Question 1

Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift

Accepted Answer

A)  the aggregate demand curve to the right. 
B)  the aggregate supply curve to the right. 
C)  both the aggregate supply curve and the aggregate demand curve to the right. 
D)  the aggregate supply curve to the right and the aggregate demand curve to the left. 
A)  the aggregate demand curve to the right. 
B)  the aggregate supply curve to the right. 
C)  both the aggregate supply curve and the aggregate demand curve to the right. 
D)  the aggregate supply curve to the right and the aggregate demand curve to the left.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Accepted Answer

A)  inﬂuences real output and employment in the long run, but not in the short run. 
B)  inﬂuences real output and employment in the short run, but not in the long run. 
C)  does not inﬂuence the price level in the short run or the long run but only real output and employment. 
D)  does not inﬂuence real output and employment in the short run or the long run but only the price level. 
A)  inﬂuences real output and employment in the long run, but not in the short run. 
B)  inﬂuences real output and employment in the short run, but not in the long run. 
C)  does not inﬂuence the price level in the short run or the long run but only real output and employment. 
D)  does not inﬂuence real output and employment in the short run or the long run but only the price level.

Question 5

The misery index is a measure of national economic discomfort that adds together a nation's

Accepted Answer

A)  saving and investment. 
B)  budget deﬁcit and public debt. 
C)  unemployment rate and inﬂation rate. 
D)  level of taxation with the amount of government spending. 
A)  saving and investment. 
B)  budget deﬁcit and public debt. 
C)  unemployment rate and inﬂation rate. 
D)  level of taxation with the amount of government spending.

Question 6

Refer to the graph. If the government wishes to collect tax revenues equal to R $R _ { 2 }$ , supply-side
Economists would strongly advise the government to set tax rates at

Accepted Answer

A)  $T _ { 2 } \text { or } T _ { 3 }$ 
B)  $T _ { 2 } \text { only. }$ 
C)  $T _ { 4 } \text { only. }$ 
D)  $T _ { 2 } \text { or } T _ { 4 }$ 
A)  $T _ { 2 } \text { or } T _ { 3 }$ 
B)  $T _ { 2 } \text { only. }$ 
C)  $T _ { 4 } \text { only. }$ 
D)  $T _ { 2 } \text { or } T _ { 4 }$

Question 7

The policy implication of the long-run Phillips Curve is that, while stimulative policies may work to
reduce unemployment in the short run, the only effect of such policies in the long run is to raise
inﬂation.

Accepted Answer

A) True 
 B)False

Question 8

What is the Laffer curve? Explain the relationship that is shown in the curve.

Accepted Answer

The Laffer curve is a curve relating gov

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Accepted Answer

A)  stay at point $B _ { 2 }$ and remain there in the long run. 
B)  move to point $c _ { 2 }$ and in the long run move on to
$B _ { 3 }$ 
C)  move to point $B _ { 3 }$ and in the long run move on to
$C _ { 2 }$ 
D)  move to point $B _ { 1 }$ and in the long run move back to
$B _ { 2 }$ 
A)  stay at point $B _ { 2 }$ and remain there in the long run. 
B)  move to point $c _ { 2 }$ and in the long run move on to
$B _ { 3 }$ 
C)  move to point $B _ { 3 }$ and in the long run move on to
$C _ { 2 }$ 
D)  move to point $B _ { 1 }$ and in the long run move back to
$B _ { 2 }$

Question 11

In the long run, the economy will always move toward full employment.

Accepted Answer

A) True 
 B)False

Question 12

In the long run, demand-pull inﬂation leads to

Accepted Answer

A)  higher unemployment and a higher price level. 
B)  lower real wages and higher unemployment. 
C)  lower real output and no change in unemployment. 
D)  a higher price level and no change in real output. 
A)  higher unemployment and a higher price level. 
B)  lower real wages and higher unemployment. 
C)  lower real output and no change in unemployment. 
D)  a higher price level and no change in real output.

Question 13

In the extended aggregate demand-aggregate supply model,

Accepted Answer

A)  long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve. 
B)  the long-run aggregate supply curve is horizontal. 
C)  the level of real output is the same in the long run regardless of the location of the aggregate demand curve. 
D)  the short-run aggregate supply curve is downsloping. 
A)  long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve. 
B)  the long-run aggregate supply curve is horizontal. 
C)  the level of real output is the same in the long run regardless of the location of the aggregate demand curve. 
D)  the short-run aggregate supply curve is downsloping.

Question 14

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 15

Refer to the diagram. Point b would be explained by

Accepted Answer

A)  an actual rate of inﬂation that exceeds the expected rate. 
B)  an actual rate of inﬂation that is less than the expected rate. 
C)  cost-push inﬂation. 
D)  an increase in long-run aggregate supply. 
A)  an actual rate of inﬂation that exceeds the expected rate. 
B)  an actual rate of inﬂation that is less than the expected rate. 
C)  cost-push inﬂation. 
D)  an increase in long-run aggregate supply.

Question 16

Refer to the diagram. The initial aggregate demand curve is AD1, and the initial aggregate supply curve is AS1. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a

Accepted Answer

A)  move from a to d along the long-run aggregate supply curve. 
B)  rightward shift of the aggregate supply curve from A $\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 1 }$ 
C)  move from a to c to d. 
D)  leftward shift of the aggregate supply curve from A $\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 }$ 
A)  move from a to d along the long-run aggregate supply curve. 
B)  rightward shift of the aggregate supply curve from A $\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 1 }$ 
C)  move from a to c to d. 
D)  leftward shift of the aggregate supply curve from A $\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 }$

Question 17

Supply-side economist Arthur Laffer has argued that

Accepted Answer

A)  there is no empirically proven relationship between tax rates and incentives. 
B)  large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand. 
C)  the only way to eliminate inﬂation is to increase taxes to induce a recession severe enough to eliminate inﬂationary expectations. 
D)  large cuts in income taxes will increase aggregate demand more than aggregate supply. 
A)  there is no empirically proven relationship between tax rates and incentives. 
B)  large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand. 
C)  the only way to eliminate inﬂation is to increase taxes to induce a recession severe enough to eliminate inﬂationary expectations. 
D)  large cuts in income taxes will increase aggregate demand more than aggregate supply.

Question 18

Refer to the graphs. Assume that the economy is initially at equilibrium where AD $A D _ { 2 }$ and AS intersect
In Graph 1, and also assume that the economy is initially at point C in Graph 2. If the government
Implements a contractionary or restrictive policy, it would make the economy in graph 2

Accepted Answer

A)  move from point C to point B. 
B)  move from point C to point A. 
C)  move from point C to point D. 
D)  remain at point C. 
A)  move from point C to point B. 
B)  move from point C to point A. 
C)  move from point C to point D. 
D)  remain at point C.

Question 19

The short run in macroeconomics is a period in which nominal wages remain ﬁxed even as the
general price level changes.

Accepted Answer

A) True 
 B)False

Question 20

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.

Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift

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

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

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

The misery index is a measure of national economic discomfort that adds together a nation's

The policy implication of the long-run Phillips Curve is that, while stimulative policies may work to reduce unemployment in the short run, the only effect of such policies in the long run is to raise inﬂation.

What is the Laffer curve? Explain the relationship that is shown in the curve.

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

In the long run, the economy will always move toward full employment.

In the long run, demand-pull inﬂation leads to

In the extended aggregate demand-aggregate supply model,

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.

Refer to the diagram. Point b would be explained by

Refer to the diagram. The initial aggregate demand curve is AD₁, and the initial aggregate supply curve is AS₁. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a

Supply-side economist Arthur Laffer has argued that

The short run in macroeconomics is a period in which nominal wages remain ﬁxed even as the general price level changes.

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

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

Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift

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

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

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

The misery index is a measure of national economic discomfort that adds together a nation's

Refer to the graph. If the government wishes to collect tax revenues equal to R R2R _ { 2 }R2​ , supply-side Economists would strongly advise the government to set tax rates at

The policy implication of the long-run Phillips Curve is that, while stimulative policies may work to reduce unemployment in the short run, the only effect of such policies in the long run is to raise inﬂation.

What is the Laffer curve? Explain the relationship that is shown in the curve.

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

In the long run, the economy will always move toward full employment.

In the long run, demand-pull inﬂation leads to

In the extended aggregate demand-aggregate supply model,

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.

Refer to the diagram. Point b would be explained by

Refer to the diagram. The initial aggregate demand curve is AD1, and the initial aggregate supply curve is AS1. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a

Supply-side economist Arthur Laffer has argued that

The short run in macroeconomics is a period in which nominal wages remain ﬁxed even as the general price level changes.

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

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. The initial aggregate demand curve is AD₁, and the initial aggregate supply curve is AS₁. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a