Question 1

The long-run aggregate supply curve stays in a ﬁxed position over time.

Accepted Answer

A) True 
 B)False

Question 2

Adverse aggregate supply shocks would result in

Accepted Answer

A)  a lower rate of inﬂation and a higher rate of unemployment. 
B)  a higher rate of inﬂation and a lower rate of unemployment. 
C)  a lower rate of inﬂation and a lower rate of unemployment. 
D)  a higher rate of inﬂation and a higher rate of unemployment.

Question 3

The diagram is the basis for explaining

Accepted Answer

A)  the traditional Phillips Curve. 
B)  the long-run Phillips Curve. 
C)  how central planning can make full employment and price level stability compatible goals. 
D)  new policies for eliminating unemployment.

Question 4

A rightward shift of the traditional Phillips Curve would suggest that

Accepted Answer

A)  the productivity of labor increased. 
B)  the rate of inﬂation is now higher at each rate of unemployment. 
C)  cost-push inﬂation decreased. 
D)  the rate of inﬂation is now lower at each rate of unemployment.

Question 5

The last few years of the 1990s in the United States were characterized by

Accepted Answer

A)  low inﬂation and high unemployment. 
B)  stagﬂation. 
C)  low inﬂation and low unemployment. 
D)  a high misery index.

Question 6

What is the Phillips curve? What concept does it illustrate?

Accepted Answer

The answer of What is the Phillips curve? What concept...

Question 7

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 8

Evaluate the Laffer curve from today's perspective.

Accepted Answer

The answer of Evaluate the Laffer curve from today's perspective....

Question 9

Accepted Answer

A)  lower nominal wages and a shift in the short-run aggregate supply curve from A $$\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 }$$ 
B)  higher nominal wages and a shift in the short-run aggregate supply curve from A $$\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } \text {. }$$ 
C)  lower nominal wages and a movement from equilibrium point $$X _ { 1 }$$ to equilibrium point
$$x _ { 2 }$$ 
D)  higher nominal wages and a movement from equilibrium point $$x _ { 1 }$$ to equilibrium point
$$x _ { 2 }$$

Question 10

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inﬂation rate of 3 percent. Should inﬂation actually be 6 percent,
Then

Accepted Answer

A)  nominal wages fall by 5 percent. 
B)  real wages fall by 6 percent. 
C)  nominal wages fall by 1 percent. 
D)  real wages fall by 1 percent.

Question 11

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

Accepted Answer

A)  demand-pull inﬂation would involve a rightward shift of curve A, followed by a leftward shift of curve C. 
B)  cost-push inﬂation would involve a rightward shift of curve A, followed by a leftward shift of curve C. 
C)  recession would involve a leftward shift of curve A, followed by a leftward shift of curve C. 
D)  recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C.

Question 12

When the economy is experiencing cost-push inﬂation, an inﬂationary spiral is likely to result when
the government adopts a hands-off policy.

Accepted Answer

A) True 
 B)False

Question 13

The Laffer Curve indicates that lower tax rates will increase output.

Accepted Answer

A) True 
 B)False

Question 14

The long run aggregate supply curve is upward-sloping because real wages eventually change by
the same amount as changes in the price level.

Accepted Answer

A) True 
 B)False

Question 15

Other things equal, a decrease in the price level will

Accepted Answer

A)  shift the aggregate supply curve to the left. 
B)  shift the aggregate demand curve to the left. 
C)  cause a movement up a short-run aggregate supply curve. 
D)  cause a movement down an aggregate supply curve.

Question 16

Refer to the diagram. Assume that nominal wages initially are set based on the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the short run, costpush inflation could best be shown as

Accepted Answer

A)  a leftward shift of aggregate supply from A $\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 3 }$ 
B)  a move from b to c on A $\mathrm { AS } _ { 2 }.$ 
C)  a move from b to c to d. 
D)  a move from b to f to d.

Question 17

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

Accepted Answer

A)  demand-pull inﬂation would involve a rightward shift of curve A, followed by a rightward shift of curve C. 
B)  cost-push inﬂation would involve a rightward shift of curve A, followed by a leftward shift of curve C. 
C)  recession would involve a leftward shift of curve A, followed by leftward shifts of curves C and D. 
D)  recession could be caused by either a leftward shift of curve A or a leftward shift of curve C.

Question 18

Stagﬂation's demise during the 1980s resulted in a

Accepted Answer

A)  movement along the Phillips Curve toward less unemployment. 
B)  movement along the Phillips Curve toward more inﬂation. 
C)  shift in the Phillips Curve to the left. 
D)  shift in the Phillips Curve to the right.

Question 19

Accepted Answer

A)  $A S _ { 2 }$ 
B)  $A S _ {1 }$ 
C)  a vertical line at $Q _ { f } .$ 
D)  a vertical line at $Q _ { 1 }$

Question 20

Which is a basic proposition of supply-side economics?

Accepted Answer

A)  The Federal Reserve should target the federal funds rate rather than the money supply. 
B)  Tax-hikes on business reduce productivity and output and reduce aggregate supply. 
C)  Low marginal tax rates reduce incentives to work, saving, and investment. 
D)  Transfer payments increase incentives to work.

Exam 18: Extending the Analysis of Aggregate Supply

The long-run aggregate supply curve stays in a ﬁxed position over time.

Adverse aggregate supply shocks would result in

The diagram is the basis for explaining

A rightward shift of the traditional Phillips Curve would suggest that

The last few years of the 1990s in the United States were characterized by

What is the Phillips curve? What concept does it illustrate?

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

Evaluate the Laffer curve from today's perspective.

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inﬂation rate of 3 percent. Should inﬂation actually be 6 percent, Then

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

When the economy is experiencing cost-push inﬂation, an inﬂationary spiral is likely to result when the government adopts a hands-off policy.

The Laffer Curve indicates that lower tax rates will increase output.

The long run aggregate supply curve is upward-sloping because real wages eventually change by the same amount as changes in the price level.

Other things equal, a decrease in the price level will

Refer to the diagram and assume that prices and wages are ﬂexible both upward and downward in the economy. In the extended AD-AS model,

Stagﬂation's demise during the 1980s resulted in a

$A) A S _ { 2 } B) A S _ {1 } C) a vertical line at Q _ { f } . D) a vertical line at Q _ { 1 }$

Which is a basic proposition of supply-side economics?