Question 1

The Phillips Curve suggests an inverse relationship between increases in the price level and the
level of employment.

Accepted Answer

A) True 
 B)False

Question 2

The short-run Phillips Curve assumes an unchanging

Accepted Answer

A)  actual rate of inﬂation. 
B)  expected rate of inﬂation. 
C)  unemployment rate. 
D)  ﬁscal or monetary policy. 
A)  actual rate of inﬂation. 
B)  expected rate of inﬂation. 
C)  unemployment rate. 
D)  ﬁscal or monetary policy.

Question 3

Supply-side economists contend that aggregate supply is the relevant policy factor in inﬂuencing
the price level and real output in an economy.

Accepted Answer

A) True 
 B)False

Question 4

The natural rate of unemployment

Accepted Answer

A)  can vary over time and deﬁnes the location of the long-run aggregate supply curve. 
B)  is constant over time and deﬁnes the location of the long-run aggregate supply curve. 
C)  varies over time in response to changes in aggregate demand. 
D)  is inversely related to the price level. 
A)  can vary over time and deﬁnes the location of the long-run aggregate supply curve. 
B)  is constant over time and deﬁnes the location of the long-run aggregate supply curve. 
C)  varies over time in response to changes in aggregate demand. 
D)  is inversely related to the price level.

Question 5

(Last Word) According to the research of Christina Romer and David Romer, tax increases implemented to reduce an inherited budget deﬁcit

Accepted Answer

A)  reduce real output by the same amount as any other tax increase. 
B)  reduce real output by more than other tax increases. 
C)  reduce real output by less than other tax increases. 
D)  increase real output, contrary to what occurs with other tax increases. 
A)  reduce real output by the same amount as any other tax increase. 
B)  reduce real output by more than other tax increases. 
C)  reduce real output by less than other tax increases. 
D)  increase real output, contrary to what occurs with other tax increases.

Question 6

Which of the following is a true statement?

Accepted Answer

A)  Under normal conditions, there is a short-run trade-off between inﬂation and unemployment. 
B)  There is a long-run trade-off between inﬂation and unemployment. 
C)  The short-run Phillips Curve is vertical. 
D)  The long-run Phillips Curve is horizontal. 
A)  Under normal conditions, there is a short-run trade-off between inﬂation and unemployment. 
B)  There is a long-run trade-off between inﬂation and unemployment. 
C)  The short-run Phillips Curve is vertical. 
D)  The long-run Phillips Curve is horizontal.

Question 7

Other things equal, the short-run aggregate supply curve shifts positions when

Accepted Answer

A)  the price level changes. 
B)  the rate of inﬂation changes. 
C)  nominal wages and other input prices change. 
D)  aggregate demand changes. 
A)  the price level changes. 
B)  the rate of inﬂation changes. 
C)  nominal wages and other input prices change. 
D)  aggregate demand changes.

Question 8

The Laffer Curve shows the trade-off between the price level and tax rates.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the diagram. Assume the economy is initially at point b1. With a time lag between price and nominal wage adjustments, an increase in aggregate demand will temporarily move the economy
From

Accepted Answer

A)  $b _ { 2 } \text { to } b _ { 1 }$ 
B)  $c _ { 1 } \text { to } b _ { 2 }$ 
C)  $b _ { 1 } \text { to } c _ { 1}$ 
D)  $b _ { 1 } \text { to } b _ { 2 }$ 
A)  $b _ { 2 } \text { to } b _ { 1 }$ 
B)  $c _ { 1 } \text { to } b _ { 2 }$ 
C)  $b _ { 1 } \text { to } c _ { 1}$ 
D)  $b _ { 1 } \text { to } b _ { 2 }$

Question 10

What is the misery index? Why do economists ﬁnd it to be a ﬂawed measure?

Accepted Answer

The sum of the unemployment rate and the

Question 11

(Last Word) According to the research of Christina Romer and David Romer,

Accepted Answer

A)  a tax reduction of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent. 
B)  a tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent. 
C)  a tax reduction of 2 to 3 percent raises real GDP by roughly 1 percent. 
D)  a tax increase of 2 to 3 percent lowers real GDP by roughly 1 percent. 
A)  a tax reduction of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent. 
B)  a tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent. 
C)  a tax reduction of 2 to 3 percent raises real GDP by roughly 1 percent. 
D)  a tax increase of 2 to 3 percent lowers real GDP by roughly 1 percent.

Question 12

Refer to the graph. A movement from point C to point D on the Laffer Curve represents

Accepted Answer

A)  increased tax rates from $T _ { 2 } \text { to } T _ { 3 } \text { and increased tax revenues from } R _ { 2 } \text { to } R _ { 3 } \text {. }$ 
B)  decreased tax rates from $T _ { 3 } \text { to } T _ { 2 } \text { and increased tax revenues from } R _ { 2 } \text { to } R _ { 3 } \text {. }$ 
C)  decreased tax rates from $T _ { 3 } \text { to } T _ { 2 } \text { and decreased tax revenues from } R _ { 3 } \text { to } R _ { 2 }$ 
D)  increased tax rates from $T _ { 2 } \text { to } T _ { 3 } \text { and decreased tax revenues from } R _ { 3 } \text { to } R _ { 2 }$ 
A)  increased tax rates from $T _ { 2 } \text { to } T _ { 3 } \text { and increased tax revenues from } R _ { 2 } \text { to } R _ { 3 } \text {. }$ 
B)  decreased tax rates from $T _ { 3 } \text { to } T _ { 2 } \text { and increased tax revenues from } R _ { 2 } \text { to } R _ { 3 } \text {. }$ 
C)  decreased tax rates from $T _ { 3 } \text { to } T _ { 2 } \text { and decreased tax revenues from } R _ { 3 } \text { to } R _ { 2 }$ 
D)  increased tax rates from $T _ { 2 } \text { to } T _ { 3 } \text { and decreased tax revenues from } R _ { 3 } \text { to } R _ { 2 }$

