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-Refer to the above graph.The long-run relationship between the rate of inflation and the unemployment rate is represented by: A) the zigzag line connecting points B<sub>1</sub>,C<sub>1</sub>,B<sub>2</sub>,C<sub>2</sub>,B<sub>3</sub>,C<sub>3</sub>,and B<sub>4</sub>. B) a line connecting points C<sub>1</sub>,C<sub>2</sub>,and C<sub>3</sub>. C) a line connecting points B<sub>1</sub>,B<sub>2</sub>,B<sub>3</sub>,and B<sub>4</sub>. D) a line connecting points B<sub>1</sub> and C<sub>1</sub>. -Refer to the above graph.The long-run relationship between the rate of inflation and the unemployment rate is represented by:


A) the zigzag line connecting points B1,C1,B2,C2,B3,C3,and B4.
B) a line connecting points C1,C2,and C3.
C) a line connecting points B1,B2,B3,and B4.
D) a line connecting points B1 and C1.

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

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The short-run aggregate supply curve is upward-sloping because:


A) higher prices discourage the producers to expand output.
B) higher price levels create incentives to expand output when resource prices remain constant.
C) lower prices encourage the producers to expand output.
D) higher price levels create an expectation among producers of still higher price levels.

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

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Supply-side economists criticize non supply-side economists for:


A) not recognizing the possibility of cost-push inflation.
B) focusing macroeconomic policy mainly on aggregate demand.
C) assuming that households and businesses form rational expectations about complex economic matters.
D) neglecting to note the severe impacts of budget deficits on investment spending.

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

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-Refer to the above diagram for a specific economy.An increase in aggregate demand will: A) shift this curve to the right. B) shift this curve to the left. C) move this economy southeast along the curve. D) move this economy northwest along the curve. -Refer to the above diagram for a specific economy.An increase in aggregate demand will:


A) shift this curve to the right.
B) shift this curve to the left.
C) move this economy southeast along the curve.
D) move this economy northwest along the curve.

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

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-Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 percent and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6 percent.In the long run,the decline in the actual rate of inflation from 6 percent to 4 percent will: A) reduce the unemployment rate. B) reduce corporate profits in real terms. C) have no effect on the unemployment rate. D) reduce real domestic output. -Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 percent and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6 percent.In the long run,the decline in the actual rate of inflation from 6 percent to 4 percent will:


A) reduce the unemployment rate.
B) reduce corporate profits in real terms.
C) have no effect on the unemployment rate.
D) reduce real domestic output.

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

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The Phillips Curve suggests that,if government uses an expansionary fiscal policy to stimulate output and employment:


A) unemployment may actually increase because of the crowding-out effect.
B) tax revenues may increase even though tax rates have been reduced.
C) inflation may result.
D) the natural rate of unemployment may fall.

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

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The short-run aggregate supply curve is vertical and the long-run aggregate supply curve is horizontal.

A) True
B) False

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-Refer to the above diagram.The initial aggregate demand curve is AD<sub>1</sub> and the initial aggregate supply curve is AS<sub>1</sub>.Demand-pull inflation in the short run is best shown as: A) a shift of the aggregate demand curve from AD<sub>1</sub> to AD<sub>2</sub>. B) a move from d to b to a. C) a move directly from d to a. D) a shift of the aggregate supply curve from AS<sub>1</sub> to AS<sub>2</sub>. -Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Demand-pull inflation in the short run is best shown as:


A) a shift of the aggregate demand curve from AD1 to AD2.
B) a move from d to b to a.
C) a move directly from d to a.
D) a shift of the aggregate supply curve from AS1 to AS2.

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

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A

-The above diagram describes the notion that as tax: A) revenues increase from zero to 100 percent,tax rates will increase from zero to some maximum level and then decline to zero. B) rates increase from zero to 100 percent,tax revenue will increase from zero to some maximum level and decline to zero. C) rates decrease from 100 to zero percent,tax revenue will decrease from 100 percent to a maximum level. D) rates increase from zero to 100 percent,tax revenue will increase from zero to a maximum level. -The above diagram describes the notion that as tax:


A) revenues increase from zero to 100 percent,tax rates will increase from zero to some maximum level and then decline to zero.
B) rates increase from zero to 100 percent,tax revenue will increase from zero to some maximum level and decline to zero.
C) rates decrease from 100 to zero percent,tax revenue will decrease from 100 percent to a maximum level.
D) rates increase from zero to 100 percent,tax revenue will increase from zero to a maximum level.

