Question 1

The level of potential output and location of the long-run aggregate supply curve are determined by:

Accepted Answer

A)  Federal Reserve policy. 
B)  the price level. 
C)  the intersection of aggregate demand and short-run aggregate supply. 
D)  the natural rate of unemployment. 
A)  Federal Reserve policy. 
B)  the price level. 
C)  the intersection of aggregate demand and short-run aggregate supply. 
D)  the natural rate of unemployment.

Question 2

One policy dilemma posed by cost-push inflation is that:

Accepted Answer

A)  an increase in aggregate demand will increase inflation and the unemployment rate simultaneously. 
B)  tax rates can be reduced without lowering tax revenues. 
C)  the reduction of aggregate demand to restrain inflation will cause a further reduction in the real GDP. 
D)  the adjustment of aggregate demand can neither increase real GDP nor reduce inflation. 
A)  an increase in aggregate demand will increase inflation and the unemployment rate simultaneously. 
B)  tax rates can be reduced without lowering tax revenues. 
C)  the reduction of aggregate demand to restrain inflation will cause a further reduction in the real GDP. 
D)  the adjustment of aggregate demand can neither increase real GDP nor reduce inflation.

Question 3

The long-run aggregate supply curve is vertical:

Accepted Answer

A)  because the rate of inflation is steady in the long run. 
B)  because resource prices eventually rise and fall with product prices. 
C)  because product prices tend to increase at a faster rate than resource prices. 
D)  only when the money supply increases at the same rate as real GDP. 
A)  because the rate of inflation is steady in the long run. 
B)  because resource prices eventually rise and fall with product prices. 
C)  because product prices tend to increase at a faster rate than resource prices. 
D)  only when the money supply increases at the same rate as real GDP.

Question 4

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 5

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 6

When the actual rate of inflation exceeds the expected rate:

Accepted Answer

A)  the unemployment rate will temporarily rise. 
B)  firms will experience rising profits and thus increase their employment. 
C)  the actual rate of inflation will fall. 
D)  nominal wages will decline. 
A)  the unemployment rate will temporarily rise. 
B)  firms will experience rising profits and thus increase their employment. 
C)  the actual rate of inflation will fall. 
D)  nominal wages will decline.

Question 7

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 8

Which of the following is a tenet of supply-side economics?

Accepted Answer

A)  High marginal tax rates severely discourage work,saving,and investment. 
B)  Increases in social security taxes and other business taxes shift the aggregate supply curve to the right. 
C)  The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate. 
D)  Transfer payments increase incentives to work. 
A)  High marginal tax rates severely discourage work,saving,and investment. 
B)  Increases in social security taxes and other business taxes shift the aggregate supply curve to the right. 
C)  The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate. 
D)  Transfer payments increase incentives to work.

Question 9

When the actual rate of inflation is less than the expected rate:

Accepted Answer

A)  the unemployment rate will temporarily rise. 
B)  firms will increase their output to recoup their falling profits. 
C)  the unemployment rate will temporarily fall. 
D)  firms will experience rising profits and thus increase their employment. 
A)  the unemployment rate will temporarily rise. 
B)  firms will increase their output to recoup their falling profits. 
C)  the unemployment rate will temporarily fall. 
D)  firms will experience rising profits and thus increase their employment.

Question 10

In terms of aggregate supply,a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the:

Accepted Answer

A)  long run. 
B)  short run. 
C)  immediate market period. 
D)  very long run. 
A)  long run. 
B)  short run. 
C)  immediate market period. 
D)  very long run.

Question 11

In terms of aggregate supply,a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the:

Accepted Answer

A)  long run. 
B)  short run. 
C)  immediate market period. 
D)  very long run. 
A)  long run. 
B)  short run. 
C)  immediate market period. 
D)  very long run.

Question 12

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 price level is the same regardless of the location of the aggregate demand curve. 
D)  long-run equilibrium occurs at the intersection of the aggregate demand curve,the short-run aggregate supply curve,and the long-run aggregate supply curve. 
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 price level is the same regardless of the location of the aggregate demand curve. 
D)  long-run equilibrium occurs at the intersection of the aggregate demand curve,the short-run aggregate supply curve,and the long-run aggregate supply curve.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

In 1993 the federal government boosted income tax rates.In the seven years that followed:

Accepted Answer

A)  tax revenues fell slightly. 
B)  productivity growth slowed. 
C)  the unemployment rate increased. 
D)  tax revenues expanded rapidly. 
A)  tax revenues fell slightly. 
B)  productivity growth slowed. 
C)  the unemployment rate increased. 
D)  tax revenues expanded rapidly.

Question 15

A basic criticism of supply-side economics is that:

Accepted Answer

A)  empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates. 
B)  lower taxes will increase aggregate supply much more than they will increase aggregate demand. 
C)  lower taxes will increase aggregate demand much more than they will increase aggregate supply. 
D)  higher taxes will reduce incentives to work,invest,and innovate. 
A)  empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates. 
B)  lower taxes will increase aggregate supply much more than they will increase aggregate demand. 
C)  lower taxes will increase aggregate demand much more than they will increase aggregate supply. 
D)  higher taxes will reduce incentives to work,invest,and innovate.

Question 16

Answer the question on the basis of the following economic data for a hypothetical economy: $\begin{array}{c}
\begin{array}{c}
\
\
\
\text { Year } \
\hline 1997 \
1998 \
1999 \
2000
\end{array}
\begin{array}{c}
\text {Average}\
\text {Hourly}\
\text {Wage}\
\underline{\text {Rates}}\
\$ 6.40 \
6.72\
7.24\
8.02
\end{array}
\begin{array}{c}
\
\text {Index of}\
\text { Industrial}\
\underline{\text {Production}}\
197\
199\
196\
192
\end{array}

\begin{array}{c}
\
\
\text {Unemployment}\
\underline{\text {Rate}}\
 5.5 \% \
5.8\
7.2\
8.3
\end{array}

\begin{array}{c}
\
\text {Price}\
\text {Level}\
\underline{\text {Index}}\
130\
133\
139\
147
\end{array}

\begin{array}{c}
\
\text {Rate of}\
\text { Increase in}\
\underline{\text {Productivity}}\
3.0 \% \
2.9\
3.1\
2.8
\end{array}

\end{array}$
 The given data indicate that the economy has entered a period of demand-pull inflation.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the full employment level of real output (Q)for a hypothetical economy is $500,the price level (P)initially is 100,and prices and wages are flexible both upward and downward.Use the following short-run aggregate supply schedules to answer the question.   Refer to the information given.If the price level unexpectedly declines from 100 to 75,the level of real output in the short run will:

Accepted Answer

A)  rise from $500 to $560. 
B)  fall from $500 to $440. 
C)  fall from $560 to $500. 
D)  rise from $440 to $500. 
A)  rise from $500 to $560. 
B)  fall from $500 to $440. 
C)  fall from $560 to $500. 
D)  rise from $440 to $500.

Question 18

Government can push the unemployment rate below the natural rate only by:

Accepted Answer

A)  instituting supply-side economic policies. 
B)  producing a higher rate of inflation than people expect. 
C)  balancing the federal budget. 
D)  achieving zero inflation. 
A)  instituting supply-side economic policies. 
B)  producing a higher rate of inflation than people expect. 
C)  balancing the federal budget. 
D)  achieving zero inflation.

Question 19

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 20

Statistical data for the 1970s and 1980s suggest that:

Accepted Answer

A)  the Phillips Curve was stable. 
B)  the Phillips Curve was unstable. 
C)  low levels of unemployment were consistently associated with high rates of inflation. 
D)  the inflation rate was highly stable. 
A)  the Phillips Curve was stable. 
B)  the Phillips Curve was unstable. 
C)  low levels of unemployment were consistently associated with high rates of inflation. 
D)  the inflation rate was highly stable.

The level of potential output and location of the long-run aggregate supply curve are determined by:

One policy dilemma posed by cost-push inflation is that:

The long-run aggregate supply curve is vertical:

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

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

When the actual rate of inflation exceeds the expected rate:

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

Which of the following is a tenet of supply-side economics?

When the actual rate of inflation is less than the expected rate:

In terms of aggregate supply,a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the:

In terms of aggregate supply,a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the:

In the extended aggregate demand-aggregate supply model:

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

In 1993 the federal government boosted income tax rates.In the seven years that followed:

A basic criticism of supply-side economics is that:

Government can push the unemployment rate below the natural rate only by:

The basic problem portrayed by the traditional Phillips Curve is:

Statistical data for the 1970s and 1980s suggest that:

Income Inequality Poverty and Discrimination

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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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

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Exam 37: Extending the Analysis of Aggregate Supply

The level of potential output and location of the long-run aggregate supply curve are determined by:

One policy dilemma posed by cost-push inflation is that:

The long-run aggregate supply curve is vertical:

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

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

When the actual rate of inflation exceeds the expected rate:

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

Which of the following is a tenet of supply-side economics?

When the actual rate of inflation is less than the expected rate:

In terms of aggregate supply,a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the:

In terms of aggregate supply,a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the:

In the extended aggregate demand-aggregate supply model:

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

In 1993 the federal government boosted income tax rates.In the seven years that followed:

A basic criticism of supply-side economics is that:

Government can push the unemployment rate below the natural rate only by:

The basic problem portrayed by the traditional Phillips Curve is:

Statistical data for the 1970s and 1980s suggest that:

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

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