Question 1

-Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 percent and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6 percent.If the actual rate of inflation unexpectedly falls from 6 percent to 4 percent,then the unemployment rate will:

Accepted Answer

A)   temporarily fall from 7.5 percent to 4 percent.
B)   permanently fall from 7.5 percent to 4 percent.
C)   temporarily rise from 7.5 percent to 9.5 percent.
D)   permanently rise from 7.5 percent to 9.5 percent.E) A) and B)
F) C) and D)

Question 2

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 3

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

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Adverse aggregate supply shocks would result in:

Accepted Answer

A)   a lower rate of inflation and a higher rate of unemployment.
B)   a higher rate of inflation and a lower rate of unemployment.
C)   a lower rate of inflation and a lower rate of unemployment.
D)   a higher rate of inflation and a higher rate of unemployment.E) A) and B)
F) A) and C)

Question 7

-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) A) and D)
F) None of the above

Question 8

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

Question 9

2 and that the economy initially is operating at its full-employment level of output Q f.In the short run,an increase in the price level from P2 to P3 will: A)  change aggregate supply from AS2 to AS3. B)  increase real output from Q1 to Q2. C)  change aggregate supply from AS2 to AS1. D)  increase real output from Qf to Q2." 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 Q f.In the short run,an increase in the price level from P2 to P3 will:

Accepted Answer

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

Question 10

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) None of the above
F) All of the above

Question 11

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

Question 12

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 C)
F) B) and C)

Question 13

3 to point C3 because of an increase in aggregate demand,then: A)  Refer to the above graph.If the economy moves from point B3 to point C3 because of an increase in aggregate demand,then: B)  real wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3. C)  nominal wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3. D)  nominal wages will rise,reducing profits and 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" >
-Refer to the above graph.If the economy moves from point B3 to point C3 because of an increase in aggregate demand,then:

Accepted Answer

A)   Refer to the above graph.If the economy moves from point B3 to point C3 because of an increase in aggregate demand,then:
B)   real wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3.
C)   nominal wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3.
D)   nominal wages will rise,reducing profits and 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 D)

Question 14

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 15

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

Question 16

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

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

In the long-run aggregate demand-aggregate supply model:

Accepted Answer

A)   long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve.
B)   the long-run aggregate supply curve is horizontal.
C)   the price level is the same regardless of the location of the aggregate demand curve.
D)   long-run equilibrium occurs at the intersection of the aggregate demand curve,the short-run aggregate supply curve,and the long-run aggregate supply curve.E) B) and D)
F) A) and B)

Question 19

-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 C)

Exam 16: Long-Run Macroeconomic Adjustments

Correct Answer
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-Aggregate supply shocks will:

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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:

Correct Answer
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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 the short run,an increase in the price level from P₂ to P₃ will:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Adverse aggregate supply shocks would result in:

Correct Answer
verified

An "adverse aggregate supply shock" could result from:

Correct Answer
verified

The Phillips Curve suggests a tradeoff between:

Correct Answer
verified

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

Correct Answer
verified

-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 Answer
verified

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

Correct Answer
verified

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:

Correct Answer
verified

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 Answer
verified

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

Correct Answer
verified

-Refer to the above graph.If the economy moves from point B₃ to point C₃ because of an increase in aggregate demand,then:

Correct Answer
verified

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

Correct Answer
verified

In the long-run aggregate demand-aggregate supply model:

Correct Answer
verified

Exam 16: Long-Run Macroeconomic Adjustments

Correct AnswerverifiedShow Answer

-Aggregate supply shocks will:

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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 Qf.In terms of this diagram,the long-run aggregate supply curve:

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 Q f.In the short run,an increase in the price level from P2 to P3 will:

Correct AnswerverifiedShow Answer

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

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

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

Correct AnswerverifiedShow Answer

Adverse aggregate supply shocks would result in:

Correct AnswerverifiedShow Answer

An "adverse aggregate supply shock" could result from:

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

-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

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

Correct AnswerverifiedShow Answer

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:

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

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

Correct AnswerverifiedShow Answer

-Refer to the above graph.If the economy moves from point B3 to point C3 because of an increase in aggregate demand,then:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long-run aggregate demand-aggregate supply model:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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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:

Correct Answer
verified

-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 the short run,an increase in the price level from P₂ to P₃ will:

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

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Correct Answer
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Correct Answer
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Correct Answer
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-Refer to the above graph.If the economy moves from point B₃ to point C₃ because of an increase in aggregate demand,then:

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Correct Answer
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Correct Answer
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