Question 1

Given a Phillips Curve with stable and predictable inflation and unemployment rate tradeoffs, it appears that:

Accepted Answer

A)  An expansionary fiscal policy can shift the curve to the left 
B)  A tight money policy can shift the curve to the right 
C)  Manipulating aggregate demand through fiscal and monetary policies has the effect of causing a movement along the curve 
D)  Manipulating aggregate demand through fiscal and monetary policies has the effect of shifting the curve 
A)  An expansionary fiscal policy can shift the curve to the left 
B)  A tight money policy can shift the curve to the right 
C)  Manipulating aggregate demand through fiscal and monetary policies has the effect of causing a movement along the curve 
D)  Manipulating aggregate demand through fiscal and monetary policies has the effect of shifting the curve C

Question 2

The implication of the long-run Phillips Curve is that there is no trade-off between inflation and unemployment in the long-run.

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A) True 
 B)False  True

Question 4

Refer to the Laffer Curve above. An increase in the tax rate from T3 to T4 would:

Accepted Answer

A)  Decrease tax revenues and support the views of supply-side economists 
B)  Increase tax revenues and support the views of supply-side economists 
C)  Increase tax revenues and support the views of mainstream economists 
D)  Decrease tax revenues and support the views of mainstream economists 
A)  Decrease tax revenues and support the views of supply-side economists 
B)  Increase tax revenues and support the views of supply-side economists 
C)  Increase tax revenues and support the views of mainstream economists 
D)  Decrease tax revenues and support the views of mainstream economists

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Refer to the graph above. If tax rates are between b and d, then supply-side economists are of the opinion that a(n):

Accepted Answer

A)  Increase in tax revenues will increase tax rates 
B)  Decrease in tax rates will increase tax revenues 
C)  Increase in tax rates will increase tax revenues 
D)  Decrease in tax revenues will decrease tax rates 
A)  Increase in tax revenues will increase tax rates 
B)  Decrease in tax rates will increase tax revenues 
C)  Increase in tax rates will increase tax revenues 
D)  Decrease in tax revenues will decrease tax rates

Question 7

Economist Arthur Laffer argued that Robin Hood and his men would:

Accepted Answer

A)  Be more efficient if they confiscated only the possessions of every fifth traveler through Sherwood Forest 
B)  Manage the resources in Sherwood Forest better by establishing checkpoints for travelers entering and exiting 
C)  Collect more tax revenue if they only collected a relatively small tax from each traveler through Sherwood Forest 
D)  Be more equitable to travelers through Sherwood Forest if they only took possessions from those who could afford it 
A)  Be more efficient if they confiscated only the possessions of every fifth traveler through Sherwood Forest 
B)  Manage the resources in Sherwood Forest better by establishing checkpoints for travelers entering and exiting 
C)  Collect more tax revenue if they only collected a relatively small tax from each traveler through Sherwood Forest 
D)  Be more equitable to travelers through Sherwood Forest if they only took possessions from those who could afford it

Question 8

Refer to the graph above. Ongoing inflation would occur if the Fed:

Accepted Answer

A)  Increases the money supply causing AD to shift faster than technological progress shifts AS 
B)  Increases the money supply causing AD to shift slower than technological progress shifts AS 
C)  Increases the money supply causing AD to shift as fast as technological progress shifts AS 
D)  Does not increase the money supply while technological progress is shifting AS 
A)  Increases the money supply causing AD to shift faster than technological progress shifts AS 
B)  Increases the money supply causing AD to shift slower than technological progress shifts AS 
C)  Increases the money supply causing AD to shift as fast as technological progress shifts AS 
D)  Does not increase the money supply while technological progress is shifting AS

Question 9

In the long run, if the price level increases, then nominal wages and other input prices:

