Question 1

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. 
A) real wages. 
B) real output. 
C) unemployment. 
D) nominal wages.

Question 2

Which factor contributed to the termination of stagflation in the 1980s?

Accepted Answer

A) less foreign competition 
B) more government regulation 
C) a reduction in oil prices 
D) a rise in per-unit production costs 
A) less foreign competition 
B) more government regulation 
C) a reduction in oil prices 
D) a rise in per-unit production costs

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The Phillips Curve suggests a tradeoff between:

Accepted Answer

A) price level stability and income equality. 
B) the level of unemployment and price level stability. 
C) unemployment and income equality. 
D) economic growth and full employment. 
A) price level stability and income equality. 
B) the level of unemployment and price level stability. 
C) unemployment and income equality. 
D) economic growth and full employment.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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.If the actual rate of inflation unexpectedly falls from 6 percent to 4 percent, then the unemployment rate will:

Accepted Answer

A) temporarily fall from 7.5 percent to 4 percent. 
B) permanently fall from 7.5 percent to 4 percent. 
C) temporarily rise from 7.5 percent to 9.5 percent. 
D) permanently rise from 7.5 percent to 9.5 percent. 
A) temporarily fall from 7.5 percent to 4 percent. 
B) permanently fall from 7.5 percent to 4 percent. 
C) temporarily rise from 7.5 percent to 9.5 percent. 
D) permanently rise from 7.5 percent to 9.5 percent.

Question 7

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:

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. 
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.

Question 8

A basic criticism of supply-side economics is that:

Accepted Answer

A) empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates. 
B) lower taxes will increase aggregate supply much more than they will increase aggregate demand. 
C) lower taxes will increase aggregate demand much more than they will increase aggregate supply. 
D) higher taxes will reduce incentives to work, invest, and innovate. 
A) empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates. 
B) lower taxes will increase aggregate supply much more than they will increase aggregate demand. 
C) lower taxes will increase aggregate demand much more than they will increase aggregate supply. 
D) higher taxes will reduce incentives to work, invest, and innovate.

Question 9

A criticism of the arguments for tax cuts made by supply-side economists is that the:

Accepted Answer

A) demand-side effects will be stronger than the supply-side effects. 
B) supply-side effects will be stronger than the demand-side effects. 
C) supply-side effects will increase saving and reduce consumption. 
D) demand-side effects will reinforce the supply-side effects, thus creating cost-push inflation. 
A) demand-side effects will be stronger than the supply-side effects. 
B) supply-side effects will be stronger than the demand-side effects. 
C) supply-side effects will increase saving and reduce consumption. 
D) demand-side effects will reinforce the supply-side effects, thus creating cost-push inflation.

Question 10

The Phillips Curve suggests an inverse relationship between increases in the price level and the level of employment.

Accepted Answer

A) True 
 B)False

Question 11

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:

Accepted Answer

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. 
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.

Question 12

Refer to the above diagram for a specific economy.Which of the following best describes a decision by policymakers which moves this economy from point b to point a?

Accepted Answer

A) Policymakers have instituted an expansionary money policy and/or a budgetary deficit, thereby accepting more unemployment to reduce the rate of inflation. 
B) Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting a higher rate of inflation to reduce unemployment. 
C) Policymakers have instituted an expansionary money and/or a budgetary deficit, thereby accepting a higher rate of inflation to reduce unemployment. 
D) Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting more unemployment to reduce the rate of inflation. 
A) Policymakers have instituted an expansionary money policy and/or a budgetary deficit, thereby accepting more unemployment to reduce the rate of inflation. 
B) Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting a higher rate of inflation to reduce unemployment. 
C) Policymakers have instituted an expansionary money and/or a budgetary deficit, thereby accepting a higher rate of inflation to reduce unemployment. 
D) Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting more unemployment to reduce the rate of inflation.

Question 13

Refer to the above graph.Assume that the economy is at equilibrium at AD1 and AS1 and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run:

Accepted Answer

A) AD1 will shift to AD2, AS2 will shift to AS3, the price level will be at P2, and output will be at Q2. 
B) AS1 will shift to AS3, AD2 will shift to AD1, the price level will be at P3, and output will be at Q3. 
C) AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P2, and output will be at Q2. 
D) AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P3, and output will be at Q1. 
A) AD1 will shift to AD2, AS2 will shift to AS3, the price level will be at P2, and output will be at Q2. 
B) AS1 will shift to AS3, AD2 will shift to AD1, the price level will be at P3, and output will be at Q3. 
C) AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P2, and output will be at Q2. 
D) AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P3, and output will be at Q1.

