Question 1

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 2

According to the simple extended AD-AS model, aggregate demand is a major determinant of the level of output in the long run.

Accepted Answer

A) True 
 B)False

Question 3

According to the simple extended AD-AS model, if the economy is in a recession, prices and nominal wages will eventually fall and the short-run aggregate supply curve will increase, so that real output returns to its full-employment level in the long run.

Accepted Answer

A) True 
 B)False

Question 4

The economy enters the long-run once

Accepted Answer

A) nominal wages become equal to real wages. 
B) real wages become equal to nominal wages. 
C) sufficient time has elapsed for wage contracts to expire and nominal wages to adjust to output-price changes. 
D) sufficient time has elapsed for real GDP to increase and unemployment to decrease as a consequence 
A) nominal wages become equal to real wages. 
B) real wages become equal to nominal wages. 
C) sufficient time has elapsed for wage contracts to expire and nominal wages to adjust to output-price changes. 
D) sufficient time has elapsed for real GDP to increase and unemployment to decrease as a consequence

Question 5

According to the simple extended AD-AS model, cost-push inflation does not last in the long run if the government leaves the economy alone.

Accepted Answer

A) True 
 B)False

Question 6

Consider the following national data: tax revenues as a percentage of GDP: 25 percent; government spending as a percentage of GDP: 31 percent; unemployment rate: 9 percent; inflation rate: 6 percent.What is the misery index for this nation?

Accepted Answer

A) 15 percent 
B) 31 percent 
C) 34 percent 
D) 53 percent 
A) 15 percent 
B) 31 percent 
C) 34 percent 
D) 53 percent

Question 7

In the extended AD-AS model, the long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

When the rate of inflation is decreasing, this economic condition is called

Accepted Answer

A) disinflation. 
B) depreciation. 
C) stagflation. 
D) deflation. 
A) disinflation. 
B) depreciation. 
C) stagflation. 
D) deflation.

Question 10

If the expected rate of inflation rises, then the short-run Phillips Curve will

Accepted Answer

A) shift to the right. 
B) shift to the left. 
C) become vertical. 
D) become flat. 
A) shift to the right. 
B) shift to the left. 
C) become vertical. 
D) become flat.

Question 11

(Consider This) The ideas of economist Arthur Laffer became the centerpiece for tax policy during the

Accepted Answer

A) Ford administration. 
B) Clinton administration. 
C) Nixon administration. 
D) Reagan administration. 
A) Ford administration. 
B) Clinton administration. 
C) Nixon administration. 
D) Reagan administration.

Question 12

The Romer and Romer 2010 paper in the American Economic Review identified the major motivations for most significant legislated tax changes to be the following, except

Accepted Answer

A) adjustments made to match changes in government spending. 
B) offsetting the monetary policy pursued by the Federal Reserve. 
C) addressing an inherited budget deficit. 
D) promoting long-run economic growth. 
A) adjustments made to match changes in government spending. 
B) offsetting the monetary policy pursued by the Federal Reserve. 
C) addressing an inherited budget deficit. 
D) promoting long-run economic growth.

Question 13

In the short run, demand-pull inflation will drive up the price level and increase real output, but in the long run, only the price level will rise.

Accepted Answer

A) True 
 B)False

Question 14

In the period 2011 through 2015, as the economy slowly mended, the economy experienced an ongoing pattern of falling inflation coinciding with falling unemployment.This suggests a

Accepted Answer

A) movement up and to the left along a stable Phillips curve. 
B) movement down and to the right along a stable Phillips curve. 
C) Phillips curve shifting to the right. 
D) Phillips curve shifting to the left. 
A) movement up and to the left along a stable Phillips curve. 
B) movement down and to the right along a stable Phillips curve. 
C) Phillips curve shifting to the right. 
D) Phillips curve shifting to the left.

Question 15

The Laffer Curve indicates that lower tax rates will increase output.

Accepted Answer

A) True 
 B)False

Question 16

Other things equal, a decrease in the price level will

Accepted Answer

A) shift the 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 an aggregate supply curve. 
A) shift the 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 an aggregate supply curve.

Question 17

The last few years of the 1990s in the United States were characterized by

Accepted Answer

A) low inflation and high unemployment. 
B) stagflation. 
C) low inflation and low unemployment. 
D) a high misery index. 
A) low inflation and high unemployment. 
B) stagflation. 
C) low inflation and low unemployment. 
D) a high misery index.

Question 18

The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of inflation.

Accepted Answer

A) True 
 B)False

Question 19

Supply-side economists recommend higher marginal tax rates to increase aggregate supply and real output.

Accepted Answer

A) True 
 B)False

Question 20

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 output is constant. 
D) nominal wages and other resource prices are unresponsive to price-level changes. 
A) the price level is constant. 
B) employment is constant. 
C) real output is constant. 
D) nominal wages and other resource prices are unresponsive to price-level changes.

Exam 38: Extending the Analysis of Aggregate Supply

Stagflation refers to

According to the simple extended AD-AS model, aggregate demand is a major determinant of the level of output in the long run.

According to the simple extended AD-AS model, if the economy is in a recession, prices and nominal wages will eventually fall and the short-run aggregate supply curve will increase, so that real output returns to its full-employment level in the long run.

The economy enters the long-run once

According to the simple extended AD-AS model, cost-push inflation does not last in the long run if the government leaves the economy alone.

Consider the following national data: tax revenues as a percentage of GDP: 25 percent; government spending as a percentage of GDP: 31 percent; unemployment rate: 9 percent; inflation rate: 6 percent.What is the misery index for this nation?

In the extended AD-AS model, the long-run aggregate supply curve is vertical.

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

When the rate of inflation is decreasing, this economic condition is called

If the expected rate of inflation rises, then the short-run Phillips Curve will

(Consider This) The ideas of economist Arthur Laffer became the centerpiece for tax policy during the

The Romer and Romer 2010 paper in the American Economic Review identified the major motivations for most significant legislated tax changes to be the following, except

In the short run, demand-pull inflation will drive up the price level and increase real output, but in the long run, only the price level will rise.

In the period 2011 through 2015, as the economy slowly mended, the economy experienced an ongoing pattern of falling inflation coinciding with falling unemployment.This suggests a

The Laffer Curve indicates that lower tax rates will increase output.

Other things equal, a decrease in the price level will

The last few years of the 1990s in the United States were characterized by

The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of inflation.

Supply-side economists recommend higher marginal tax rates to increase aggregate supply and real output.

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

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

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