Question 1

The equilibrium price level and level of real output occur where:

Accepted Answer

A) real output is at its highest possible level. 
B) exports equal imports. 
C) price is at its lowest level. 
D) the aggregate demand and supply curves intersect. 
A) real output is at its highest possible level. 
B) exports equal imports. 
C) price is at its lowest level. 
D) the aggregate demand and supply curves intersect.

Question 2

Refer to the above diagram for a specific economy.An increase in aggregate demand will:

Accepted Answer

A) shift this curve to the right. 
B) shift this curve to the left. 
C) move this economy southeast along the curve. 
D) move this economy northwest along the curve. 
A) shift this curve to the right. 
B) shift this curve to the left. 
C) move this economy southeast along the curve. 
D) move this economy northwest along the curve.

Question 3

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.In the long run, the decline in the actual rate of inflation from 6 percent to 4 percent will:

Accepted Answer

A) reduce the unemployment rate. 
B) reduce corporate profits in real terms. 
C) have no effect on the unemployment rate. 
D) reduce real domestic output. 
A) reduce the unemployment rate. 
B) reduce corporate profits in real terms. 
C) have no effect on the unemployment rate. 
D) reduce real domestic output.

Question 4

Refer to the above graph.Assume the economy is at the initial position of B1.An increase in aggregate demand will tend to:

Accepted Answer

A) temporarily shift the economy to point B2. 
B) temporarily shift the economy to point C1. 
C) permanently shift the economy to point C1. 
D) have no effect in shifting the economy from point B1. 
A) temporarily shift the economy to point B2. 
B) temporarily shift the economy to point C1. 
C) permanently shift the economy to point C1. 
D) have no effect in shifting the economy from point B1.

Question 5

An increase in inflation is likely to occur when government:

Accepted Answer

A) counters cost-push inflation with a stimulative fiscal policy or monetary policy. 
B) adopts a hands-off approach to cost-push inflation. 
C) increases aggregate supply by lowering nominal wages. 
D) increases aggregate demand by raising nominal wages. 
A) counters cost-push inflation with a stimulative fiscal policy or monetary policy. 
B) adopts a hands-off approach to cost-push inflation. 
C) increases aggregate supply by lowering nominal wages. 
D) increases aggregate demand by raising nominal wages.

Question 6

The Phillips Curve is based on the idea that with a constant short-run aggregate supply curve, a greater increase in aggregate demand is associated with a:

Accepted Answer

A) smaller increase in price level. 
B) smaller increase in nominal wage rates. 
C) greater increase in the unemployment rate. 
D) greater increase in the rate of inflation. 
A) smaller increase in price level. 
B) smaller increase in nominal wage rates. 
C) greater increase in the unemployment rate. 
D) greater increase in the rate of inflation.

Question 7

Refer to the above graph.What events would tend to move the economy from point B2to C2?

Accepted Answer

A) a tight monetary policy 
B) a contractionary fiscal policy 
C) an increase in aggregate demand 
D) an increase in aggregate supply 
A) a tight monetary policy 
B) a contractionary fiscal policy 
C) an increase in aggregate demand 
D) an increase in aggregate supply

Question 8

Other things equal, an increase in the price level will:

Accepted Answer

A) shift the short run aggregate supply curve to the right. 
B) shift the aggregate demand curve to the right. 
C) cause a movement up along 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 right. 
B) shift the aggregate demand curve to the right. 
C) cause a movement up along a short-run aggregate supply curve. 
D) cause a movement down a short run aggregate supply curve.

Question 9

Adverse aggregate supply shocks would result in:

Accepted Answer

A) a lower rate of inflation and a higher rate of unemployment. 
B) a higher rate of inflation and a lower rate of unemployment. 
C) a lower rate of inflation and a lower rate of unemployment. 
D) a higher rate of inflation and a higher rate of unemployment. 
A) a lower rate of inflation and a higher rate of unemployment. 
B) a higher rate of inflation and a lower rate of unemployment. 
C) a lower rate of inflation and a lower rate of unemployment. 
D) a higher rate of inflation and a higher rate of unemployment.

Question 10

Economists often recommend active monetary policy, and perhaps fiscal policy, to counteract the recessions.

Accepted Answer

A) True 
 B)False

Question 11

Refer to the above diagram and assume the economy is initially at point b1.Which of the following movements is consistent with The Phillips Curve?

Accepted Answer

A) the movement from B1 to B2 
B) the movement from B1 to C1 
C) the movement from C1 to B2 
D) the movement from B2 to B1 
A) the movement from B1 to B2 
B) the movement from B1 to C1 
C) the movement from C1 to B2 
D) the movement from B2 to B1

Question 12

Refer to the graph below.Assume that the economy is in initial equilibrium where AS1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2, then it is most likely that:

Accepted Answer

A) AD2 will shift to AD1. 
B) AS2 will shift to AS1. 
C) AS2 will shift to AS3. 
D) AS2 will shift to AS3 and AD2 will shift to AD1. 
A) AD2 will shift to AD1. 
B) AS2 will shift to AS1. 
C) AS2 will shift to AS3. 
D) AS2 will shift to AS3 and AD2 will shift to AD1.

Question 13

The short-run aggregate supply curve:

Accepted Answer

A) Becomes steeper the further into the future it goes and eventually becomes vertical. 
B) Becomes flatter the further into the future it goes and eventually becomes horizontal. 
C) Becomes steeper the further into the future it goes, but never becomes vertical. 
D) Becomes flatter the further into the future it goes, but never becomes horizontal. 
A) Becomes steeper the further into the future it goes and eventually becomes vertical. 
B) Becomes flatter the further into the future it goes and eventually becomes horizontal. 
C) Becomes steeper the further into the future it goes, but never becomes vertical. 
D) Becomes flatter the further into the future it goes, but never becomes horizontal.

Question 14

The long-run Phillips Curve is vertical at:

Accepted Answer

A) price level. 
B) the natural rate of unemployment. 
C) every level of real GDP. 
D) the rate of maximum taxation. 
A) price level. 
B) the natural rate of unemployment. 
C) every level of real GDP. 
D) the rate of maximum taxation.

Question 15

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

Accepted Answer

A) demand more rapidly than aggregate supply. 
B) demand less rapidly than aggregate supply. 
C) supply more rapidly than aggregate demand. 
D) supply less rapidly than aggregate demand. 
A) demand more rapidly than aggregate supply. 
B) demand less rapidly than aggregate supply. 
C) supply more rapidly than aggregate demand. 
D) supply less rapidly than aggregate demand.

Question 16

The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

Accepted Answer

A) True 
 B)False

Question 17

Refer to the graph given below.   Suppose an economy moves from point B3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Accepted Answer

A) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B4. 
B) Real wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C1 to B1. 
C) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3. 
D) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to C2. 
A) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B4. 
B) Real wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C1 to B1. 
C) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3. 
D) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to C2.

Question 18

Refer to the above diagram.Supply-side economists believe that tax rates are:

Accepted Answer

A) such that an increase in tax rates will increase tax revenues. 
B) at some level below b. 
C) at some level above b. 
D) at d. 
A) such that an increase in tax rates will increase tax revenues. 
B) at some level below b. 
C) at some level above b. 
D) at d.

Question 19

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 20

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

Accepted Answer

A) True 
 B)False

Exam 16: B: Long-Run Macroeconomic Adjustments

The equilibrium price level and level of real output occur where:

Refer to the above diagram for a specific economy.An increase in aggregate demand will:

Refer to the above graph.Assume the economy is at the initial position of B1.An increase in aggregate demand will tend to:

An increase in inflation is likely to occur when government:

The Phillips Curve is based on the idea that with a constant short-run aggregate supply curve, a greater increase in aggregate demand is associated with a:

Refer to the above graph.What events would tend to move the economy from point B2to C2?

Other things equal, an increase in the price level will:

Adverse aggregate supply shocks would result in:

Economists often recommend active monetary policy, and perhaps fiscal policy, to counteract the recessions.

Refer to the above diagram and assume the economy is initially at point b1.Which of the following movements is consistent with The Phillips Curve?

Refer to the graph below.Assume that the economy is in initial equilibrium where AS1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2, then it is most likely that:

The short-run aggregate supply curve:

The long-run Phillips Curve is vertical at:

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

Refer to the graph given below. Suppose an economy moves from point B3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Refer to the above diagram.Supply-side economists believe that tax rates are:

The long-run aggregate supply curve is vertical.

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

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 graph.Assume the economy is at the initial position of B₁.An increase in aggregate demand will tend to:

Refer to the above graph.What events would tend to move the economy from point B₂to C₂?

Refer to the above diagram and assume the economy is initially at point b₁.Which of the following movements is consistent with The Phillips Curve?

Refer to the graph below.Assume that the economy is in initial equilibrium where AS₁ intersects AD₁.Then a supply shock occurs that shifts AS₁ to AS₂.If the government counters with an expansionary fiscal policy that shifts AD₁ to AD₂, then it is most likely that:

Refer to the graph given below. Suppose an economy moves from point B₃ to point C₃ because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?