Question 1

A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is associated with each inflation rate.

Accepted Answer

A) True 
 B)False

Question 2

A potential cause of stagflation is:

Accepted Answer

A)   Agricultural surpluses
B)   Declining productivity
C)   Improving labor productivity
D)   A rise in the value of the dollarE) B) and D)
F) C) and D)

Question 3

Based on the Laffer Curve, a cut in the tax rate from 100 percent to a rate lower than the maximum-revenue rate will:

Accepted Answer

A)   Decrease real GDP
B)   Increase tax revenues
C)   Decrease tax revenues
D)   Have no effect on tax revenuesE) A) and D)
F) B) and C)

Question 4

Assume that a person earns $600 per day at a certain job. If the marginal tax rate is cut from 40% to 30%, then this person's after-tax daily earnings will:

Accepted Answer

A)   Decrease from $240 to $180
B)   Increase from $480 to $540
C)   Decrease from $540 to $480
D)   Increase from $360 to $420E) A) and D)
F) A) and C)

Question 5

In the short run, the price level is assumed to be:

Accepted Answer

A)   Fixed, along with input prices
B)   Flexible, but input prices are not
C)   Flexible, along with input prices
D)   Fixed, but input prices are flexibleE) B) and C)
F) A) and B)

Question 6

1 and AS1 curves intersect. Demand-pull inflation in the long run can best be illustrated as a shift of: A)  AS1 to AS2, and back again to AS1 B)  AD1 to AD2, and back again to AD1 C)  AS1 to AS2, consequently making AD1 shift to AD2 D)  AD1 to AD2, consequently making AS1 shift to AS2" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD1 and AS1 curves intersect. Demand-pull inflation in the long run can best be illustrated as a shift of:

Accepted Answer

A)   AS1 to AS2, and back again to AS1
B)   AD1 to AD2, and back again to AD1
C)   AS1 to AS2, consequently making AD1 shift to AD2
D)   AD1 to AD2, consequently making AS1 shift to AS2E) B) and D)
F) A) and B)

Question 7

Refer to the table above. What would be the annual inflation rates in Years 2, 3, and 4, respectively?

Accepted Answer

A)   10, 9.1, and 8.3 percent
B)   10, 8.3, and 7.7 percent
C)   10, 10, and 10 percentD) A) and B)
E) A) and C)

Question 8

The graph above describes the notion that as tax rates rise from zero percent, tax revenues will:

Accepted Answer

A)   Increase at first, but then decline eventually as tax rate continues rising
B)   Decrease at first, but then increase eventually as tax rate continues rising
C)   Rise higher and higher
D)   Fall lower and lower until it shrinks to zeroE) A) and B)
F) B) and C)

Question 9

Adverse aggregate-supply shocks or stagflation would cause a:

Accepted Answer

A)   Movement up along a stable Phillips Curve
B)   Movement down along a stable Phillips Curve
C)   Shift of the Phillips Curve to the left
D)   Shift of the Phillips Curve to the rightE) A) and D)
F) B) and C)

Question 10

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

Accepted Answer

A)   Real wages
B)   Real output
C)   The unemployment rate
D)   Nominal wagesE) C) and D)
F) A) and B)

Question 11

The Phillips Curve shows a positive relationship between the rate of inflation and the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 12

2 to C2? A)  A tight monetary policy B)  A contractionary fiscal policy C)  An easy money policy D)  An increase in aggregate supply" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. What events would tend to temporarily move the economy from point B2 to C2?

Accepted Answer

A)   A tight monetary policy
B)   A contractionary fiscal policy
C)   An easy money policy
D)   An increase in aggregate supplyE) A) and C)
F) All of the above

Question 13

Disinflation can be explained by the Phillips Curve analysis as resulting from a situation where the actual rate of inflation is initially less than the expected rate, causing the unemployment rate to:

Accepted Answer

A)   Rise temporarily, but consequent decreases in nominal wages will eventually bring the actual and expected rates of inflation into balance
B)   Rise temporarily, but consequent increases in nominal wages will eventually bring the actual and expected rates of inflation into balance
C)   Fall temporarily, but consequent increases in nominal wages will eventually bring the actual and expected rates of inflation into balance
D)   Fall temporarily, but consequent decreases in nominal wages will eventually bring the actual and expected rates of inflation into balanceE) A) and B)
F) A) and C)

Question 14

Which event probably contributed to the stagflation of the 1970s?

