Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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:

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. 
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.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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. 
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.

Question 5

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. 
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.

Question 6

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. 
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.

Question 7

The Laffer Curve is a central concept in:

Accepted Answer

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

Question 8

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. 
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.

Question 9

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. 
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.

Question 10

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. 
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.

Question 11

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. 
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.

Question 12

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. 
A) Laffer's law. 
B) Okun's law. 
C) stagflation. 
D) the Phillips Curve.

Question 13

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. 
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.

Question 14

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. 
A) decrease real GDP. 
B) increase tax revenues. 
C) decrease tax revenues. 
D) have no effect on tax revenues.

Question 15

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 16

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. 
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.

Question 17

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. 
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.

Question 18

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. 
A) 5 percent. 
B) 6 percent. 
C) 7 percent. 
D) 5-6 percent.

Question 19

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. 
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.

Question 20

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. 
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.

Exam 16: B: Long-Run Macroeconomic Adjustments

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

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:

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

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

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

Stagflation refers to:

The Laffer Curve is a central concept in:

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

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

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

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

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

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

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:

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

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

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

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

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

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

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

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: