reveals that with a constant short-run aggregate supply curve, the larger the increase in aggregate demand:

Accepted Answer

A)  the lesser the increase in real output and the higher the rate of inflation.
B)  the greater the increase in real output and the higher the rate of inflation.
C)  the greater the increase in real output and the lower the rate of inflation.
D)  the lesser the increase in real output and the lower the rate of inflation.E) A) and D)
F) A) and C)

Question 19

Using Image 16.1 Global Perspective, which of the following countries had the highest misery index in 2014?

Accepted Answer

A)  Italy
B)  France
C)  Canada
D)  United StatesE) A) and B)
F) All of the above

Question 20

A basic criticism of supply-side economics is that:

Accepted Answer

A)  empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates.
B)  lower taxes will increase aggregate supply much more than they will increase aggregate demand.
C)  lower taxes will increase aggregate demand much more than they will increase aggregate supply.
D)  higher taxes will reduce incentives to work, invest, and innovate.E) B) and C)
F) All of the above

Exam 16: Part B: Long-Run Macroeconomic Adjustments

Aggregate supply shocks will:

Correct AnswerverifiedShow Answer

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

Correct AnswerverifiedC

A criticism of cuts in marginal tax rates is that they fail to:

Correct AnswerverifiedShow Answer

Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a:

Correct AnswerverifiedShow Answer

Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf.In terms of this diagram, the long-run aggregate supply curve:

Correct AnswerverifiedShow Answer

Supply-side economists criticize non supply-side economists for:

Correct AnswerverifiedShow Answer

In terms of aggregate supply, the difference between the long run and the short run is that in the long run:

Correct AnswerverifiedShow Answer

Refer to the diagram given below. Assume that nominal wages are initially set on the basis of the price level P2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will:

Correct AnswerverifiedShow Answer

The long-run Phillips Curve is vertical at:

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With demand-pull inflation in the long-run AD-AS model, there is:

Correct AnswerverifiedC ,D

Refer to the graph below.The effects of stagflation, in the short run, are best represented by a shift from:

Correct AnswerverifiedShow Answer

In the short run, demand-pull inflation increases:

Correct AnswerverifiedD

Demand-pull inflation and cost-push inflation are identical concepts because both entail rising nominal wages and rising prices.

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The long-run aggregate supply curve is vertical.

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Refer to the above graph.Given that the economy is at an initial equilibrium where the AD1 and AS1 curves intersect, demand-pull inflation in the short run can best be represented by a shift from:

Correct AnswerverifiedShow Answer

In the long-run firms respond to the lower profits by reducing their nominal wage increases.

Correct AnswerverifiedShow Answer

A rightward shift of the Phillips Curve suggests that:

Correct AnswerverifiedShow Answer

The Phillips Curve reveals that with a constant short-run aggregate supply curve, the larger the increase in aggregate demand:

Correct AnswerverifiedShow Answer

Using Image 16.1 Global Perspective, which of the following countries had the highest misery index in 2014?

Correct AnswerverifiedShow Answer

A basic criticism of supply-side economics is that:

Correct AnswerverifiedShow Answer

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C

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Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.Cost-push inflation in the short run is best represented as a:

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Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f.In terms of this diagram, the long-run aggregate supply curve:

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Refer to the diagram given below. Assume that nominal wages are initially set on the basis of the price level P₂ and that the economy is initially operating at the full-employment level of output Q_f.In the short run, an increase in the price level from P₂ to P₃ will:

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C ,D

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D

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Refer to the above graph.Given that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect, demand-pull inflation in the short run can best be represented by a shift from:

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