Question 1

Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 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.E) A) and B)
F) A) and D)

Question 2

Refer to the graph given below. 3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur? A) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B4. B) Real wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C1 to B1. C) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3. D) Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to C2." class="answers-bank-image d-inline" rel="preload" > Suppose an economy moves from point B3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Accepted Answer

A)  Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B4.
B)  Real wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C1 to B1.
C)  Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to B3.
D)  Nominal wages will rise, and profits will decrease, thereby negating the short-run stimulus to production and employment so that the economy moves from C3 to C2.E) A) and B)
F) None of the above

Question 3

2to C2? A) a tight monetary policy B) a contractionary fiscal policy C) an increase in aggregate demand D) an increase in aggregate supply" class="answers-bank-image d-inline" rel="preload" > Refer to the above graph.What events would tend to move the economy from point B2to C2?

Accepted Answer

A)  a tight monetary policy
B)  a contractionary fiscal policy
C)  an increase in aggregate demand
D)  an increase in aggregate supplyE) A) and D)
F) C) and D)

Question 4

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

Accepted Answer

A)  demand more rapidly than aggregate supply.
B)  demand less rapidly than aggregate supply.
C)  supply more rapidly than aggregate demand.
D)  supply less rapidly than aggregate demand.E) A) and B)
F) B) and C)

Question 5

The long-run Phillips Curve is vertical at:

Accepted Answer

A)  price level.
B)  the natural rate of unemployment.
C)  every level of real GDP.
D)  the rate of maximum taxation.E) B) and C)
F) All of the above

Question 6

1.An increase in aggregate demand will tend to: A) temporarily shift the economy to point B2. B) temporarily shift the economy to point C1. C) permanently shift the economy to point C1. D) have no effect in shifting the economy from point B1." class="answers-bank-image d-inline" rel="preload" > Refer to the above graph.Assume the economy is at the initial position of B1.An increase in aggregate demand will tend to:

Accepted Answer

A)  temporarily shift the economy to point B2.
B)  temporarily shift the economy to point C1.
C)  permanently shift the economy to point C1.
D)  have no effect in shifting the economy from point B1.E) B) and C)
F) A) and C)

Question 7

Refer to the above diagram for a specific economy.An increase in aggregate demand will:

Accepted Answer

A)  shift this curve to the right.
B)  shift this curve to the left.
C)  move this economy southeast along the curve.
D)  move this economy northwest along the curve.E) A) and B)
F) C) and D)

Question 8

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 9

Refer to the graph below.Assume that the economy is in initial equilibrium where AS1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2, then it is most likely that: 1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2, then it is most likely that:   A) AD2 will shift to AD1. B) AS2 will shift to AS1. C) AS2 will shift to AS3. D) AS2 will shift to AS3 and AD2 will shift to AD1." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  AD2 will shift to AD1.
B)  AS2 will shift to AS1.
C)  AS2 will shift to AS3.
D)  AS2 will shift to AS3 and AD2 will shift to AD1.E) All of the above
F) B) and C)

Question 10

Refer to the above diagram.Supply-side economists believe that tax rates are:

Accepted Answer

A)  such that an increase in tax rates will increase tax revenues.
B)  at some level below b.
C)  at some level above b.
D)  at d.E) All of the above
F) None of the above

Question 11

The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

Accepted Answer

A) True 
 B)False

Question 12

The Phillips Curve is based on the idea that with a constant short-run aggregate supply curve, a greater increase in aggregate demand is associated with a:

Accepted Answer

A)  smaller increase in price level.
B)  smaller increase in nominal wage rates.
C)  greater increase in the unemployment rate.
D)  greater increase in the rate of inflation.E) B) and D)
F) C) and D)

Question 13

The equilibrium price level and level of real output occur where:

Accepted Answer

A)  real output is at its highest possible level.
B)  exports equal imports.
C)  price is at its lowest level.
D)  the aggregate demand and supply curves intersect.E) C) and D)
F) None of the above

Question 14

Other things equal, an increase in the price level will:

Accepted Answer

A)  shift the short run aggregate supply curve to the right.
B)  shift the aggregate demand curve to the right.
C)  cause a movement up along a short-run aggregate supply curve.
D)  cause a movement down a short run aggregate supply curve.E) All of the above
F) B) and C)

Question 15

1.Which of the following movements is consistent with The Phillips Curve? A) the movement from B1 to B2 B) the movement from B1 to C1 C) the movement from C1 to B2 D) the movement from B2 to B1" class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram and assume the economy is initially at point b1.Which of the following movements is consistent with The Phillips Curve?

Accepted Answer

A)  the movement from B1 to B2
B)  the movement from B1 to C1
C)  the movement from C1 to B2
D)  the movement from B2 to B1E) A) and C)
F) B) and C)

Question 16

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

Accepted Answer

A) True 
 B)False

Question 17

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.E) C) and D)
F) None of the above

Question 18

The short-run aggregate supply curve:

Accepted Answer

A)  Becomes steeper the further into the future it goes and eventually becomes vertical.
B)  Becomes flatter the further into the future it goes and eventually becomes horizontal.
C)  Becomes steeper the further into the future it goes, but never becomes vertical.
D)  Becomes flatter the further into the future it goes, but never becomes horizontal.E) A) and B)
F) None of the above

Question 19

An increase in inflation is likely to occur when government:

Accepted Answer

A)  counters cost-push inflation with a stimulative fiscal policy or monetary policy.
B)  adopts a hands-off approach to cost-push inflation.
C)  increases aggregate supply by lowering nominal wages.
D)  increases aggregate demand by raising nominal wages.E) A) and B)
F) B) and D)

Question 20

Economists often recommend active monetary policy, and perhaps fiscal policy, to counteract the recessions.

