Deck 16: Supply-Side Policy: Short-Run Options

Question 1

A rightward shift in aggregate demand will cause an increase in output and price level if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.
D)Horizontal.

Answer 1

A

Question 2

Which view of aggregate supply predicts that the outcomes of fiscal and monetary policy depend on how close the economy is to full employment?

A)The Keynesian view.
B)The monetarist view.
C)The hybrid view.
D)The Keynesian view,the monetarist view,and the hybrid view.

Answer 2

B

Question 3

A leftward shift in aggregate demand will cause a decrease in both output and price level if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.
D)Horizontal.

Answer 3

A

Question 4

Which of the following characterizes stagflation?

A)An increase in both unemployment and inflation.
B)An increase in unemployment but a decrease in inflation.
C)A decrease in both unemployment and inflation.
D)A decrease in unemployment but an increase in inflation.

Question 5

An aggregate supply curve that is always vertical is most consistent with which of the following views of the economy?

A)Keynesian.
B)Monetarist.
C)Supply-side.
D)Consensus.

Question 6

A horizontal aggregate supply curve below the level of full employment is most consistent with which of the following views of the economy?

A)Keynesian.
B)Monetarist.
C)Supply-side.
D)Consensus.

Question 7

According to the hybrid,or consensus,view of aggregate supply,the chance for an aggregate demand increase to cause inflation accelerates as

A)The economy moves away from full employment.
B)Unemployment increases.
C)The slope of aggregate supply becomes flatter.
D)The economy moves toward capacity.

Question 8

Which of the following is consistent with the general consensus about the shape of the short-run aggregate supply curve?

A)Horizontal until full employment is reached,and then vertical.
B)Horizontal,then upward-sloping,and ultimately vertical.
C)Horizontal at all production levels.
D)Vertical.

Question 9

The closer the economy is to capacity,the greater the risk that fiscal or monetary stimulus will cause

A)A decrease in the price level and no change in output.
B)No change in the price level and no change in output.
C)An increase in the price level and no change in output.
D)Only an increase in output.

Question 10

The total quantity of output producers are willing and able to supply at alternative price levels in a given time period is

A)Aggregate demand.
B)Aggregate supply.
C)Market demand.
D)Market supply.

Question 11

Which of the following shifts,ceteris paribus,will cause lower rates of both unemployment and inflation?

A)An increase in aggregate demand.
B)An increase in aggregate supply.
C)A decrease in aggregate demand.
D)A decrease in aggregate supply.

Question 12

Which of the following will cause an increase in unemployment and inflation at the same time?

A)A rightward shift of aggregate supply.
B)A rightward shift of aggregate demand.
C)A leftward shift of aggregate supply.
D)A leftward shift of aggregate demanD.A leftward shift of the AS curve will lead to a new macro equilibrium at a lower level of output.So unemployment and the price level will be higher.

Question 13

Monetarists assert that changes in the money supply

A)Affect prices and real GDP.
B)Can affect only the price level.
C)Can affect only real GDP.
D)Affect prices and the unemployment rate.

Question 14

Stagflation is the result of

A)An increase in aggregate demand.
B)An increase in aggregate supply.
C)A decrease in aggregate demand.
D)A decrease in aggregate supply.

Question 15

In the simple Keynesian model,

A)Inflation becomes a problem only if demand increases at full employment.
B)Inflation is a problem whenever demand increases.
C)Inflation is never a problem.
D)Inflation is a problem whenever demand decreases.

Question 16

A rightward shift in aggregate demand will cause an increase in the price level and no change in output if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.
D)Horizontal.

Question 17

The consensus view

A)Incorporates only the Keynesian perspective.
B)Incorporates only the monetarist perspective.
C)Incorporates both the Keynesian and monetarist perspective.
D)Ignores both the Keynesian and monetarist perspective.

Question 18

A rightward shift in aggregate demand will cause an increase in output and no change in the price level if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.
D)Horizontal.

Question 19

The idea that a shift in aggregate demand affects both inflation and unemployment is consistent with

A)The Keynesian view of the economy.
B)The consensus view of the economy.
C)The monetarist view of the economy.
D)A vertical aggregate demand curve.

Question 20

Which of the following is an accurate statement about the aggregate supply curve?

A)Keynesians view it as vertical up until full employment,at which point it becomes horizontal.
B)Monetarists view it as horizontal.
C)The consensus view is that it begins as horizontal,then starts to slope upward to the right as the economy approaches full employment,and eventually becomes vertical beyond full employment.
D)The Keynesian view is that it is vertical.

Question 21

If the aggregate supply curve is upward-sloping,a decrease in aggregate demand will cause

A)A decrease in the price level and an increase in unemployment.
B)A decrease in the price level and a decrease in unemployment.
C)An increase in the price level and an increase in unemployment.
D)An increase in the price level and a decrease in unemployment.

