Question 1

Which action will tend to decrease aggregate supply, according to supply-side economists?

Accepted Answer

A) a decrease in government spending 
B) an increase in the stock of capital 
C) a decrease in the money supply 
D) an increase in marginal tax rates

Question 2

In the cost-push model of inflation, increases in nominal-wage rates that exceed increases in the productivity of labor

Accepted Answer

A) increase aggregate supply and the price level in the economy. 
B) increase aggregate supply and decrease the price level in the economy. 
C) decrease aggregate supply and the price level in the economy. 
D) decrease aggregate supply and increase the price level in the economy.

Question 3

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 4

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.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

As distinct from reductions in the price level, reductions in the rate of inflation are referred to as

Accepted Answer

A) dollar depreciation. 
B) stagflation. 
C) deflation. 
D) disinflation.

Question 8

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.

Question 9

The experience of the United States with supply-side policies is that tax cuts affect the economy more on the demand side rather than the supply side.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following allegedly contributed to the stagflation in the mid-1970s?

Accepted Answer

A) appreciation of the dollar 
B) a sharp drop in the prices of farm products 
C) a dramatic increase in oil prices 
D) rising productivity in manufacturing

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.

Question 12

The short-run aggregate supply curve

Accepted Answer

A) is vertical, and the long-run aggregate supply curve is vertical. 
B) slopes upward, and the long-run aggregate supply curve also slopes upward. 
C) slopes upward, but the long-run aggregate supply curve is horizontal. 
D) slopes upward, but the long-run aggregate supply curve is vertical.

Question 13

The short-run Phillips Curve intersects the long-run Phillips Curve at the

Accepted Answer

A) nominal rate of interest. 
B) current rate of inflation. 
C) real interest rate. 
D) natural rate of unemployment.

Question 14

In the short run, output increases in response to a rising price level, but not in the long run.

Accepted Answer

A) True 
 B)False

Question 15

Economist Arthur Laffer argued that Robin Hood and his men would

Accepted Answer

A) be more efficient if they confiscated only the possessions of every fifth traveler through Sherwood Forest. 
B) manage the resources in Sherwood Forest better by establishing checkpoints for travelers entering and exiting. 
C) collect more tax revenue if they collected only a relatively small tax from each traveler through Sherwood Forest. 
D) be more equitable to travelers through Sherwood Forest if they took possessions only from those who could afford it.

Question 16

Rightward and upward shifts of the Phillips Curve in the 1970s and early 1980s were caused by

Accepted Answer

A) adverse shocks to aggregate supply. 
B) adverse shocks to aggregate demand. 
C) an increase in the misery index. 
D) the Vietnam War.

Question 17

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.

Question 18

The short-run aggregate supply curve intersects the long-run aggregate supply curve at

Accepted Answer

A) a constant price level. 
B) the potential level of real output. 
C) the equilibrium level of aggregate demand. 
D) the point where real GDP equals nominal GDP.

Question 19

The traditional Phillips Curve shows the

Accepted Answer

A) direct correlation between the rate of inflation and the unemployment rate. 
B) inverse correlation between the rate of inflation and the rate of unemployment. 
C) direct correlation between the short-run and long-run aggregate supply. 
D) inverse correlation between the short-run and long-run aggregate supply.

Question 20

Inflation in the U.S.economy tends to be

Accepted Answer

A) a finite, one-time event resulting from a shock. 
B) ongoing, as increases in aggregate demand generally exceed the increases in aggregate supply. 
C) a finite, one-time event, as the Fed actively works to eliminate all inflation. 
D) ongoing, as aggregate supply is continually shifting to the left.

Exam 38: Extending the Analysis of Aggregate Supply

Which action will tend to decrease aggregate supply, according to supply-side economists?

In the cost-push model of inflation, increases in nominal-wage rates that exceed increases in the productivity of labor

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.

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

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

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

As distinct from reductions in the price level, reductions in the rate of inflation are referred to as

The natural rate of unemployment

The experience of the United States with supply-side policies is that tax cuts affect the economy more on the demand side rather than the supply side.

Which of the following allegedly contributed to the stagflation in the mid-1970s?

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

The short-run aggregate supply curve

The short-run Phillips Curve intersects the long-run Phillips Curve at the

In the short run, output increases in response to a rising price level, but not in the long run.

Economist Arthur Laffer argued that Robin Hood and his men would

Rightward and upward shifts of the Phillips Curve in the 1970s and early 1980s were caused by

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

The short-run aggregate supply curve intersects the long-run aggregate supply curve at

The traditional Phillips Curve shows the

Inflation in the U.S.economy tends to be