Exam 18: Extending the Analysis of Aggregate Supply

Supply-side economists recommend higher marginal tax rates to increase aggregate supply and real output.

Assume that a person saves $50,000 and earns 7 percent annual interest. If the marginal tax rate is 36 percent, then the after-tax interest earning will be:

The economy enters the long-run once:

Refer to the table above. Calculating the annual inflation rates would indicate that this economy is experiencing:

According to the simple extended AD-AS model, cost-push inflation does not last in the long run if the government leaves the economy alone.

The long-run aggregate supply curve stays in a fixed position over time.

In the graphs below, Q_P refers to the economy's potential output level. Refer to the graphs above. In Graph B, assume that the economy is initially in equilibrium at point x₁ but then there is an increase in the price level from P₁ to P₂. In the long run, this change will lead to:

Which is a basic proposition of supply-side economics?

In the graphs below, Q_P refers to the economy's potential output level. Refer to the graphs above. In Graph A, an increase in the price level from P₁ to P₂ will cause:

Demand-pull inflation and cost-push inflation have similar effects on real output in the short run.

The Laffer Curve suggests that within a certain range, lower tax rates will increase tax revenues.

Refer to the Laffer Curve above. A cut in the tax rate from T₂ to T₁ would:

Refer to the graph above. The economy is at point B₂, and then aggregate demand increases. In the short run, the economy will:

The traditional Phillips Curve shows the:

The policy implication of the long-run Phillips Curve is that, while stimulative policies may work to reduce unemployment in the short run, the only effect of such policies in the long run is to raise inflation.

The short-run Phillips Curve intersects the long-run Phillips Curve at the:

Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect. If cost-push inflation occurs and the government subsequently implements expansionary policy, then the effect of such policy is to shift:

Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect. If cost-push inflation occurs and the government adopts a "hands-off" policy approach, then in the long run the price level will be at:

In the long run, if the price level decreases, then the economy's output level will:

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