Question 22

Phillips developed a curve that shows the trade-off between the

A)Full employment rate and interest rates.
B)Unemployment rate and inflation rates.
C)Full employment rate and the natural rate of unemployment.
D)Natural rate of unemployment and exchange rates.

Question 23

Which of the following will occur because of a rightward shift of the Phillips curve?

A)A rightward shift of aggregate demand.
B)A decrease in both unemployment and inflation.
C)A trade-off between unemployment and inflation.
D)An outcome known as stagflation.

Question 24

The misery index is the

A)Inflation rate minus the unemployment rate.
B)Unemployment rate minus the interest rate.
C)Inflation rate plus the unemployment rate.
D)Inflation rate plus the interest rate.

Question 25

According to the consensus view,when demand increases near full employment,

A)The price level increases,but real GDP stays the same.
B)Real GDP increases,but the price level stays the same.
C)Both the price level and real GDP increase.
D)The price level decreases,but real GDP increases.

Question 26

Which of the following will definitely cause the value of the misery index to increase?

A)Greater stagflation.
B)A leftward shift of the Phillips curve.
C)A rightward shift of the aggregate supply curve.
D)A rightward shift of the aggregate demand curve.

Question 27

The trade-off between unemployment rates and inflation originates in the

A)Vertical AS curve.
B)Downward-sloping AS curve.
C)Upward-sloping AD curve.
D)Upward-sloping AS curve.

Question 28

Demand-side policies alone result in which of the following?

A)A shift of the Phillips curve to the left.
B)A movement along the Phillips curve.
C)A shift of the Phillips curve to the right.
D)Stagflation.

Question 29

Which of the following will cause the Phillips curve to shift to the left?

A)Attacks by terrorists.
B)Increasing regulation in the economy.
C)Increasing the marginal tax rate on excess profit.
D)Job search assistance.

Question 30

If the aggregate supply curve shifts to the right,the ________ curve shifts to the _______.

A)aggregate demand; left
B)Phillips; left
C)aggregate demand; right
D)Phillips; right

Question 31

A movement up the Phillips curve will cause

A)An increase in both unemployment and inflation.
B)A decrease in both unemployment and inflation.
C)A trade-off between unemployment and inflation.
D)An outcome known as stagflation.

Question 32

An increase in the misery index would definitely result from

A)A leftward shift of the Phillips curve.
B)A rightward shift of the Phillips curve.
C)A movement along the Phillips curve toward greater unemployment.
D)A movement along the Phillips curve toward greater inflation.

Question 33

A movement along the Phillips curve shows that the unemployment rate and inflation rate are

A)Inversely related to each other.
B)Directly related to each other.
C)Changing in response to shifts in aggregate supply.
D)Changing in response to supply-side policy.

Question 34

Higher unemployment and higher inflation rates will most likely occur with

A)A rightward shift of the Phillips curve.
B)A rightward shift of the aggregate supply curve.
C)A rightward shift of the aggregate demand curve.
D)A leftward shift of the aggregate demand curve.

Question 35

An attempt to lower unemployment with demand-side stimulus policies will cause an increase in the price level,which is illustrated by

A)A leftward shift of the Phillips curve.
B)A leftward shift of the aggregate demand curve.
C)A rightward shift of the aggregate supply curve.
D)A rightward shift of the aggregate demand curve.

Question 36

Only a ________ shift of the ________ curve can reduce unemployment and inflation at the same time.

A)leftward; AS
B)leftward; AD
C)rightward; AS
D)rightward; AD

Question 37

The Phillips curve shows

A)A historical (inverse)relationship between the rate of unemployment and the rate of inflation.
B)A historical (direct)relationship between the rate of unemployment and the rate of inflation.
C)A historical (inverse)relationship between the rate of unemployment and the rate of growth of real GDP.
D)A historical (direct)relationship between the rate of unemployment and the rate of growth of real GDP.

Question 38

Macro economic misery diminished during the first Reagan administration,which means that the Phillips curve

A)Maintained its position despite important changes in the composition of the labor force.
B)Shifted to the left,thereby implying an easing of the trade-off between inflation and unemployment.
C)Shifted to the right,thereby implying that stagflation had become a more acute problem than before.
D)Flattened out,thereby implying that some amount of inflation is consistent with any rate of unemployment.

Question 39

Supply-side policies are designed to achieve

A)A leftward shift in the Phillips curve.
B)A leftward shift of the aggregate supply curve.
C)A lower inflation rate but a higher unemployment rate.
D)A rightward shift in the Phillips curve.

Question 40

Rightward AS shifts will cause

A)Leftward Phillips curve shifts.
B)Rightward Phillips curve shifts.
C)Movements up and to the left along the existing Phillips curve.
D)Movements down and to the right along the existing Phillips curve.

Question 41

Supply-side policies are designed to achieve a

A)Movement up the Phillips curve to a higher inflation rate.
B)Movement down the aggregate supply curve.
C)Lower inflation rate but a higher unemployment rate.
D)Lower inflation rate and a lower unemployment rate.

Question 42

Which of the following theorists believe a decrease in marginal tax rates will increase the incentives to work and invest?

A)Keynesians.
B)Monetarists.
C)Supply-siders.
D)Phillips curvers.

Question 43

Stagflation refers to

A)Inflation resulting from lower unemployment rates.
B)The simultaneous occurrence of higher inflation and higher unemployment rates.
C)Negative inflation rates.
D)Simultaneous decreases in inflation rate and unemployment rate.

Question 44

Which of the following would shift the Phillips curve to the left?

A)Contractionary monetary policy.
B)Contractionary fiscal policy.
C)An increase in import tariffs.
D)A decrease in the regulation of business.

Question 45

Which of the following is the best indication that stagflation is occurring?

A)Rising unemployment rate and falling inflation rate.
B)Rising unemployment rate and rising inflation rate.
C)Falling unemployment rate and falling inflation rate.
D)Falling unemployment rate and rising inflation rate.

Question 46

Which of the following is a goal of supply-side policy?

A)A steeper slope for the Phillips curve.
B)A lower rate of inflation at every unemployment rate.
C)A movement along the Phillips curve.
D)A leftward shift in the aggregate demand curve.

Question 47

According to supply-side theorists,a decrease in marginal tax rates will provide the incentive to

A)Work less.
B)Produce more.
C)Invest less.
D)Reduce regulation.

Question 48

Which of the following is most likely to cause the aggregate supply curve to shift to the right?

A)An increase in the money supply.
B)A one-time tax rebate.
C)A decrease in marginal tax rates.
D)A decrease in international trade.

Question 49

Which of the following is likely to occur because of a decrease in marginal tax rates?

A)An increase in aggregate supply because of an increased incentive to work.
B)A decrease in aggregate supply because people cash in their investments.
C)A decrease in aggregate demand because of an increased incentive to work.
D)A rightward shift in the Phillips curve.

Question 50

A progressive tax system

A)Means higher marginal tax rates at higher income levels.
B)Provides more work incentives than a system with constant marginal tax rates.
C)Promotes more investment than a system with constant marginal tax rates.
D)Means lower marginal tax rates at higher income levels.

Question 51

Which of the following can cause a leftward shift in the aggregate supply curve?

A)A major natural disaster such as hurricane or earthquake.
B)Lower marginal tax rates.
C)A bumper agricultural crop.
D)Trade liberalization.

Question 52

Supply-side tax cuts are designed to

A)Reduce marginal tax rates.
B)Increase the equity of the tax system.
C)Remove as much disposable income as possible from the economy.
D)Shift the Phillips curve to the right.

Question 53

According to supply-side theory,which of the following would cause a leftward shift in the aggregate supply curve?

A)Increasing government regulations.
B)Reducing the minimum wage.
C)Reducing discrimination in employment.
D)Eliminating excessive government regulation.

Question 54

Which of the following would be most likely to result in stagflation?

A)Worker training programs.
B)Growth of human capital.
C)Lower illiteracy rates.
D)Increased government regulations on industry.

Question 55

Which of the following is NOT an example of positive supply-side policy?

A)Higher marginal tax rates.
B)Eliminating excessive government regulation.
C)Improving infrastructure.
D)Trade liberalization.

Question 56

Which of the following causes stagflation?

A)Workers push costs upward and thereby initiate inflation.
B)Wage increases equal productivity increases,thereby setting off inflation.
C)A leftward shift in the aggregate demand curve.
D)A leftward shift in the aggregate supply curve.

Question 57

Which of the following policies is a positive supply-side lever?

A)Human capital investment.
B)Lowering the minimum reserve requirement.
C)Open market operations.
D)Income transfers.

Question 58

Which of the following policies is a positive supply-side lever?

A)Cutting the discount rate.
B)Increased government transfers.
C)Infrastructure development.
D)Increased government regulation of industry.

Question 59

It is likely that people will work less when the marginal tax rate is

A)91 percent.
B)30 percent.
C)26 percent.
D)2 percent.

Question 60

According to supply-side theorists,taxes

A)Alter disposable income only.
B)Alter disposable income and affect the incentives to work only.
C)Alter disposable income and affect the incentives to work and produce.
D)None of the choices are correct.

