Question 1

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

Question 2

Refer to the graph given below. 3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur? A) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B4. B) Real wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C1 to B1. C) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3. D) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to C2." class="answers-bank-image d-inline" rel="preload" > Suppose an economy moves from point B3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Accepted Answer

A)  Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B4.
B)  Real wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C1 to B1.
C)  Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3.
D)  Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to C2.E) C) and D)
F) A) and B)

Question 3

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 D)
F) None of the above

Question 4

1.An increase in aggregate demand will tend to: A) temporarily shift the economy to point B2. B) temporarily shift the economy to point C1. C) permanently shift the economy to point C1. D) have no effect in shifting the economy from point B1." class="answers-bank-image d-inline" rel="preload" > Refer to the above graph.Assume the economy is at the initial position of B1.An increase in aggregate demand will tend to:

Accepted Answer

A)  temporarily shift the economy to point B2.
B)  temporarily shift the economy to point C1.
C)  permanently shift the economy to point C1.
D)  have no effect in shifting the economy from point B1.E) A) and B)
F) C) and D)

Question 5

The equilibrium price level and level of real output occur where:

Accepted Answer

A)  real output is at its highest possible level.
B)  exports equal imports.
C)  price is at its lowest level.
D)  the aggregate demand and supply curves intersect.E) A) and D)
F) A) and C)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

The basic problem portrayed by the Phillips Curve is:

Accepted Answer

A)  that a level of aggregate demand sufficiently high to result in full employment may also cause inflation.
B)  that changes in the composition of total labor demand tend to be deflationary.
C)  that unemployment rises at the same time the general price level is rising.
D)  the possibility that automation will increase the level of noncyclical unemployment.E) A) and B)
F) A) and D)

Question 9

The short-run aggregate supply curve:

Accepted Answer

A)  Becomes steeper the further into the future it goes and eventually becomes vertical.
B)  Becomes flatter the further into the future it goes and eventually becomes horizontal.
C)  Becomes steeper the further into the future it goes, but never becomes vertical.
D)  Becomes flatter the further into the future it goes, but never becomes horizontal.E) B) and C)
F) None of the above

Question 10

In the long-run, the attempt to correct slow economic growth or the unemployment caused by cost-push inflation by implementing an expansionary fiscal policy will most likely produce:

Accepted Answer

A)  disinflation.
B)  a recession.
C)  a price level surprise.
D)  inflationE) A) and B)
F) All of the above

Question 11

1 and AS1 and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run: A) AD1 will shift to AD2, AS2 will shift to AS3, the price level will be at P2, and output will be at Q2. B) AS1 will shift to AS3, AD2 will shift to AD1, the price level will be at P3, and output will be at Q3. C) AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P2, and output will be at Q2. D) AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P3, and output will be at Q1." class="answers-bank-image d-inline" rel="preload" > Refer to the above graph.Assume that the economy is at equilibrium at AD1 and AS1 and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run:

Accepted Answer

A)  AD1 will shift to AD2, AS2 will shift to AS3, the price level will be at P2, and output will be at Q2.
B)  AS1 will shift to AS3, AD2 will shift to AD1, the price level will be at P3, and output will be at Q3.
C)  AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P2, and output will be at Q2.
D)  AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P3, and output will be at Q1.E) B) and C)
F) None of the above

Question 12

The Laffer Curve is a central concept in:

Accepted Answer

A)  monetarism.
B)  Keynesianism.
C)  the expectation theory.
D)  supply-side economics.E) None of the above
F) All of the above

Question 13

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

Accepted Answer

A)  the unemployment rate to rise.
B)  the unemployment rate to fall.
C)  the aggregate demand curve to shift rightward.
D)  tax-rate declines and increases in government spending.E) A) and B)
F) A) and C)

Question 14

The above curve is known as the:

Accepted Answer

A)  tax "wedge" curve.
B)  Okun Curve.
C)  Laffer Curve.
D)  Phillips Curve.E) B) and C)
F) A) 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

The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 17

An adverse aggregate supply shock:

Accepted Answer

A)  automatically shifts the aggregate demand curve rightward.
B)  causes the Phillips Curve to shift leftward and downward.
C)  can be caused by a boost in the rate of growth of productivity.
D)  can cause stagflation.E) All of the above
F) A) and B)

Question 18

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

Question 19

In terms of aggregate supply, the short run is a period in which:

Accepted Answer

A)  the price level is constant.
B)  employment is constant.
C)  real GDP is constant.
D)  nominal wages and other input prices are constant.E) None of the above
F) C) and D)

Question 20

An ongoing economic growth causes continuous leftward shifts of the aggregate supply which, by themselves, would tend to cause an ongoing deflation.

Accepted Answer

A) True 
 B)False

Exam 16: Part B: Long-Run Macroeconomic Adjustments

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

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

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Refer to the above graph.Assume the economy is at the initial position of B1.An increase in aggregate demand will tend to:

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Refer to the graph given below. Suppose an economy moves from point B3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

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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:

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The basic problem portrayed by the Phillips Curve is:

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The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of unemployment.

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The above curve is known as the:

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

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In terms of aggregate supply, the short run is a period in which:

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In the long run, demand-pull inflation:

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The Laffer Curve is a central concept in:

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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?

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Refer to the above graph.Assume that the economy is at equilibrium at AD1 and AS1 and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run:

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

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The equilibrium price level and level of real output occur where:

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An adverse aggregate supply shock:

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The short-run aggregate supply curve:

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In the long-run, the attempt to correct slow economic growth or the unemployment caused by cost-push inflation by implementing an expansionary fiscal policy will most likely produce:

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An ongoing economic growth causes continuous leftward shifts of the aggregate supply which, by themselves, would tend to cause an ongoing deflation.

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Refer to the above graph.Assume the economy is at the initial position of B₁.An increase in aggregate demand will tend to:

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Refer to the graph given below. Suppose an economy moves from point B₃ to point C₃ because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

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Refer to the above graph.Assume that the economy is at equilibrium at AD₁ and AS₁ and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run:

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