Accepted Answer

A)  Also rise, so firms will reduce their output level 
B)  Also rise, so firms will not change their output level 
C)  Not change, so firms will not change their output level 
D)  Decrease, so firms will increase their output level 
A)  Also rise, so firms will reduce their output level 
B)  Also rise, so firms will not change their output level 
C)  Not change, so firms will not change their output level 
D)  Decrease, so firms will increase their output level

Question 10

Refer to the graph above. A movement from point C to point D on the Laffer Curve represents:

Accepted Answer

A)  Increased tax rates from T2 to T3 and increased tax revenues from R2 to R3 
B)  Decreased tax rates from T3 to T2 and increased tax revenues from R2 to R3 
C)  Decreased tax rates from T3 to T2 and decreased tax revenues from R3 to R2 
D)  Increased tax rates from T2 to T3 and decreased tax revenues from R3 to R2 
A)  Increased tax rates from T2 to T3 and increased tax revenues from R2 to R3 
B)  Decreased tax rates from T3 to T2 and increased tax revenues from R2 to R3 
C)  Decreased tax rates from T3 to T2 and decreased tax revenues from R3 to R2 
D)  Increased tax rates from T2 to T3 and decreased tax revenues from R3 to R2

Question 11

Refer to the graphs above. Assume that the economy is initially at equilibrium where AD2 and AS intersect in Graph 1, and also assume that the economy is initially at point C in Graph 2. A movement from point C to point B in graph 2 would most likely be associated, in graph 1, with a shift of:

Accepted Answer

A)  AD to the right 
B)  AD to the left 
C)  AS to the right 
D)  AS to the left 
A)  AD to the right 
B)  AD to the left 
C)  AS to the right 
D)  AS to the left

Question 12

The experience of the U.S. with supply-side policies is that tax cuts affect the economy more on the demand side rather than the supply side.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the Laffer Curve above. A cut in the tax rate from T5 to T4 would:

Accepted Answer

A)  Decrease tax revenues and support the views of supply-side economists 
B)  Increase tax revenues and support the views of supply-side economists 
C)  Increase tax revenues and support the views of mainstream economists 
D)  Decrease tax revenues and support the views of mainstream economists 
A)  Decrease tax revenues and support the views of supply-side economists 
B)  Increase tax revenues and support the views of supply-side economists 
C)  Increase tax revenues and support the views of mainstream economists 
D)  Decrease tax revenues and support the views of mainstream economists

Question 14

Refer to the graph above. Assume that the economy is initially at equilibrium at point C, and that the government has adopted a "hands-off" policy approach. If demand-pull inflation occurs, then the final long-run equilibrium point will be point __; while if cost-push inflation occurs (starting at point C), then the final long-run equilibrium point will be point __.

Accepted Answer

A)  A; C 
B)  D; B 
C)  A; A 
D)  D; A 
A)  A; C 
B)  D; B 
C)  A; A 
D)  D; A

Question 15

A stable Phillips curve does not allow for the possibility of stagflation.

Accepted Answer

A) True 
 B)False

Question 16

The adjustment mechanism that brings the economy to its long-run aggregate supply has to do with inflation-expectations, whereas the adjustment to the long-run Phillips curve has to do with wage flexibility.

Accepted Answer

A) True 
 B)False

Question 17

In the short run, nominal wages and other input prices are assumed to be:

Accepted Answer

A)  Unresponsive to product price-level changes, but in the long run they are assumed to be responsive 
B)  Unresponsive to product price-level changes, and in the long run they are assumed to be unresponsive also 
C)  Responsive to product price-level changes, but in the long run they are assumed to be unresponsive 
D)  Responsive to product price-level changes, and in the long run they are assumed to be responsive also 
A)  Unresponsive to product price-level changes, but in the long run they are assumed to be responsive 
B)  Unresponsive to product price-level changes, and in the long run they are assumed to be unresponsive also 
C)  Responsive to product price-level changes, but in the long run they are assumed to be unresponsive 
D)  Responsive to product price-level changes, and in the long run they are assumed to be responsive also