Accepted Answer

A) True 
 B)False

Exam 16: B: Long-Run Macroeconomic Adjustments

Refer to the above diagram and assume the economy is initially at point b₁.Which of the following movements is consistent with The Phillips Curve?

Correct Answer
verified

The Phillips Curve is based on the idea that with a constant short-run aggregate supply curve, a greater increase in aggregate demand is associated with a:

Correct Answer
verified

An increase in inflation is likely to occur when government:

Correct Answer
verified

Other things equal, an increase in the price level will:

Correct Answer
verified

The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

Correct Answer
verified

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

Correct Answer
verified

Adverse aggregate supply shocks would result in:

Correct Answer
verified

Economists often recommend active monetary policy, and perhaps fiscal policy, to counteract the recessions.

Correct Answer
verified

The long-run Phillips Curve is vertical at:

Correct Answer
verified

Refer to the above diagram for a specific economy.An increase in aggregate demand will:

Correct Answer
verified

Refer to the above graph.What events would tend to move the economy from point B₂to C₂?

Correct Answer
verified

Refer to the above graph.Assume the economy is at the initial position of B₁.An increase in aggregate demand will tend to:

Correct Answer
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Correct Answer
verified

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

Correct Answer
verified

The equilibrium price level and level of real output occur where:

Correct Answer
verified

The long-run aggregate supply curve is vertical.

Correct Answer
verified

Refer to the graph given below. Suppose an economy moves from point B₃ to point C₃ because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Correct Answer
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Refer to the above diagram.Supply-side economists believe that tax rates are:

Correct Answer
verified

The short-run aggregate supply curve:

Correct Answer
verified

Refer to the graph below.Assume that the economy is in initial equilibrium where AS₁ intersects AD₁.Then a supply shock occurs that shifts AS₁ to AS₂.If the government counters with an expansionary fiscal policy that shifts AD₁ to AD₂, then it is most likely that:

Correct Answer
verified

Exam 16: B: Long-Run Macroeconomic Adjustments

Refer to the above diagram and assume the economy is initially at point b1.Which of the following movements is consistent with The Phillips Curve?

Correct AnswerverifiedShow Answer

The Phillips Curve is based on the idea that with a constant short-run aggregate supply curve, a greater increase in aggregate demand is associated with a:

Correct AnswerverifiedShow Answer

An increase in inflation is likely to occur when government:

Correct AnswerverifiedShow Answer

Other things equal, an increase in the price level will:

Correct AnswerverifiedShow Answer

The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

Correct AnswerverifiedShow Answer

Many economists doubt the proposition that supply-side tax cuts increase aggregate:

Correct AnswerverifiedShow Answer

Adverse aggregate supply shocks would result in:

Correct AnswerverifiedShow Answer

Economists often recommend active monetary policy, and perhaps fiscal policy, to counteract the recessions.

Correct AnswerverifiedShow Answer

The long-run Phillips Curve is vertical at:

Correct AnswerverifiedShow Answer

Refer to the above diagram for a specific economy.An increase in aggregate demand will:

Correct AnswerverifiedShow Answer

Refer to the above graph.What events would tend to move the economy from point B2to C2?

Correct AnswerverifiedShow Answer

Refer to the above graph.Assume the economy is at the initial position of B1.An increase in aggregate demand will tend to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

Correct AnswerverifiedShow Answer

The equilibrium price level and level of real output occur where:

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical.

Correct AnswerverifiedShow Answer

Refer to the graph given below. Suppose an economy moves from point B3 to point C3 because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Correct AnswerverifiedShow Answer

Refer to the above diagram.Supply-side economists believe that tax rates are:

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve:

Correct AnswerverifiedShow Answer

Refer to the graph below.Assume that the economy is in initial equilibrium where AS1 intersects AD1.Then a supply shock occurs that shifts AS1 to AS2.If the government counters with an expansionary fiscal policy that shifts AD1 to AD2, then it is most likely that:

Correct AnswerverifiedShow Answer

Refer to the above diagram and assume the economy is initially at point b₁.Which of the following movements is consistent with The Phillips Curve?

Correct Answer
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Correct Answer
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Refer to the above graph.What events would tend to move the economy from point B₂to C₂?

Correct Answer
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Refer to the above graph.Assume the economy is at the initial position of B₁.An increase in aggregate demand will tend to:

Correct Answer
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Correct Answer
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Correct Answer
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Refer to the graph given below. Suppose an economy moves from point B₃ to point C₃ because of an increase in aggregate demand.Given the scenario, which of the following is likely to occur?

Correct Answer
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Correct Answer
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Correct Answer
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Refer to the graph below.Assume that the economy is in initial equilibrium where AS₁ intersects AD₁.Then a supply shock occurs that shifts AS₁ to AS₂.If the government counters with an expansionary fiscal policy that shifts AD₁ to AD₂, then it is most likely that:

Correct Answer
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