Question 1

How do supply-side economists see reducing taxes as a way to improve productivity?

Accepted Answer

Supply-side economists believe that lowe

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Refer to the graph. Assume the economy is at the initial position of $B _ { 2 }$ . An increase in aggregate
Demand with a corresponding adjustment in in?ation expectations and wages will tend to

Accepted Answer

A)  move the economy to point $B _ { 3 }$ 
B)  move the economy to point $C _ { 2 }$ 
C)  move the economy to point $C _ { 1 } .$ 
D)  have no effect in shifting the economy from point $B _ { 2 }$ 
A)  move the economy to point $B _ { 3 }$ 
B)  move the economy to point $C _ { 2 }$ 
C)  move the economy to point $C _ { 1 } .$ 
D)  have no effect in shifting the economy from point $B _ { 2 }$

Question 4

Refer to the graph. Assume that the economy is initially at equilibrium at point C and that the government has adopted a hands-off policy approach. If demand-pull inﬂation occurs, then the ﬁnal
Long-run equilibrium point will be point __; while if cost-push inﬂation occurs (starting at point C), then the ﬁnal long-run equilibrium point will be point __.

Accepted Answer

A)  A; C 
B)  D; B 
C)  A; A 
D)  D; A 
A)  A; C 
B)  D; B 
C)  A; A 
D)  D; A

Question 5

Refer to the graph. If the economy is in initial equilibrium at AD $A D _ { 1 } \text { and } A S _ { 1 }$ , then, from a strict supply-
Side perspective, a cut in taxes or tax rates would produce an equilibrium price and quantity of

Accepted Answer

A)  $P _ { 1 } \text { and } Q _ { 1 } \text {. }$ 
B)  $P _ { 2 } \text { and } Q _ { 2 }$ 
C)  $P _ { 3 } \text { and } Q _ { 3 }$ 
D)  $P _ { 4 } \text { and } Q _ { 4 }$ 
A)  $P _ { 1 } \text { and } Q _ { 1 } \text {. }$ 
B)  $P _ { 2 } \text { and } Q _ { 2 }$ 
C)  $P _ { 3 } \text { and } Q _ { 3 }$ 
D)  $P _ { 4 } \text { and } Q _ { 4 }$

Question 6

Accepted Answer

A)  $P _ { 1 } \text {, and output will be at } Q _ { 1 } \text {. }$ 
B)  $P _ { 3 } \text {, and output will be at } Q _ { 1 } \text {. }$ 
C)  $P _ { 2 } \text {, and output will be at } Q _ { 2 } \text {. }$ 
D)  $P _ { 3 } \text {, and output will be at } Q _ { 3 } \text {. }$ 
A)  $P _ { 1 } \text {, and output will be at } Q _ { 1 } \text {. }$ 
B)  $P _ { 3 } \text {, and output will be at } Q _ { 1 } \text {. }$ 
C)  $P _ { 2 } \text {, and output will be at } Q _ { 2 } \text {. }$ 
D)  $P _ { 3 } \text {, and output will be at } Q _ { 3 } \text {. }$

Question 7

$$\begin{array} { | c | c | } 
\hline \text { Average Tax Rate } & \text { Tax Revenue } ( \$ B ) \
\hline 20 \% & \$ 250 \
\hline 40 & 300 \
\hline 60 & 250 \
\hline 80 & 200 \
\hline
\end{array}$$ Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate

Accepted Answer

A)  lowering tax rates to 20 percent, or lower if possible. 
B)  lowering tax rates to 40 percent. 
C)  keeping tax rates at 60 percent. 
D)  raising tax rates to 80 percent. 
A)  lowering tax rates to 20 percent, or lower if possible. 
B)  lowering tax rates to 40 percent. 
C)  keeping tax rates at 60 percent. 
D)  raising tax rates to 80 percent.

Question 8

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

Accepted Answer

A)  demand-pull inﬂation would involve a rightward shift of curve A, followed by a rightward shift of curve C. 
B)  cost-push inﬂation would involve a rightward shift of curve A, followed by a leftward shift of curve C. 
C)  recession would involve a leftward shift of curve A, followed by a rightward shift of curve C. 
D)  recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C. 
A)  demand-pull inﬂation would involve a rightward shift of curve A, followed by a rightward shift of curve C. 
B)  cost-push inﬂation would involve a rightward shift of curve A, followed by a leftward shift of curve C. 
C)  recession would involve a leftward shift of curve A, followed by a rightward shift of curve C. 
D)  recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C.

Question 9

In the long run, if the price level decreases, then the economy's output level will

Accepted Answer

A)  increase initially, but then fall back again. 
B)  increase. 
C)  decrease. 
D)  stay the same. 
A)  increase initially, but then fall back again. 
B)  increase. 
C)  decrease. 
D)  stay the same.

Question 10

Demand-pull inﬂation and cost-push inﬂation have similar effects on real output in the short run.

Accepted Answer

A) True 
 B)False

Question 11

In the last half of the 1990s, the usual short-run trade-off between inﬂation and unemployment did not arise because

Accepted Answer

A)  the Fed held interest rates constant. 
B)  the federal government balanced its budget. 
C)  the U.S. personal savings rate rose. 
D)  productivity (and thus aggregate supply) grew faster than previously. 
A)  the Fed held interest rates constant. 
B)  the federal government balanced its budget. 
C)  the U.S. personal savings rate rose. 
D)  productivity (and thus aggregate supply) grew faster than previously.

Question 12

In the curve, a decline in the tax rate from c to b would

Accepted Answer

A)  increase tax revenue. 
B)  decrease tax revenue. 
C)  leave tax revenue about the same as before. 
D)  shift the curve to the left. 
A)  increase tax revenue. 
B)  decrease tax revenue. 
C)  leave tax revenue about the same as before. 
D)  shift the curve to the left.

Question 13

The Laffer Curve suggests that within a certain range, lower tax rates will increase tax revenues.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the graphs, where the subscripts on the labels denote years 1 and 2. In year 1 the economy

Accepted Answer

A)  is in long-run equilibrium at output $Q _ { 1 } .$ 
B)  is in short-run equilibrium at output $Q _ { 1 }$ , but not in long-run equilibrium. 
C)  cannot be in long-run equilibrium because output changes in period 2. 
D)  is in a recession, based on output $Q _ { 1 }$ being below output
$Q _ { 2 }$ 
A)  is in long-run equilibrium at output $Q _ { 1 } .$ 
B)  is in short-run equilibrium at output $Q _ { 1 }$ , but not in long-run equilibrium. 
C)  cannot be in long-run equilibrium because output changes in period 2. 
D)  is in a recession, based on output $Q _ { 1 }$ being below output
$Q _ { 2 }$

Question 15

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 16

If prices and wages are ﬂexible, a decrease in aggregate demand will in the long run cause only a(n)

Accepted Answer

A)  decrease in the price level. 
B)  increase in the price level. 
C)  increase in the unemployment rate. 
D)  decrease in real output. 
A)  decrease in the price level. 
B)  increase in the price level. 
C)  increase in the unemployment rate. 
D)  decrease in real output.

Question 17

Refer to the diagram and assume the economy is initially at point $b _ { 1 } \text {. Point } c _ { 1 }$ represents

Accepted Answer

A)  a stable position because reality and expectations are consistent. 
B)  a stable position because full employment and a constant annual in?ation rate are represented. 
C)  an unstable situation because government will undertake contractionary policies. 
D)  an unstable situation because nominal wage rates will increase. 
A)  a stable position because reality and expectations are consistent. 
B)  a stable position because full employment and a constant annual in?ation rate are represented. 
C)  an unstable situation because government will undertake contractionary policies. 
D)  an unstable situation because nominal wage rates will increase.

Question 18

The short-run aggregate supply curve illustrates the idea that if the price level falls, ﬁrms will experience

Accepted Answer

A)  falling input costs, so they will increase their output level. 
B)  no change in input costs, so they will not change their output level. 
C)  falling inputs costs, so they will reduce their output level. 
D)  no change in input costs, so they will reduce their output level. 
A)  falling input costs, so they will increase their output level. 
B)  no change in input costs, so they will not change their output level. 
C)  falling inputs costs, so they will reduce their output level. 
D)  no change in input costs, so they will reduce their output level.