Question 18

Refer to the graph above. Stagflation in the short run is best represented as resulting from a shift of:

Accepted Answer

A)  AD1 to AD2 given a stable AS1 curve 
B)  AD2 to AD1 given a stable AS1 curve 
C)  AS1 to AS2 given a stable AD1 curve 
D)  AS2 to AS1 given a stable AD1 curve 
A)  AD1 to AD2 given a stable AS1 curve 
B)  AD2 to AD1 given a stable AS1 curve 
C)  AS1 to AS2 given a stable AD1 curve 
D)  AS2 to AS1 given a stable AD1 curve

Question 19

Which factor contributed to the demise of stagflation during the 1982-1989 period?

Accepted Answer

A)  A lessening of foreign competition 
B)  The decline of the monopoly power of OPEC 
C)  An increase in the per-unit cost of production 
D)  An increase in regulation of airline and trucking industries 
A)  A lessening of foreign competition 
B)  The decline of the monopoly power of OPEC 
C)  An increase in the per-unit cost of production 
D)  An increase in regulation of airline and trucking industries

Question 20

Refer to the graph above. Critics of supply-side economics would argue that tax rates are currently between:

Accepted Answer

A)  b and d and that a decrease in tax rates will decrease tax revenues 
B)  0 and b and that a decrease in tax rates will decrease tax revenues 
C)  0 and b and that a decrease in tax rates will increase tax revenues 
D)  b and d and that a decrease in tax rates will increase tax revenues 
A)  b and d and that a decrease in tax rates will decrease tax revenues 
B)  0 and b and that a decrease in tax rates will decrease tax revenues 
C)  0 and b and that a decrease in tax rates will increase tax revenues 
D)  b and d and that a decrease in tax rates will increase tax revenues

Exam 18: Extending the Analysis of Aggregate Supply

Given a Phillips Curve with stable and predictable inflation and unemployment rate tradeoffs, it appears that:

The implication of the long-run Phillips Curve is that there is no trade-off between inflation and unemployment in the long-run.

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

Refer to the Laffer Curve above. An increase in the tax rate from T3 to T4 would:

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

Refer to the graph above. If tax rates are between b and d, then supply-side economists are of the opinion that a(n):

Economist Arthur Laffer argued that Robin Hood and his men would:

Refer to the graph above. Ongoing inflation would occur if the Fed:

In the long run, if the price level increases, then nominal wages and other input prices:

Refer to the graph above. A movement from point C to point D on the Laffer Curve represents:

Refer to the graphs above. Assume that the economy is initially at equilibrium where AD2 and AS intersect in Graph 1, and also assume that the economy is initially at point C in Graph 2. A movement from point C to point B in graph 2 would most likely be associated, in graph 1, with a shift of:

The experience of the U.S. with supply-side policies is that tax cuts affect the economy more on the demand side rather than the supply side.

Refer to the Laffer Curve above. A cut in the tax rate from T5 to T4 would:

A stable Phillips curve does not allow for the possibility of stagflation.

The adjustment mechanism that brings the economy to its long-run aggregate supply has to do with inflation-expectations, whereas the adjustment to the long-run Phillips curve has to do with wage flexibility.

In the short run, nominal wages and other input prices are assumed to be:

Refer to the graph above. Stagflation in the short run is best represented as resulting from a shift of:

Which factor contributed to the demise of stagflation during the 1982-1989 period?

Refer to the graph above. Critics of supply-side economics would argue that tax rates are currently between:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Refer to the Laffer Curve above. An increase in the tax rate from T₃ to T₄ would:

Refer to the graphs above. Assume that the economy is initially at equilibrium where AD₂ and AS intersect in Graph 1, and also assume that the economy is initially at point C in Graph 2. A movement from point C to point B in graph 2 would most likely be associated, in graph 1, with a shift of:

Refer to the Laffer Curve above. A cut in the tax rate from T₅ to T₄ would: