Question 1

What will occur in the short run if there is cost-push inflation and if the government adopts a hands-off approach to it?

Accepted Answer

A)  an increase in long-run aggregate supply
B)  a decrease in long-run aggregate supply
C)  low unemployment and a loss of real output
D)  high unemployment and a loss of real outputE) A) and B)
F) B) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The long-run aggregate supply curve is vertical:

Accepted Answer

A)  because the rate of inflation is steady in the long run.
B)  Input prices eventually rise in response to changes in output prices.
C)  because product prices always increase at a faster rate than resource prices.
D)  only when the money supply increases at the same rate as real GDP.E) A) and D)
F) B) and C) B

Question 4

In the short run, demand-pull inflation will drive up the price level and increase real output; in the long run, only the price level will rise.

Accepted Answer

A) True 
 B)False  True

Question 5

Refer to the above diagram for a specific economy.The curve on this graph is known as a:

Accepted Answer

A)  Laffer Curve.
B)  Phillips Curve.
C)  labor demand curve.
D)  production possibilities curve.E) None of the above
F) All of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

An "adverse aggregate supply shock" could result from:

Accepted Answer

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

Question 8

One policy dilemma posed by cost-push inflation is that:

Accepted Answer

A)  an increase in aggregate demand will increase inflation and the unemployment rate simultaneously.
B)  tax rates can be reduced without lowering tax revenues.
C)  the reduction of aggregate demand to restrain inflation will cause a further reduction in the real GDP.
D)  the adjustment of aggregate demand can neither increase real GDP nor reduce inflation.E) All of the above
F) A) and C)

Question 9

Refer to the above diagram for a specific economy.The shape of this curve suggests that:

Accepted Answer

A)  the price level rises at a diminishing rate as the level of aggregate demand increases.
B)  full employment and price stability are compatible goals only when aggregate demand is falling.
C)  each successive unit of decline in the unemployment rate is accompanied by a smaller increase in the rate of inflation.
D)  each successive unit of decline in the unemployment rate is accompanied by a larger increase in the rate of inflation.E) A) and B)
F) B) and C)

Question 10

1represents a rate of: A) inflation below the natural rate. B) inflation above the natural rate. C) unemployment above the natural rate. D) unemployment below the natural rate." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.Point b on short-run Phillips Curve PC1represents a rate of:

Accepted Answer

A)  inflation below the natural rate.
B)  inflation above the natural rate.
C)  unemployment above the natural rate.
D)  unemployment below the natural rate.E) B) and C)
F) A) and B)

Question 11

1 and the initial aggregate supply curve is AS1.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2: A) real output will rise above Qf. B) the price level will rise from P1 to P2. C) it is possible that aggregate supply will shift rightward from AS2 because nominal wage demands will rise. D) the price level will rise from P2 to P3." 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.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2:

Accepted Answer

A)  real output will rise above Qf.
B)  the price level will rise from P1 to P2.
C)  it is possible that aggregate supply will shift rightward from AS2 because nominal wage demands will rise.
D)  the price level will rise from P2 to P3.E) A) and B)
F) All of the above

Question 12

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

Question 13

The long-run Phillips Curve is vertical at the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  United Kingdom
B)  France
C)  Canada
D)  United StatesE) A) and B)
F) None of the above

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) B) and C)
F) All of the above

Question 16

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

Question 17

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

Question 18

Long-run equilibrium occurs where:

Accepted Answer

A)  real output is greater than potential output.
B)  the vertical long-run aggregate supply curve, and short-run aggregate supply curve intersect.
C)  the aggregate demand curve, and short-run aggregate supply curve intersect
D)  the aggregate demand curve, vertical long-run aggregate supply curve, and short-run aggregate supply curve all intersect.E) A) and B)
F) A) and C)

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

Question 20

The short-run aggregate supply curve is upward-sloping because:

Accepted Answer

A)  higher prices discourage the producers to expand output.
B)  higher price levels create incentives to expand output when resource prices remain constant.
C)  lower prices encourage the producers to expand output.
D)  higher price levels create an expectation among producers of still higher price levels.E) None of the above
F) A) and B)

Exam 16: B: Long-Run Macroeconomic Adjustments

What will occur in the short run if there is cost-push inflation and if the government adopts a hands-off approach to it?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical:

Correct AnswerverifiedB

In the short run, demand-pull inflation will drive up the price level and increase real output; in the long run, only the price level will rise.

Correct AnswerverifiedTrue

Refer to the above diagram for a specific economy.The curve on this graph is known as a:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An "adverse aggregate supply shock" could result from:

Correct AnswerverifiedShow Answer

One policy dilemma posed by cost-push inflation is that:

Correct AnswerverifiedShow Answer

Refer to the above diagram for a specific economy.The shape of this curve suggests that:

Correct AnswerverifiedShow Answer

Refer to the above diagram.Point b on short-run Phillips Curve PC1represents a rate of:

Correct AnswerverifiedShow Answer

Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The long-run Phillips Curve is vertical at the natural rate of unemployment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

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 AnswerverifiedA

Long-run equilibrium occurs where:

Correct AnswerverifiedShow Answer

In the long run, demand-pull inflation:

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve is upward-sloping because:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Refer to the above diagram.Point b on short-run Phillips Curve PC₁represents a rate of:

Correct Answer
verified

Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD₁ to AD₂:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

Correct Answer
verified

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
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified