Question 1

Based on the long-run Phillips Curve, any particular rate of inflation is compatible in the long run with the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 2

In terms of aggregate supply, the difference between the long run and the short run is that in the long run:

Accepted Answer

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

Question 3

Refer to the above diagram.The move of the economy from c to e on short-run Phillips Curve PC2 would be explained by an:

Accepted Answer

A) increase in aggregate demand in the economy. 
B) increase in aggregate supply in the economy. 
C) actual rate of inflation that is less than the expected rate. 
D) actual rate of inflation that exceeds the expected rate. 
A) increase in aggregate demand in the economy. 
B) increase in aggregate supply in the economy. 
C) actual rate of inflation that is less than the expected rate. 
D) actual rate of inflation that exceeds the expected rate.

Question 4

If the government attempts to maintain full employment under conditions of cost-push inflation, deflation is likely to occur.

Accepted Answer

A) True 
 B)False

Question 5

When the economy is experiencing cost-push inflation, an increase in aggregate demand will likely result in less inflation.

Accepted Answer

A) True 
 B)False

Question 6

A rightward shift of The Phillips Curve would suggest that:

Accepted Answer

A) the productivity of labour increased. 
B) each higher rate of inflation is now associated with a higher rate of unemployment than previously. 
C) cost-push inflation decreased. 
D) a lower rate of inflation is now associated with each rate of unemployment than previously. 
A) the productivity of labour increased. 
B) each higher rate of inflation is now associated with a higher rate of unemployment than previously. 
C) cost-push inflation decreased. 
D) a lower rate of inflation is now associated with each rate of unemployment than previously.

Question 7

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

Accepted Answer

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. 
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.

Question 8

If prices and wages are flexible, a recession arising from a decrease in aggregate demand will:

Accepted Answer

A) decrease the price level. 
B) increase the price level. 
C) increase the interest rate. 
D) increase net exports. 
A) decrease the price level. 
B) increase the price level. 
C) increase the interest rate. 
D) increase net exports.

Question 9

The above diagram describes the notion that as tax:

Accepted Answer

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. 
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.

Question 10

If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

Accepted Answer

A) a deflationary spiral is likely to occur. 
B) an inflationary spiral is likely to occur. 
C) stagflation is likely to occur. 
D) the Phillips Curve is likely to shift inward. 
A) a deflationary spiral is likely to occur. 
B) an inflationary spiral is likely to occur. 
C) stagflation is likely to occur. 
D) the Phillips Curve is likely to shift inward.

Question 11

An ongoing economic growth causes continuous leftward shifts of the aggregate supply which, by themselves, would tend to cause an ongoing deflation.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

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. 
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.

Question 13

Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a:

Accepted Answer

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

Question 14

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

Accepted Answer

A) a decrease in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve. 
B) an increase in aggregate demand that eventually increases nominal wages and causes an increase in the short-run aggregate supply curve. 
C) an increase in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve. 
D)   an increase in aggregate demand that .eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve. 
A) a decrease in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve. 
B) an increase in aggregate demand that eventually increases nominal wages and causes an increase in the short-run aggregate supply curve. 
C) an increase in aggregate demand that eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve. 
D)   an increase in aggregate demand that .eventually increases nominal wages and causes a decrease in the short-run aggregate supply curve.

Question 15

In the long run, cost-push inflation results in a simultaneous decrease in the price level and real output.

Accepted Answer

A) True 
 B)False

Question 16

The basic problem portrayed by the Phillips Curve is:

Accepted Answer

A) that a level of aggregate demand sufficiently high to result in full employment may also cause inflation. 
B) that changes in the composition of total labor demand tend to be deflationary. 
C) that unemployment rises at the same time the general price level is rising. 
D) the possibility that automation will increase the level of noncyclical unemployment. 
A) that a level of aggregate demand sufficiently high to result in full employment may also cause inflation. 
B) that changes in the composition of total labor demand tend to be deflationary. 
C) that unemployment rises at the same time the general price level is rising. 
D) the possibility that automation will increase the level of noncyclical unemployment.

Question 17

A major adverse aggregate supply shock:

Accepted Answer

A) automatically shifts the aggregate demand curve rightward. 
B) causes the Phillips Curve to shift outward. 
C) can be caused by rising productivity. 
D) can be caused by falling wages. 
A) automatically shifts the aggregate demand curve rightward. 
B) causes the Phillips Curve to shift outward. 
C) can be caused by rising productivity. 
D) can be caused by falling wages.

Question 18

The above curve is known as the:

Accepted Answer

A) tax "wedge" curve. 
B) Okun Curve. 
C) Laffer Curve. 
D) Phillips Curve. 
A) tax "wedge" curve. 
B) Okun Curve. 
C) Laffer Curve. 
D) Phillips Curve.

Question 19

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:

Accepted Answer

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. 
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.

Question 20

The characteristics of the long-run Phillips Curve suggest that the economy is generally stable at its natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Exam 16: B: Long-Run Macroeconomic Adjustments

Based on the long-run Phillips Curve, any particular rate of inflation is compatible in the long run with the natural rate of unemployment.

In terms of aggregate supply, the difference between the long run and the short run is that in the long run:

Refer to the above diagram.The move of the economy from c to e on short-run Phillips Curve PC2 would be explained by an:

If the government attempts to maintain full employment under conditions of cost-push inflation, deflation is likely to occur.

When the economy is experiencing cost-push inflation, an increase in aggregate demand will likely result in less inflation.

A rightward shift of The Phillips Curve would suggest that:

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

If prices and wages are flexible, a recession arising from a decrease in aggregate demand will:

The above diagram describes the notion that as tax:

If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

An ongoing economic growth causes continuous leftward shifts of the aggregate supply which, by themselves, would tend to cause an ongoing deflation.

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

Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a:

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

In the long run, cost-push inflation results in a simultaneous decrease in the price level and real output.

The basic problem portrayed by the Phillips Curve is:

A major adverse aggregate supply shock:

The above curve is known as the:

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:

The characteristics of the long-run Phillips Curve suggest that the economy is generally stable at its natural rate of unemployment.

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 above diagram.The move of the economy from c to e on short-run Phillips Curve PC₂ would be explained by an:

Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.Cost-push inflation in the short run is best represented as a:

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: