Exam 38: Extending the Analysis of Aggregate Supply

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent.Should inflation actually be 6 percent, then

Equilibrium in the long run occurs when

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

If the government adopts a hands-off policy toward inflation, then the long run effects of cost-push inflation and demand-pull inflation are identical.

The Phillips Curve shows a positive relationship between the rate of inflation and the unemployment rate.

Suppose that the Consumer Price Index for a particular economy rose from 110 to 120 in year 1, 120 to 130 in year 2, and 130 to 140 in year 3.We could conclude that this economy is experiencing

A rightward and upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

A stable Phillips curve does not allow for the possibility of stagflation.

Refer to the table.If the current tax rate is 60 percent, supply-side economists would advocate

The automatic adjustment mechanism that makes the economy move toward the long-run Phillips Curve is

The short-run aggregate supply curve is vertical, and the long-run aggregate supply curve is horizontal.

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

Statistical data for the 1970s and 1980s suggest that

The traditional Phillips Curve showing a trade-off between inflation and unemployment is based on having a stable

What will occur in the short run if there is cost-push inflation and the government adopts a hands-off approach to it?

(Consider This) Economist Arthur Laffer equated Robin Hood to

The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand

In the short run, the price level is assumed to be

According to the Laffer Curve, a cut in the tax rate from above the maximum-revenue rate to a rate lower than the maximum-revenue rate will

Given a Phillips Curve with stable and predictable inflation and unemployment rate trade-offs, it appears that