Question 14

Demand-pull inflation and cost-push inflation are identical concepts because both entail rising nominal wages and rising prices.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following most significantly contributed to the 1970s' and the early 1980s' stagflation in Canada?

Accepted Answer

A) An appreciation of the Canadian dollar 
B) A sharp drop in the prices of farm products 
C) A dramatic increase in energy prices 
D) Rising productivity in manufacturing 
A) An appreciation of the Canadian dollar 
B) A sharp drop in the prices of farm products 
C) A dramatic increase in energy prices 
D) Rising productivity in manufacturing

Question 16

In terms of aggregate supply, the short run is a period in which:

Accepted Answer

A) the price level is constant. 
B) employment is constant. 
C) real GDP is constant. 
D) nominal wages and other input prices are constant. 
A) the price level is constant. 
B) employment is constant. 
C) real GDP is constant. 
D) nominal wages and other input prices are constant.

Question 17

Refer to the above diagram and assume the economy is initially at point b1.According to the adaptive expectations theorists, the long-run relationship between the unemployment rate and the rate of inflation is represented by:

Accepted Answer

A) the line connecting B1 and C1. 
B) the line through B1, B2, B3, and B4. 
C) the line connecting C1 and B2. 
D) any line parallel to the horizontal axis. 
A) the line connecting B1 and C1. 
B) the line through B1, B2, B3, and B4. 
C) the line connecting C1 and B2. 
D) any line parallel to the horizontal axis.

Question 18

Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf.In terms of this diagram, the long-run aggregate supply curve:

Accepted Answer

A) is AS2. 
B) is a vertical line extending from Qf upward through e, b, and d. 
C) may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. 
D) is a horizontal line extending from P2 rightward through f, b, and g. 
A) is AS2. 
B) is a vertical line extending from Qf upward through e, b, and d. 
C) may be either AS1, AS2, or AS3 depending on whether the price level is P1, P2, or P3. 
D) is a horizontal line extending from P2 rightward through f, b, and g.

Question 19

Refer to the graph below.The effects of stagflation, in the short run, are best represented by a shift from:

Accepted Answer

A) AD1 to AD2 given a stable AS1curve, an increase in the price level from P1to P2, and a fall in output from Q1 to Q2. 
B) AD2 to AD1 given a stable AS1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. 
C) AS1 to AS2 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. 
D) AS2 to AS1 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. 
A) AD1 to AD2 given a stable AS1curve, an increase in the price level from P1to P2, and a fall in output from Q1 to Q2. 
B) AD2 to AD1 given a stable AS1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. 
C) AS1 to AS2 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. 
D) AS2 to AS1 given a stable AD1 curve, an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2.

Question 20

Refer to the above graph.The economy is at point B2, and aggregate demand increases.In the short run, the economy will:

Accepted Answer

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. 
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.

Exam 16: B: Long-Run Macroeconomic Adjustments

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

Which factor contributed to the termination of stagflation in the 1980s?

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

The Phillips Curve suggests a tradeoff between:

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

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:

A basic criticism of supply-side economics is that:

A criticism of the arguments for tax cuts made by supply-side economists is that the:

The Phillips Curve suggests an inverse relationship between increases in the price level and the level of employment.

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:

Refer to the above diagram for a specific economy.Which of the following best describes a decision by policymakers which moves this economy from point b to point a?

Refer to the above graph.Assume that the economy is at equilibrium at AD1 and AS1 and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run:

Demand-pull inflation and cost-push inflation are identical concepts because both entail rising nominal wages and rising prices.

Which of the following most significantly contributed to the 1970s' and the early 1980s' stagflation in Canada?

In terms of aggregate supply, the short run is a period in which:

Refer to the above diagram and assume the economy is initially at point b1.According to the adaptive expectations theorists, the long-run relationship between the unemployment rate and the rate of inflation is represented by:

Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf.In terms of this diagram, the long-run aggregate supply curve:

Refer to the graph below.The effects of stagflation, in the short run, are best represented by a shift from:

Refer to the above graph.The economy is at point B2, and aggregate demand increases.In the short run, the economy will:

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 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:

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:

Refer to the above graph.Assume that the economy is at equilibrium at AD₁ and AS₁ and then is hit with both demand-pull and cost-push inflation.If this occurs, then, in the short run:

Refer to the above diagram and assume the economy is initially at point b₁.According to the adaptive expectations theorists, the long-run relationship between the unemployment rate and the rate of inflation is represented by:

Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f.In terms of this diagram, the long-run aggregate supply curve:

Refer to the above graph.The economy is at point B₂, and aggregate demand increases.In the short run, the economy will: