Question 1

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

Question 2

Demand-pull inflation in the short run increases the price level and:

Accepted Answer

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

Question 3

The long-run aggregate supply curve is vertical:

Accepted Answer

A)   because the rate of inflation is steady in the long run.
B)   Input prices eventually rise in response to changes in output prices.
C)   because product prices always increase at a faster rate than resource prices.
D)   only when the money supply increases at the same rate as real GDP.E) None of the above
F) B) and D)

Question 4

1 and the initial aggregate supply curve is AS1.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2: A)  real output will rise above Qf. B)  the price level will rise from P1 to P2. C)  it is possible that aggregate supply will shift rightward from AS2 because nominal wage demands will rise. D)  the price level will rise from P2 to P3." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2:

Accepted Answer

A)   real output will rise above Qf.
B)   the price level will rise from P1 to P2.
C)   it is possible that aggregate supply will shift rightward from AS2 because nominal wage demands will rise.
D)   the price level will rise from P2 to P3.E) A) and B)
F) All of the above

Question 5

An ongoing economic growth causes continuous leftward shifts of the aggregate supply which,by themselves,would tend to cause an ongoing deflation.

Accepted Answer

A) True 
 B)False

Question 6

Other things equal,a decrease in the price level will:

Accepted Answer

A)   shift the short run aggregate supply curve to the left.
B)   shift the aggregate demand curve to the left.
C)   cause a movement up a short-run aggregate supply curve.
D)   cause a movement down a short run aggregate supply curve.E) A) and B)
F) A) and C)

Question 7

Stagflation refers to:

Accepted Answer

A)   an increase in inflation accompanied by decreases in real output and employment.
B)   a decline in the price level accompanied by increases in real output and employment.
C)   a simultaneous increase in real output and the price level.
D)   a simultaneous reduction in real output and the price level.E) None of the above
F) B) and C)

Question 8

-Refer to the above diagram for a specific economy.Stagflation will:

Accepted Answer

A)   shift this curve outward.
B)   shift this curve inward.
C)   move this economy southeast along the curve.
D)   move this economy northwest along the curve.E) None of the above
F) B) and C)

Question 9

Refer to the diagram below.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Assuming no change in aggregate demand,the long-run response to a recession caused by cost-push inflation is best depicted as a: 1 and the initial aggregate supply curve is AS1.Assuming no change in aggregate demand,the long-run response to a recession caused by cost-push inflation is best depicted as a:   A)  move from a to d along the long-run aggregate supply curve. B)  rightward shift of the aggregate supply curve from AS2 to AS1. C)  move from a to c to d. D)  leftward shift of the aggregate supply curve from AS1 to AS2." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   move from a to d along the long-run aggregate supply curve.
B)   rightward shift of the aggregate supply curve from AS2 to AS1.
C)   move from a to c to d.
D)   leftward shift of the aggregate supply curve from AS1 to AS2.E) All of the above
F) C) and D)

Question 10

The Laffer Curve is a central concept in:

Accepted Answer

A)   monetarism.
B)   Keynesianism.
C)   the expectation theory.
D)   supply-side economics.E) A) and B)
F) None of the above

Question 11

A shift in the Phillips Curve to the left will improve the "inflation-unemployment" choices available to society.

Accepted Answer

A) True 
 B)False

Question 12

-A rightward shift of the Phillips Curve suggests that:

Accepted Answer

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

Question 13

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

Question 14

Most economists reject the idea of a long-run tradeoff between unemployment and inflation.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the graph below.Assume that the economy is in initial equilibrium where AS1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2,then it is most likely that: 1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2,then it is most likely that:   A)  AD2 will shift to AD1. B)  AS2 will shift to AS1. C)  AS2 will shift to AS3. D)  AS2 will shift to AS3 and AD2 will shift to AD1." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   AD2 will shift to AD1.
B)   AS2 will shift to AS1.
C)   AS2 will shift to AS3.
D)   AS2 will shift to AS3 and AD2 will shift to AD1.E) A) and D)
F) B) and C)

Question 16

An upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

Accepted Answer

A) True 
 B)False

Question 17

A rightward shift of The Phillips Curve would suggest that:

Accepted Answer

A)   the productivity of labour increased.
B)   each higher rate of inflation is now associated with a higher rate of unemployment than previously.
C)   cost-push inflation decreased.
D)   a lower rate of inflation is now associated with each rate of unemployment than previously.E) None of the above
F) All of the above

Question 18

Cost-push inflation results directly from a(n) :

Accepted Answer

A)   decrease in per unit production costs that shift the short-run aggregate supply curve to the right.
B)   increase in per unit production costs that shift the short-run aggregate supply curve to the left
C)   increase in government spending.
D)   decrease in government regulation.E) C) and D)
F) A) and B)

Question 19

1.If workers fully anticipate price level increases and government uses expansionary policies to lower the unemployment rate below 6 percent,the economy will: A)  move from B1 to C1,at which point macroeconomic policies will cease to be effective. B)  remain at B1. C)  follow the path indicated by B1,B2,B3,and B4. D)  follow the path indicated by B1,C1,B2,C2,B3,etc." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram and assume the economy is initially at point b1.If workers fully anticipate price level increases and government uses expansionary policies to lower the unemployment rate below 6 percent,the economy will:

Accepted Answer

A)   move from B1 to C1,at which point macroeconomic policies will cease to be effective.
B)   remain at B1.
C)   follow the path indicated by B1,B2,B3,and B4.
D)   follow the path indicated by B1,C1,B2,C2,B3,etc.E) All of the above
F) A) and B)

Question 20

Critics of supply-side economics:

Accepted Answer

A)   argue that a tax cut will increase aggregate demand by more than it increases real output.
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 give rise to budget deficits.
D)   make all of the above points.E) B) and C)
F) None of the above

Exam 16: Long-Run Macroeconomic Adjustments

Refer to the graph below.Assume that the economy is in initial equilibrium where AS1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2,then it is most likely that:

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Refer to the diagram below.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Assuming no change in aggregate demand,the long-run response to a recession caused by cost-push inflation is best depicted as a:

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Most economists reject the idea of a long-run tradeoff between unemployment and inflation.

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Cost-push inflation results directly from a(n) :

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-A rightward shift of the Phillips Curve suggests that:

Correct AnswerverifiedShow Answer

-Refer to the above diagram and assume the economy is initially at point b1.If workers fully anticipate price level increases and government uses expansionary policies to lower the unemployment rate below 6 percent,the economy will:

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical:

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Inflation accompanied by falling real output and employment is known as:

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A shift in the Phillips Curve to the left will improve the "inflation-unemployment" choices available to society.

Correct AnswerverifiedShow Answer

An upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

Correct AnswerverifiedShow Answer

-Refer to the above diagram for a specific economy.Stagflation will:

Correct AnswerverifiedShow Answer

One policy dilemma posed by cost-push inflation is that:

Correct AnswerverifiedShow Answer

Stagflation refers to:

Correct AnswerverifiedShow Answer

An ongoing economic growth causes continuous leftward shifts of the aggregate supply which,by themselves,would tend to cause an ongoing deflation.

Correct AnswerverifiedShow Answer

Demand-pull inflation in the short run increases the price level and:

Correct AnswerverifiedShow Answer

The Laffer Curve is a central concept in:

Correct AnswerverifiedShow Answer

Critics of supply-side economics:

Correct AnswerverifiedShow Answer

A rightward shift of The Phillips Curve would suggest that:

Correct AnswerverifiedShow Answer

Other things equal,a decrease in the price level will:

Correct AnswerverifiedShow Answer

-Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2:

Correct AnswerverifiedShow Answer

Refer to the graph below.Assume that the economy is in initial equilibrium where AS₁ intersects AD₁.Then a supply shock occurs that shifts AS₁ to AS₂.If the government counters with an expansionary fiscal policy that shifts AD₁ to AD₂,then it is most likely that:

Correct Answer
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Refer to the diagram below.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.Assuming no change in aggregate demand,the long-run response to a recession caused by cost-push inflation is best depicted as a:

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-Refer to the above diagram and assume the economy is initially at point b₁.If workers fully anticipate price level increases and government uses expansionary policies to lower the unemployment rate below 6 percent,the economy will:

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-Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD₁ to AD₂:

Correct Answer
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