Accepted Answer

A)   Worldwide agricultural surpluses
B)   An improvement in productivity of resources
C)   An appreciation in the dollar
D)   A sharp rise the price of oilE) B) and C)
F) A) and B)

Question 15

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

Accepted Answer

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 wagesE) None of the above
F) All of the above

Question 16

1 and AS1, then from a strict supply-side perspective a cut in taxes or tax rates would produce an equilibrium price and quantity of: A)  P1 and Q1 B)  P2 and Q2 C)  P3 and Q3 D)  P4 and Q4" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. If the economy is in initial equilibrium at AD1 and AS1, then from a strict supply-side perspective a cut in taxes or tax rates would produce an equilibrium price and quantity of:

Accepted Answer

A)   P1 and Q1
B)   P2 and Q2
C)   P3 and Q3
D)   P4 and Q4E) B) and C)
F) A) and B)

Question 17

To convey the point about supply-side economics, economist Arthur Laffer likened taxpayers to:

Accepted Answer

A)   The ancient Greeks and the government to the ancient Romans
B)   Sea passengers on the Titanic and government to the icebergs
C)   Western pioneers in the United States and government to railroads
D)   Travelers through Sherwood Forest and the government to Robin HoodE) None of the above
F) A) and D)

Question 18

f is potential GDP, wages and prices are flexible, then the long-run aggregate supply curve will be: A)  AS2 B)  AS1 C)  A vertical line at Qf D)  A vertical line at Q1" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. If Qf is potential GDP, wages and prices are flexible, then the long-run aggregate supply curve will be:

Accepted Answer

A)   AS2
B)   AS1
C)   A vertical line at Qf
D)   A vertical line at Q1E) B) and D)
F) B) and C)

Question 19

2. An increase in aggregate demand with a corresponding adjustment in inflation expectations and wages will tend to: A)  Move the economy to point B3 B)  Move the economy to point C2 C)  Move the economy to point C1 D)  Have no effect in shifting the economy from point B2" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume the economy is at the initial position of B2. An increase in aggregate demand with a corresponding adjustment in inflation expectations and wages will tend to:

Accepted Answer

A)   Move the economy to point B3
B)   Move the economy to point C2
C)   Move the economy to point C1
D)   Have no effect in shifting the economy from point B2E) A) and B)
F) All of the above

Question 20

1 to AD2 B)  P1 to P2 C)  AS2 to AS1 D)  ASLR1 to ASLR2" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Economic growth driven by productivity and technology would be illustrated as a shift of:

Accepted Answer

A)   AD1 to AD2
B)   P1 to P2
C)   AS2 to AS1
D)   ASLR1 to ASLR2E) B) and D)
F) None of the above

Exam 18: Extending the Analysis of Aggregate Supply

Adverse aggregate-supply shocks or stagflation would cause a:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is associated with each inflation rate.

Correct AnswerverifiedShow Answer

To convey the point about supply-side economics, economist Arthur Laffer likened taxpayers to:

Correct AnswerverifiedShow Answer

In the short run, the price level is assumed to be:

Correct AnswerverifiedShow Answer

Based on the Laffer Curve, a cut in the tax rate from 100 percent to a rate lower than the maximum-revenue rate will:

Correct AnswerverifiedShow Answer

Refer to the graph above. Assume the economy is at the initial position of B2. An increase in aggregate demand with a corresponding adjustment in inflation expectations and wages will tend to:

Correct AnswerverifiedShow Answer

The Phillips Curve shows a positive relationship between the rate of inflation and the unemployment rate.

Correct AnswerverifiedShow Answer

Disinflation can be explained by the Phillips Curve analysis as resulting from a situation where the actual rate of inflation is initially less than the expected rate, causing the unemployment rate to:

Correct AnswerverifiedShow Answer

Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD1 and AS1 curves intersect. Demand-pull inflation in the long run can best be illustrated as a shift of:

Correct AnswerverifiedShow Answer

The graph above describes the notion that as tax rates rise from zero percent, tax revenues will:

Correct AnswerverifiedShow Answer

Refer to the table above. What would be the annual inflation rates in Years 2, 3, and 4, respectively?

Correct AnswerverifiedShow Answer

Assume that a person earns $600 per day at a certain job. If the marginal tax rate is cut from 40% to 30%, then this person's after-tax daily earnings will:

Correct AnswerverifiedShow Answer

Refer to the graph above. What events would tend to temporarily move the economy from point B2 to C2?

Correct AnswerverifiedShow Answer

Refer to the graph above. If the economy is in initial equilibrium at AD1 and AS1, then from a strict supply-side perspective a cut in taxes or tax rates would produce an equilibrium price and quantity of:

Correct AnswerverifiedShow Answer

A potential cause of stagflation is:

Correct AnswerverifiedShow Answer

Refer to the graph above. Economic growth driven by productivity and technology would be illustrated as a shift of:

Correct AnswerverifiedShow Answer

Which event probably contributed to the stagflation of the 1970s?

Correct AnswerverifiedShow Answer

Refer to the graph above. If Qf is potential GDP, wages and prices are flexible, then the long-run aggregate supply curve will be:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Refer to the graph above. Assume the economy is at the initial position of B₂. An increase in aggregate demand with a corresponding adjustment in inflation expectations and wages will tend to:

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Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect. Demand-pull inflation in the long run can best be illustrated as a shift of:

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Refer to the graph above. What events would tend to temporarily move the economy from point B₂ to C₂?

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Refer to the graph above. If the economy is in initial equilibrium at AD₁ and AS₁, then from a strict supply-side perspective a cut in taxes or tax rates would produce an equilibrium price and quantity of:

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Refer to the graph above. If Q_f is potential GDP, wages and prices are flexible, then the long-run aggregate supply curve will be:

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