Question 19

Adverse aggregate-supply shocks or stagﬂation would cause a

Accepted Answer

A)  movement up along a stable Phillips Curve. 
B)  movement down along a stable Phillips Curve. 
C)  shift of the Phillips Curve to the left. 
D)  shift of the Phillips Curve to the right. 
A)  movement up along a stable Phillips Curve. 
B)  movement down along a stable Phillips Curve. 
C)  shift of the Phillips Curve to the left. 
D)  shift of the Phillips Curve to the right.

Question 20

In the diagram,

Accepted Answer

A)  any rate of inﬂation is consistent with the natural rate of unemployment in the long run. 
B)  inﬂation can occur, but disinﬂation cannot occur. 
C)  unemployment rates exceeding the natural rate are permanent. 
D)  unemployment rates less than the natural rate are permanent. 
A)  any rate of inﬂation is consistent with the natural rate of unemployment in the long run. 
B)  inﬂation can occur, but disinﬂation cannot occur. 
C)  unemployment rates exceeding the natural rate are permanent. 
D)  unemployment rates less than the natural rate are permanent.

How do supply-side economists see reducing taxes as a way to improve productivity?

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

Average Tax Rate Tax Revenue (\ B) 20\% \ 250 40 300 60 250 80 200 Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

In the long run, if the price level decreases, then the economy's output level will

Demand-pull inﬂation and cost-push inﬂation have similar effects on real output in the short run.

In the last half of the 1990s, the usual short-run trade-off between inﬂation and unemployment did not arise because

In the curve, a decline in the tax rate from c to b would

The Laffer Curve suggests that within a certain range, lower tax rates will increase tax revenues.

Refer to the graphs, where the subscripts on the labels denote years 1 and 2. In year 1 the economy

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

If prices and wages are ﬂexible, a decrease in aggregate demand will in the long run cause only a(n)

$Refer to the diagram and assume the economy is initially at point b _ { 1 } \text {. Point } c _ { 1 } represents$ Refer to the diagram and assume the economy is initially at point $b _ { 1 } \text {. Point } c _ { 1 }$ represents

The short-run aggregate supply curve illustrates the idea that if the price level falls, ﬁrms will experience

Adverse aggregate-supply shocks or stagﬂation would cause a

In the diagram,

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 18: Extending the Analysis of Aggregate Supply

How do supply-side economists see reducing taxes as a way to improve productivity?

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

Refer to the graph. Assume the economy is at the initial position of B2B _ { 2 }B2​ . An increase in aggregate Demand with a corresponding adjustment in in?ation expectations and wages will tend to

Refer to the graph. If the economy is in initial equilibrium at AD AD1 and AS1A D _ { 1 } \text { and } A S _ { 1 }AD1​ and AS1​ , then, from a strict supply- Side perspective, a cut in taxes or tax rates would produce an equilibrium price and quantity of

Average Tax Rate Tax Revenue (\ B) 20\% \ 250 40 300 60 250 80 200 Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

In the long run, if the price level decreases, then the economy's output level will

Demand-pull inﬂation and cost-push inﬂation have similar effects on real output in the short run.

In the last half of the 1990s, the usual short-run trade-off between inﬂation and unemployment did not arise because

In the curve, a decline in the tax rate from c to b would

The Laffer Curve suggests that within a certain range, lower tax rates will increase tax revenues.

Refer to the graphs, where the subscripts on the labels denote years 1 and 2. In year 1 the economy

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

If prices and wages are ﬂexible, a decrease in aggregate demand will in the long run cause only a(n)

Refer to the diagram and assume the economy is initially at point b1. Point c1b _ { 1 } \text {. Point } c _ { 1 }b1​. Point c1​ represents

The short-run aggregate supply curve illustrates the idea that if the price level falls, ﬁrms will experience

Adverse aggregate-supply shocks or stagﬂation would cause a

In the diagram,

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

$Refer to the diagram and assume the economy is initially at point b _ { 1 } \text {. Point } c _ { 1 } represents$ Refer to the diagram and assume the economy is initially at point $b _ { 1 } \text {. Point } c _ { 1 }$ represents