Question 1

Inflation accompanied by falling real output and employment is known as

Accepted Answer

A)  Laffer's law.
B)  Okun's law.
C)  stagflation.
D)  the Phillips Curve.E) C) and D)
F) All of the above

Question 2

If wages and other input prices are inflexible, then the economy will not automatically adjust to full employment in the long run.

Accepted Answer

A) True 
 B)False

Question 3

The idea that reductions in tax rates will increase tax revenue is illustrated by the

Accepted Answer

A)  Laffer Curve.
B)  short-run Phillips Curve.
C)  long-run Phillips Curve.
D)  aggregate supply curve.E) A) and D)
F) None of the above

Question 4

(Last Word)  According to the research of Christina Romer and David Romer, tax increases implemented to reduce an inherited budget deficit

Accepted Answer

A)  reduce real output by the same amount as any other tax increase.
B)  reduce real output by more than other tax increases.
C)  reduce real output by less than other tax increases.
D)  increase real output, contrary to what occurs with other tax increases.E) B) and D)
F) A) and B)

Question 5

If the government uses expansionary monetary or fiscal policies to counter the output effects of cost-push inflation, then the economy is likely to experience

Accepted Answer

A)  a decline in nominal wages.
B)  an inflationary spiral.
C)  a recession.
D)  disinflation.E) C) and D)
F) A) and C)

Question 6

In 1993 the federal government boosted income tax rates.The change in tax revenue that occurred in the seven years that followed

Accepted Answer

A)  supported the claims of supply-side economists and the Laffer Curve.
B)  contradicted the claims of supply-side economists and the Laffer Curve.
C)  caused productivity growth to slow.
D)  significantly increased the size of the government's budget deficit.E) A) and B)
F) None of the above

Question 7

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  False

Question 8

Adverse aggregate-supply shocks or stagflation would cause a

Accepted Answer

A)  movement up along a stable Phillips Curve.
B)  movement down along a stable Phillips Curve.
C)  shift of the Phillips Curve to the left.
D)  shift of the Phillips Curve to the right.E) None of the above
F) A) and D)

Question 9

(Last Word)  According to the research of Christina Romer and David Romer,

Accepted Answer

A)  a tax reduction of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.
B)  a tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.
C)  a tax reduction of 2 to 3 percent raises real GDP by roughly 1 percent.
D)  a tax increase of 2 to 3 percent lowers real GDP by roughly 1 percent.E) C) and D)
F) A) and B)

Question 10

Stagflation can be described as a

Accepted Answer

A)  shift right in the aggregate supply curve.
B)  shift left in the aggregate supply curve.
C)  period of stable prices and high unemployment.
D)  period of rising prices and low unemployment.E) C) and D)
F) B) and D)

Question 11

In the short run, if the price level increases, then nominal wages

Accepted Answer

A)  stay fixed and the firms' revenues and profits will increase.
B)  stay fixed and the firms' revenues and profits also stay the same.
C)  increase, causing the firms' revenues and profits to fall.
D)  decrease, causing the firms' revenues and profits to rise.E) B) and C)
F) A) and D) A

Question 12

Demand-pull inflation in the short run raises the price level and

Accepted Answer

A)  real wages.
B)  real output.
C)  the unemployment rate.
D)  nominal wages.E) A) and B)
F) A) and C)

Question 13

A rightward shift of the Phillips Curve suggests that

Accepted Answer

A)  a higher rate of unemployment is associated with each level of inflation rate.
B)  a lower rate of inflation is associated with each level of unemployment 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 D)

Question 14

Which of the following is a true statement?

Accepted Answer

A)  There is a long-run trade-off between inflation and unemployment.
B)  There is no trade-off between inflation and unemployment in the long run.
C)  The short-run Phillips Curve is horizontal.
D)  The long-run Phillips Curve is horizontal.E) C) and D)
F) A) and D)

Question 15

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

Accepted Answer

A)  profits will temporarily fall and unemployment will temporarily rise.
B)  profits will temporarily rise and unemployment will temporarily fall.
C)  nominal wages will rise, profits will rise, and unemployment will fall.
D)  nominal wages will fall, profits will fall, and unemployment will rise.E) A) and B)
F) A) and C)

Question 16

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

Question 17

The level of potential output and location of the long-run aggregate supply curve are determined by

Accepted Answer

A)  Federal Reserve policy.
B)  the price level.
C)  the intersection of aggregate demand and short-run aggregate supply.
D)  the natural rate of unemployment.E) A) and B)
F) C) and D)

Question 18

With demand-pull inflation in the extended AD-AS model, there is

Accepted Answer

A)  a decrease in aggregate demand and a decrease in unemployment that eventually increases nominal wages.
B)  an increase in aggregate demand and a decrease in unemployment that eventually decreases nominal wages.
C)  an increase in aggregate demand and an increase in unemployment that eventually decreases nominal wages.
D)  an increase in aggregate demand and a decrease in unemployment that eventually increases nominal wages.E) C) and D)
F) B) and D)

Question 19

A rightward shift of the traditional Phillips Curve would suggest that

Accepted Answer

A)  the productivity of labor increased.
B)  the rate of inflation is now higher at each rate of unemployment.
C)  cost-push inflation decreased.
D)  the rate of inflation is now lower at each rate of unemployment.E) All of the above
F) A) and B)

Question 20

Which event probably contributed to the stagflation of the 1970s?

Accepted Answer

A)  worldwide agricultural surpluses
B)  an improvement in productivity of resources
C)  an appreciation in the dollar
D)  a sharp rise in the price of oilE) B) and C)
F) A) and D)

Exam 38: Extending the Analysis of Aggregate Supply

Inflation accompanied by falling real output and employment is known as

Correct AnswerverifiedShow Answer

If wages and other input prices are inflexible, then the economy will not automatically adjust to full employment in the long run.

Correct AnswerverifiedShow Answer

The idea that reductions in tax rates will increase tax revenue is illustrated by the

Correct AnswerverifiedShow Answer

(Last Word) According to the research of Christina Romer and David Romer, tax increases implemented to reduce an inherited budget deficit

Correct AnswerverifiedShow Answer

If the government uses expansionary monetary or fiscal policies to counter the output effects of cost-push inflation, then the economy is likely to experience

Correct AnswerverifiedShow Answer

In 1993 the federal government boosted income tax rates.The change in tax revenue that occurred in the seven years that followed

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 AnswerverifiedFalse

Adverse aggregate-supply shocks or stagflation would cause a

Correct AnswerverifiedShow Answer

(Last Word) According to the research of Christina Romer and David Romer,

Correct AnswerverifiedShow Answer

Stagflation can be described as a

Correct AnswerverifiedShow Answer

In the short run, if the price level increases, then nominal wages

Correct AnswerverifiedA

Demand-pull inflation in the short run raises the price level and

Correct AnswerverifiedShow Answer

A rightward shift of the Phillips Curve suggests that

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One policy dilemma posed by cost-push inflation is that

Correct AnswerverifiedC

The level of potential output and location of the long-run aggregate supply curve are determined by

Correct AnswerverifiedShow Answer

With demand-pull inflation in the extended AD-AS model, there is

Correct AnswerverifiedShow Answer

A rightward shift of the traditional Phillips Curve would suggest that

Correct AnswerverifiedShow Answer

Which event probably contributed to the stagflation of the 1970s?

Correct AnswerverifiedShow Answer

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False

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A

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C

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