Question 61

A tax rebate

A)Has the same impact as a decrease in marginal tax rates.
B)Increases the incentive to work and invest.
C)Does not affect aggregate supply.
D)Does not affect aggregate demanD.Since tax rebates are just a one-time windfall to consumers and do not actually change marginal tax rates,their use does not lead to an increase in AS.

Question 62

A decrease in marginal tax rates will cause entrepreneurship to _________ and AS to shift to the _______.

A)increase; left
B)increase; right
C)decrease; left
D)decrease; right

Question 63

In 2003,tax rates on dividends and capital gains were ____,making investment ____.

A)increased; more profitable
B)increased; less profitable
C)reduced; more profitable
D)reduced; less profitable

Question 64

The tax elasticity of supply is

A)Always equal to 1.
B)Always less than 1.
C)The percentage change in quantity supplied divided by the percentage change in tax rates.
D)The percentage change in quantity supplied multiplied by the percentage change in tax rates.

Question 65

A decrease in marginal tax rates will ________ after-tax profits and ________ more investment.

A)increase; encourage
B)increase; discourage
C)decrease; encourage
D)decrease; discourage

Question 66

Supply-side economists advocate

A)A reduction in the incentives to save so that more income will be spent.
B)A reduction in structural unemployment through worker training.
C)The use of minimum wage laws to guarantee fair wages for workers.
D)An increase in transfer payments.

Question 67

If the absolute value of the tax elasticity of supply is 0.5,a tax increase of 10 percent will

A)Increase output by 5 percent and decrease tax revenues.
B)Increase output by 20 percent and decrease tax revenues.
C)Decrease output by 5 percent and increase tax revenues.
D)Decrease output by 5 percent and decrease tax revenues.

Question 68

Supply-siders believe that

A)Tax rebates shift the Phillips curve to the left.
B)Tax rebates have no effect on work effort.
C)Tax rebates provide greater incentives for work,production,and investment.
D)Tax rebates directly affect the supply side of the economy.

Question 69

Supply-side economists favor tax incentives that

A)Encourage saving.
B)Increase the risk incurred by entrepreneurs.
C)Discourage infrastructure development.
D)Reduce the level of investment.

Question 70

If the absolute value of the tax elasticity of supply is 0.8,a tax decrease of 10 percent will

A)Increase output by 8 percent and decrease tax revenues.
B)Increase output by 12.5 percent and increase tax revenues.
C)Decrease output by 12.5 percent and increase tax revenues.
D)Decrease output by 8 percent and increase tax revenues.

Question 71

If the absolute value of the tax elasticity of supply is 8,a tax cut of 0.5 percent should cause the output supplied to

A)Increase by 16 percent.
B)Decrease by 16 percent.
C)Increase by 4 percent.
D)Decrease by 4 percent.

Question 72

A decrease in the marginal tax rates is likely to

A)Decrease investment.
B)Increase entrepreneurship.
C)Decrease work effort.
D)Shift the aggregate supply curve to the left.

Question 73

A decrease in marginal tax rates will cause ________ in investment and a ________ shift in AS.

A)an increase; rightward
B)a decrease; rightward
C)an increase; leftward
D)a decrease; leftward

Question 74

Supply-side economists favor tax incentives that

A)Discourage saving and encourage spending.
B)Discourage infrastructure development.
C)Increase the level of government regulation.
D)Encourage investment.

Question 75

If a tax cut of 3 percent causes the output supplied to increase by 6 percent,the absolute value of the tax elasticity of supply is

A)0.5.
B)2.0.
C)6.0.
D)18.0.

Question 76

If a new tax policy relatively raises the tax rate 2.5 percent but causes the output supplied to fall by 15 percent,the absolute value of the tax elasticity of supply is

A)0.375.
B)1.5.
C)6.0.
D)37.5.

Question 77

In 2001 and 2002,the Bush administration ________ personal and business taxes,which should cause AS to _______.

A)decreased; increase
B)increased; increase
C)decreased; decrease
D)increased; decrease

Question 78

If the absolute value of the tax elasticity of supply is 2.0,a tax increase of 10 percent will decrease output by

A)20 percent and increase tax revenues.
B)20 percent and decrease tax revenues.
C)5 percent and increase tax revenues.
D)5 percent and decrease tax revenues.

Question 79

A reduction in marginal tax rates will yield larger tax revenues if the

A)Absolute value of the tax elasticity of supply is greater than 1.0.
B)Quantity supplied goes up when tax rates go up.
C)Tax revenues before a tax cut are larger than the revenues after the tax cut.
D)Absolute value of the tax elasticity of supply equals 1.0.

Question 80

Investment in human capital

A)Shifts the aggregate supply curve to the left.
B)Increases structural unemployment.
C)Increases labor productivity.
D)Shifts the Phillips curve to the right.