Question 13

If cost-push inﬂation occurs and the government adopts a hands-off policy approach, then, according to the simple extended AD-AS model, in the long run the economy will

Accepted Answer

A)  get back to where it started from. 
B)  get stuck with high unemployment. 
C)  experience an inﬂationary spiral. 
D)  have a higher price level. 
A)  get back to where it started from. 
B)  get stuck with high unemployment. 
C)  experience an inﬂationary spiral. 
D)  have a higher price level.

Question 14

The traditional Phillips Curve suggests that, if government uses an expansionary ﬁscal policy to stimulate output and employment,

Accepted Answer

A)  unemployment may actually increase because of the crowding-out effect. 
B)  tax revenues may increase even though tax rates have been reduced. 
C)  the inﬂation rate will increase. 
D)  the natural rate of unemployment may fall. 
A)  unemployment may actually increase because of the crowding-out effect. 
B)  tax revenues may increase even though tax rates have been reduced. 
C)  the inﬂation rate will increase. 
D)  the natural rate of unemployment may fall.

Question 15

Refer to the diagram and assume the economy is initially at point b1. The long-run relationship between the unemployment rate and the rate of in?ation is represented by

Accepted Answer

A)  the line connecting $b _ { 1 } \text { and } c _ { 1 } \text {. }$ 
B)  the line through $b _ { 1 } , b _ { 2 } , b _ { 3 } , \text { and } b _ { 4 }$ 
C)  the line connecting $c _ { 1 } \text { and } b _ { 2 } \text {. }$ 
D)  any line parallel to the horizontal axis. 
A)  the line connecting $b _ { 1 } \text { and } c _ { 1 } \text {. }$ 
B)  the line through $b _ { 1 } , b _ { 2 } , b _ { 3 } , \text { and } b _ { 4 }$ 
C)  the line connecting $c _ { 1 } \text { and } b _ { 2 } \text {. }$ 
D)  any line parallel to the horizontal axis.

Question 16

The basic problem portrayed by the traditional Phillips Curve is

Accepted Answer

A)  that a level of aggregate demand suﬃciently high to result in full employment may also cause inﬂation. 
B)  that changes in the composition of total labor demand tend to be deﬂationary. 
C)  that unemployment rises at the same time the general price level is rising. 
D)  the possibility that automation will increase the level of noncyclical unemployment. 
A)  that a level of aggregate demand suﬃciently high to result in full employment may also cause inﬂation. 
B)  that changes in the composition of total labor demand tend to be deﬂationary. 
C)  that unemployment rises at the same time the general price level is rising. 
D)  the possibility that automation will increase the level of noncyclical unemployment.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Explain the basic arguments for supply-side economics.

Accepted Answer

Supply-side economists stress that chang

Question 19

The inﬂation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the

Accepted Answer

A)  relationship between the unemployment rate and the rate of inﬂation to remain stable and predictable and to exhibit a clear trade-off. 
B)  relationship between the unemployment rate and the rate of inﬂation to be similar to that found during the 1960s. 
C)  Phillips Curve to shift to the right. 
D)  Phillips Curve to shift to the left. 
A)  relationship between the unemployment rate and the rate of inﬂation to remain stable and predictable and to exhibit a clear trade-off. 
B)  relationship between the unemployment rate and the rate of inﬂation to be similar to that found during the 1960s. 
C)  Phillips Curve to shift to the right. 
D)  Phillips Curve to shift to the left.

Question 20

Refer to the diagram. Assume that the natural rate of unemployment is 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.

Exam 18: Extending the Analysis of Aggregate Supply

The Phillips Curve suggests an inverse relationship between increases in the price level and the level of employment.

The short-run Phillips Curve assumes an unchanging

Supply-side economists contend that aggregate supply is the relevant policy factor in inﬂuencing the price level and real output in an economy.

The natural rate of unemployment

(Last Word) According to the research of Christina Romer and David Romer, tax increases implemented to reduce an inherited budget deﬁcit

Which of the following is a true statement?

Other things equal, the short-run aggregate supply curve shifts positions when

The Laffer Curve shows the trade-off between the price level and tax rates.

Refer to the diagram. Assume the economy is initially at point b1. With a time lag between price and nominal wage adjustments, an increase in aggregate demand will temporarily move the economy From

What is the misery index? Why do economists ﬁnd it to be a ﬂawed measure?

(Last Word) According to the research of Christina Romer and David Romer,

Refer to the graph. A movement from point C to point D on the Laffer Curve represents

If cost-push inﬂation occurs and the government adopts a hands-off policy approach, then, according to the simple extended AD-AS model, in the long run the economy will

The traditional Phillips Curve suggests that, if government uses an expansionary ﬁscal policy to stimulate output and employment,

Refer to the diagram and assume the economy is initially at point b1. The long-run relationship between the unemployment rate and the rate of in?ation is represented by

The basic problem portrayed by the traditional Phillips Curve is

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

Explain the basic arguments for supply-side economics.

The inﬂation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the

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Market Failures Caused by Externalities Asymmetric Information

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An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

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Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

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Interest Rates and Monetary Policy

Financial Economics

Current Issues in Macro Theory and Policy

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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