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

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-Refer to the above graph.Given that the economy is at an initial equilibrium where the AD<sub>1</sub> and AS<sub>1</sub> curves intersect,demand-pull inflation in the short run can best be represented by a shift from: A) AS<sub>1</sub> to AS<sub>3</sub>. B) AD<sub>1</sub> to AD<sub>2</sub>. C) AS<sub>1</sub> to AS<sub>2</sub>. D) AD<sub>2</sub> to AD<sub>1</sub>. -Refer to the above graph.Given that the economy is at an initial equilibrium where the AD1 and AS1 curves intersect,demand-pull inflation in the short run can best be represented by a shift from:


A) AS1 to AS3.
B) AD1 to AD2.
C) AS1 to AS2.
D) AD2 to AD1.

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

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-Refer to the above graph.The economy is at point B<sub>2</sub>,and aggregate demand increases.In the short run,the economy will: A) stay at point B<sub>2</sub>. B) move to point C<sub>2</sub> and in the long run to B<sub>3</sub>. C) move to point B<sub>3</sub> and in the long run to C<sub>2</sub>. D) move to point B<sub>1</sub> and in the long run to B<sub>1</sub>. -Refer to the above graph.The economy is at point B2,and aggregate demand increases.In the short run,the economy will:


A) stay at point B2.
B) move to point C2 and in the long run to B3.
C) move to point B3 and in the long run to C2.
D) move to point B1 and in the long run to B1.

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

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Assuming prices and wages are flexible,a recession will decrease the price level,which:


A) raises nominal wages,and which eventually decreases the short-run aggregate supply curve,thus decreasing real output to its original level.
B) raises nominal wages,and which eventually increases the short-run aggregate supply curve,thus increasing real output to its original level.
C) reduces nominal wages,and which eventually decreases the short-run aggregate supply curve,thus decreasing real output to its original level.
D) reduces nominal wages,and which eventually increases the short-run aggregate supply curve,thus increasing real output to its original level.

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

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-Prominent supply-side economist Arthur Laffer has argued that: A) there is no empirically proven relationship between tax rates and incentives. B) large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand. C) the only way to eliminate stagflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations. D) large cuts in personal and corporate income taxes will increase aggregate demand more than aggregate supply. -Prominent supply-side economist Arthur Laffer has argued that:


A) there is no empirically proven relationship between tax rates and incentives.
B) large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.
C) the only way to eliminate stagflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations.
D) large cuts in personal and corporate income taxes will increase aggregate demand more than aggregate supply.

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

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-Refer to the above diagram.The initial aggregate demand curve is AD<sub>1</sub> and the initial aggregate supply curve is AS<sub>1</sub>.In the long run,demand-pull inflation is best shown as: A) a shift of aggregate demand from AD<sub>1</sub> to AD<sub>2</sub> followed by a shift of aggregate supply from AS<sub>1</sub> to AS<sub>2</sub>. B) a move from d to b to a. C) a shift of aggregate supply from AS<sub>1</sub> to AS<sub>2</sub> followed by a shift of aggregate demand from AD<sub>1</sub> to AD<sub>2</sub>. D) a move from a to d. -Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.In the long run,demand-pull inflation is best shown as:


A) a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2.
B) a move from d to b to a.
C) a shift of aggregate supply from AS1 to AS2 followed by a shift of aggregate demand from AD1 to AD2.
D) a move from a to d.

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

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If government fiscal policy is used to restrain cost-push inflation,we can expect:


A) the unemployment rate to rise.
B) the unemployment rate to fall.
C) the aggregate demand curve to shift rightward.
D) tax-rate declines and increases in government spending.

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

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


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.

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

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-If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur,then the: A) economy is operating in the short run. B) economy has entered the long run. C) unemployment rate will increase. D) inflation rate will decrease. -If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur,then the:


A) economy is operating in the short run.
B) economy has entered the long run.
C) unemployment rate will increase.
D) inflation rate will decrease.

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

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The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.In the long run,the aggregate supply curve is vertical in the diagram because:


A) nominal wages and other input prices are assumed to be fixed.
B) real output level Qf is the potential level of output.
C) price level increases produce perfectly offsetting changes in nominal wages and other input prices.
D) higher than expected rates of actual inflation reduce real output only temporarily.

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

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In the short run,demand-pull inflation increases:


A) real wages,but in the long run only nominal wages.
B) nominal wages,but in the long run only real wages.
C) real output and the price level,but in the long-run only real output.
D) real output and the price level,but in the long-run only the price level.

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

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D

-The long-run aggregate supply curve: A) is downward sloping. B) is vertical. C) is horizontal. D) is upward sloping. -The long-run aggregate supply curve:


A) is downward sloping.
B) is vertical.
C) is horizontal.
D) is upward sloping.

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

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B

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