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Critics of supply-side economics


A) argue that a tax cut will increase aggregate supply by more than it increases aggregate demand.
B) contend that the relationship between tax rates and economic incentives is small and of uncertain direction.
C) believe that a decline in tax rates will increase tax revenues.
D) point out that tax cuts enable households to substitute work for leisure.

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

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An adverse aggregate supply shock could result from


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

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Compare and contrast the short-run Phillips curve and the long-run Phillips curve.

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Increases in aggregate demand beyond tho...

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A) A D _ { 1 } to A D _ { 2 } , which increases the price level from P _ { 1 } to P _ { 2 } and increases real domestic output from Q _ { 3 } to Q _ { 2 } . B) \mathrm { AS } _ { 1 } to \mathrm { AS } _ { 2 } , which increases the price level from P _ { 1 } to P _ { 2 } and decreases real output from Q _ { 1 } to Q _ { 2 } C) \mathrm { AD } _ { 1 } to A \mathrm { D } _ { 2 } , which increases the price level from P _ { 2 } to P _ { 3 } and increases real output from Q _ { 2 } to Q _ { 1 } D) \mathrm { AS } _ { 2 } to \mathrm { AS } _ { 3 } , which increases the price level from P _ { 2 } to P _ { 3 } and decreases real output from Q _ { 2 } to Q _ { 3 } .


A) AD1A D _ { 1 } to AD2A D _ { 2 } , which increases the price level from P1P _ { 1 } to P2P _ { 2 } and increases real domestic output from Q3Q _ { 3 } to Q2Q _ { 2 } .
B) AS1\mathrm { AS } _ { 1 } to AS2\mathrm { AS } _ { 2 } , which increases the price level from P1P _ { 1 } to P2P _ { 2 } and decreases real output from Q1Q _ { 1 } to Q2Q _ { 2 }
C) AD1\mathrm { AD } _ { 1 } to AD2A \mathrm { D } _ { 2 } , which increases the price level from P2P _ { 2 } to P3P _ { 3 } and increases real output from Q2Q _ { 2 } to Q1Q _ { 1 }
D) AS2\mathrm { AS } _ { 2 } to AS3\mathrm { AS } _ { 3 } , which increases the price level from P2P _ { 2 } to P3P _ { 3 } and decreases real output from Q2Q _ { 2 } to Q3Q _ { 3 } .

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

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

A) True
B) False

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True

What is the basic difference between the short run and long run as these terms relate to macroeconomics? Why does this difference occur?

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The basic difference between the short r...

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A) v. B) x. C) u. D) y.


A) v.
B) x.
C) u.
D) y.

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

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Which of the following is a true statement?


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

E) None of the above
F) B) and D)

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


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

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There is no trade-off between unemployment and inflation in the long run.

A) True
B) False

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A) v. B) x. C) t. D) y.


A) v.
B) x.
C) t.
D) y.

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

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How do economies experience ongoing inflation when achieving economic growth?

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Any inflation that accompanies economic g...

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Based on the Phillips Curve, when the actual rate of inflation is greater than the expected rate, the unemployment rate will


A) rise temporarily, but decreases in nominal wages will bring the expected and actual rates of inflation into balance.
B) rise temporarily, but increases in nominal wages will bring the expected and actual rates of inflation into balance.
C) fall temporarily, but increases in nominal wages will bring the expected and actual rates of inflation into balance.
D) fall temporarily, but decreases in nominal wages will bring the actual and expected rates of inflation into balance.

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

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When the actual rate of inflation is less than the expected rate,


A) the unemployment rate will temporarily rise.
B) firms will increase their output to recoup their falling profits.
C) the unemployment rate will temporarily fall.
D) firms will experience rising profits and thus increase their employment.

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

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What will occur in the short run if there is cost-push inflation and the government adopts a hands-off approach to it?


A) an increase in real output
B) an inflationary spiral
C) low unemployment and a loss of real output
D) high unemployment and a loss of real output

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

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If government uses its stabilization policies to maintain full employment under conditions of cost- push inflation,


A) a deflationary spiral is likely to occur.
B) an inflationary spiral is likely to occur.
C) stagflation is likely to occur.
D) the Phillips Curve is likely to shift inward.

E) C) and D)
F) A) and C)

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Refer to the diagram for a specific economy. Which of the following best describes the relationship shown by this curve? A) The demand for labor is large when the rate of inflation is low. B) When the rate of unemployment is high, the rate of inflation is high. C) The rate of inflation and the rate of unemployment are inversely related. D) The rate of inflation and the rate of unemployment are directly related. Refer to the diagram for a specific economy. Which of the following best describes the relationship shown by this curve?


A) The demand for labor is large when the rate of inflation is low.
B) When the rate of unemployment is high, the rate of inflation is high.
C) The rate of inflation and the rate of unemployment are inversely related.
D) The rate of inflation and the rate of unemployment are directly related.

E) C) and D)
F) None of the above

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C

Refer to the graph. If the government wants to collect tax revenues equal to R R _ { 2 } , then the tax rate Should be set at A) T _ { 2 } \text { or } T _ { 3 } B) T _ { 2 } \text { only. } C) T _ { 4 } \text { only. } D) T _ { 2 } \text { or } T _ { 4 } Refer to the graph. If the government wants to collect tax revenues equal to R R2R _ { 2 } , then the tax rate Should be set at


A) T2 or T3T _ { 2 } \text { or } T _ { 3 }
B) T2 only. T _ { 2 } \text { only. }
C) T4 only. T _ { 4 } \text { only. }
D) T2 or T4T _ { 2 } \text { or } T _ { 4 }

E) A) and D)
F) C) and D)

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


A) Laffer Curve.
B) short-run Phillips Curve.
C) long-run Phillips Curve.
D) aggregate supply curve.

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

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A

Explain the reasoning behind why the long-run aggregate supply curve is vertical.

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The long-run aggregate supply curve is v...

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