Question 1

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

Question 2

Statistical data for the 1970s and 1980s suggest that:

Accepted Answer

A)  the Phillips Curve was stable.
B)  the Phillips Curve was unstable.
C)  low levels of unemployment were consistently associated with high rates of inflation.
D)  the inflation rate was highly stable.E) None of the above
F) C) and D)

Question 3

The Phillips Curve reveals that with a constant short-run aggregate supply curve, the larger the increase in aggregate demand:

Accepted Answer

A)  the lesser the increase in real output and the higher the rate of inflation.
B)  the greater the increase in real output and the higher the rate of inflation.
C)  the greater the increase in real output and the lower the rate of inflation.
D)  the lesser the increase in real output and the lower the rate of inflation.E) None of the above
F) B) and C)

Question 4

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 5

The short run in macroeconomics is a period in which nominal wages:

Accepted Answer

A)  remain fixed as the price level stays constant.
B)  change as the price level stays constant.
C)  remain fixed as the price level changes.
D)  change as the price level changes.E) A) and B)
F) A) and C)

Question 6

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

Accepted Answer

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

Question 7

Which of the following is not a principle of supply-side economics?

Accepted Answer

A)  High marginal tax rates severely discourage work, saving, and investment.
B)  Increases in social security taxes and other business taxes shift the aggregate supply curve leftward.
C)  The Bank of Canada should adhere to a monetary rule which limits increases in the money supply to a fixed annual rate.
D)  Transfer payments reduce incentives to work.E) A) and B)
F) A) and C)

Question 8

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

Accepted Answer

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

Question 9

The Laffer Curve is a central concept in:

Accepted Answer

A)  monetarism.
B)  Keynesianism.
C)  the expectation theory.
D)  supply-side economics.E) C) and D)
F) A) and B)

Question 10

Refer to the above graph.The full-employment unemployment rate in this economy would be:

Accepted Answer

A)  5 percent.
B)  6 percent.
C)  7 percent.
D)  5-6 percent.E) A) and D)
F) A) and C)

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

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

Question 13

In the long-run aggregate demand-aggregate supply model:

Accepted Answer

A)  long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve.
B)  the long-run aggregate supply curve is horizontal.
C)  the price level is the same regardless of the location of the aggregate demand curve.
D)  long-run equilibrium occurs at the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.E) None of the above
F) B) and C)

Question 14

The Laffer Curve shows the real world tradeoff between the price level and tax rates.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

Based on the Laffer Curve, a cut in the tax rate from 100 percent to a point before the maximum level of tax revenue will:

Accepted Answer

A)  decrease real GDP.
B)  increase tax revenues.
C)  decrease tax revenues.
D)  have no effect on tax revenues.E) B) and C)
F) None of the above

Question 17

A criticism of cuts in marginal tax rates is that they fail to:

Accepted Answer

A)  decrease disinflation in the economy.
B)  decrease demand-pull inflation in the economy.
C)  increase aggregate supply more rapidly than aggregate demand.
D)  increase aggregate demand more rapidly than aggregate supply.E) B) and D)
F) None of the above

Question 18

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) All of the above
F) None of the above

Question 19

Refer to the above diagram for a specific economy.Which of the following best describes the relationship shown by this curve?

Accepted Answer

A)  The demand for labor is large when the rate of inflation is small.
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) All of the above
F) A) and B)

Question 20

The Laffer Curve underlies the contention that lower tax rates need not reduce tax revenues.

Accepted Answer

A) True 
 B)False

Exam 16: B: Long-Run Macroeconomic Adjustments

In the long-run aggregate demand-aggregate supply model:

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

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

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Which of the following is not a principle of supply-side economics?

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The Laffer Curve is a central concept in:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the diagram given below.Suppose an economy is initially at point B1. If workers fully anticipate price level increases and the government uses expansionary policies to bring the unemployment rate below 6 percent, the economy will:

Correct AnswerverifiedShow Answer

The Phillips Curve reveals that with a constant short-run aggregate supply curve, the larger the increase in aggregate demand:

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

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Statistical data for the 1970s and 1980s suggest that:

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The Laffer Curve underlies the contention that lower tax rates need not reduce tax revenues.

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Refer to the above diagram for a specific economy.Which of the following best describes the relationship shown by this curve?

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A criticism of cuts in marginal tax rates is that they fail to:

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

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The short run in macroeconomics is a period in which nominal wages:

Correct AnswerverifiedShow Answer

The Laffer Curve shows the real world tradeoff between the price level and tax rates.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Based on the Laffer Curve, a cut in the tax rate from 100 percent to a point before the maximum level of tax revenue will:

Correct AnswerverifiedShow Answer

Refer to the above graph.The full-employment unemployment rate in this economy would be:

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Stagflation refers to:

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Refer to the diagram given below.Suppose an economy is initially at point B₁. If workers fully anticipate price level increases and the government uses expansionary policies to bring the unemployment rate below 6 percent, the economy will:

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